1

1.0 Introduction:

All over the world, the dimension of banking has been changing rapidly due to

deregulation, technological innovation and globalization. Banking in Bangladesh has to

keep pace with the global change. Now banks must compete in the market place both

with local institutions as well as foreign ones. To survive and thrive in such a competitive

banking world, two important requirements are: development of financial infrastructure

by the central bank and development of “ Professionalism “ in the sense of developing an

appropriate manpower structure and its expertise and experience.

1.1What is banking?

The Jews in Jerusalem introduced a kind of banking in the form of money lending

before the birth of Christ. The word 'bank' was probably derived from the word 'bench' as

during ancient time Jews used to do money -lending business sitting on long benches.

First modern banking was introduced in 1668 in Stockholm as 'Svingss Pis Bank'

which opened up a new era of banking activities throughout the European Mainland.

In the South Asian region, early banking system was introduced by the Afgan

traders popularly known as Kabuliwallas. Muslim businessmen from Kabul, Afganistan

came to India and started money-lending business in exchange of interest sometime in

1312 A.D. They were known as 'Kabuliawallas'.

The word “Banking” has been defined to mean the accepting, for the purpose of

lending or investing, of deposits of money from the public, repayable on demand or

otherwise, and withdrawable by cheque, draft, order or otherwise. The term “Banking”

has also been defined as:

U S A: Act of Congress defines banking, “as the business of dealing in credit.”

Japan: Act of 1927 in Japan defines as “institutions, which carry on operations of

giving as well as receiving credit”.

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1.2 Banking in our country:

Banks play an important role in the economy of the country. After liberation except the

foreign banks all banks were nationalized. These banks were merged and grouped into six

commercial banks. Of the total six commercial banks Uttara and Pubali were transferred

to private sector from 1985. Now there are four nationalized commercial banks namely

Agrani, Janata, Rupali, and Sonali Bank. There are four specialized banks in our country.

In addition to this 49 private commercial banks are in our country at present. Of these 49

private commercial banks there are 12 foreign banks, 28 private banks incorporated in

our country except Islamic banks and 4 Islamic banks. In 2005, these banks were

operating their banking activities through 6038 (June of 2000) branches. The bank and

the other financial institutions have become dynamic after taking initiatives to reform the

banking sector by the finance minister of Bangladesh. The basic issues are decreasing the

amount of loan and increasing paid up capital through decreasing the interest rate of

deposit and investment, changing the principles of rescheduling the bank.

1.3 History of the City Bank Limited (CBL):

The City Bank Limited (CBL) is the first private sector Bank in Bangladesh. The

Bank has been operating since 1983 with an authorized capital of Tk. 1.75 Billion under

the entrepreneurship of twelve prominent & leading businessman of the country. The

noble intention behind starting this Bank was to bring about qualitative changes in the

area of Banking and Financial management. Today, The City Bank serves it's customers

at home & abroad with 77 branches spread over the country & about three hundred

oversea correspondences covering all the major cities and business center of the world.

1.4 Shareholders information:

The City Bank Limited was incorporated on 14.3.1983 as a Public Ltd. Company

Under The Companies Act- 1913. It got Certificate Of Commencement Of Business On

20.3.1983 and formally started banking operation from 27.3.1983.

Authorized Capital : Tk. 1.75 Billion

Total Number Of Share : 17,500,000

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Market Lot Of Share : Five

Face Value Per Share : Tk. 100/-

At present, there are about 5,678 Shareholders approximately.

1.5 Product/ service offering of CBL:

The services encompass wide diversified areas of trade, commerce & industry that

tailored to the specific needs of the customers and are distinguished by an exceptional

level of prompt and personal attention. Over the years The City Bank Limited has

expanded the spectrums of its services. The extensive and ever growing domestic

network provides and carries various products and services to the doorsteps of millions.

The City Bank Limited (CBL) engages in wide range of activities from small

scale lending to large industrial project financing. CBL involves export and import

financing. It involves other very many services. Its’ range of activities at a glance is as

follows:

Deposit Loans and advances Foreign

Exchange

Other services

Current account

Savings account

Short term deposits

Fixed deposit

Different Scheme

Non resident foreign

currency deposit

account

Resident foreign

currency account

Term loan

Working capital loan

Cash credit

Overdraft

Packing credit & trust

receipt

House building finance

Import finance

Consumer Credit

Transport Loan

Lease financing

Export L/C

Import L/C

Foreign

Remittance

Safe custody (locker)

Travelers Cheque

Demand draft

Pay order

Telegraphic transfer

Selling and buying

foreign currency

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The City Bank Limited (CBL) has already introduced some new Banking products like

duel currency Credit Cards, ATM and Online services which has created attraction

among the clients. The Bank is going to introduce real time Internet, SMS and Phone

Banking systems with all modern delivery channels at an early date.

For significant performance, The Bank has earned national & international

recognition. The City Bank Limited (CBL) was one of the 12 Banks Of Bangladesh

among the 500 Banks in Asia for it's asset, deposit & profit as evaluated by "ASIA

WEEK" in the year 2000. Other than that, The City Bank Limited (CBL) received the

"Top Ten Company" award from the Prime Minister Of The People's Republic Of

Bangladesh in the year 1992-93.

1.6 Vision & Mission of CBL

Corporate Vision

To be the leading bank in the country with best practices and highest social commitment.

Corporate Mission

To contribute to the socio economic development of the country

To attain highest level of customer satisfaction through extension of services by

dedicated and motivated team of professional team of professionals

To maintain continuous growth of market share ensuring quality

To maximize bank’s profits by ensuring its steady growth

To maintain the high moral and ethical standards

To ensure participative management system and empowerment of Human

Resources

To nurture and enabling environment where innovativeness and performance is

rewarded.

1.7 Operational Network Organogram:

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MANAGEMENT HIERARCHY OF CITY BANK LIMITED

CHAIRMAN

VICE CHAIRMAN

BOARD OF DIRECTORS

MANAGING DIRECTOR (MD)

DEPUTY MANAGING DIRECTOR (DMD)

SENIOR EXECUTIVE VICE PRESIDENT (SEVP)

EXECUTIVE VICE PRESIDENT (EVP)

SENIOR VICE PRESIDENT (SVP)

VICE PRESIDENT (VP)

FIRST VICE PRESIDENT (FVP)

SENIOR ASSISTANT VICE PRESIDENT (SAVP)

ASSISTANT VICE PRESIDENT (AVP)

SENIOR EXECUTIVE OFFICER (SEV)

EXECUTIVE OFFICER (EO)

SENIOR OFFICER (SO)

OFFICER

JUNIOR OFFICER

The City Bank Ltd. has 203 executives, 1022 officers and 604 staff. CBL has got

seventy-seven (77) branches. Out of 77 branches, 27 branches have online services.

7

Executives &

Officers Level

Management Level

1.8 Vision for the Future:

Maintaining the existing growth, Management expects, the Bank will show good business

profile in 2006 .The Bank reorganized its structural set up, Asset Liability Management

(ALM) put in place, focused on various risk management, corporate governance and

inculcation of corporate culture within the Bank. Review of emoluments for the

employees based on market demand, providing performance bonus to the employees,

introduction of Best Managers and Best Employees award would certainly put the Bank

on a elevated position in the market. The Bank implemented Ethical Guide Lines for the

employees. For improved working regulations Internal Control and Compliance division

was setup. IT infrastructure development, extending online banking facility to more

branches, establishing ATM at important places of the country, greater SME financing

and improved personal banking facilities etc. are on the card. The Bank is aiming to be

the leading financial institution in the country.

To become the leading private sector bank in the country the Bank has to grow at a faster

pace in this competitive market. To achieve the prime position, other than online banking

facility covering with most of our important branches all over the country, dual currency

CITYCARD operation, POS, SME loans we are in the process of implementing

Electronic Delivery channels: ATM, Debit Card etc.

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9

2.0 Description of the Internship:

During my internship I worked according to the following routine:

Department/ Section Duration

General Banking 01/08/07 to 15/09/07

Loan & Advance 16/09/07 to 30/09/07

Foreign Exchange 01/10/07 to 30/10/07

I spent 40 hours per week at work on internship project. I tried to participate directly or

indirectly in the daily operational activities of the branch.

2.1 Specific responsibilities of the Jobs:

As an intern, I have no specific job responsibility in the branch. I observed

activities of almost all departments. But I carry out some responsibilities also:

In the general banking department, I helped the clients to fill up the

account open form.

I gave information about different scheme of CBL that are offered.

I involved directly preparing the Bangladesh Bank’s Returns of Foreign

Trade & foreign exchange transactions for the month of July of the

Branch.

I prepared the IBEA (Inter Branch Exchange Advice) for the Head office.

I prepared some vouchers for the Import L/C.

I wrote down PAD (Payment Against Document) register in the Import

L/C Section.

I wrote down Liability and Cash Margin Register for PAD (Payment

Against Document) in the Import L/C Section

These are some responsibilities that I carried in the New Market Branch.

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2.2 Different aspect of job performance:

At first I started my internship from General Banking Department. I observed activities of

different sections, namely Account Opening section, Cheque Book Issue and Dispatch

section, Remittance Section, Clearing and Bills Section, Accounts Section, Cash Section.

Then I worked with Loan & Advance department. I got knowledge about various

aspects of loans. I also knew how the credit officer analyses credit proposal and disburse

credit if proposal is sound. I knew about different kinds of loan like secured, unsecured,

hypo, pledge, cash credit etc.

At the end I worked in Foreign Exchange department. In this department, I

facilitated the official for receiving and preparing the L/C (letter of Credit) document. I

got knowledge about L/C, PAD, LTR, LIM, ECC, and PCC, bill Purchase, F.C account

etc.

2.3 Critical Observation:

This is a well-established statement that practical situations always differ from

theoretical explanation. During the three months internship program at New Market

Branch almost all the desks I have been observed. And I have found theory deviates from

the practice more or less though three months are not enough time to find out all the

discrepancy between theory and practice.

Among all experiences some noticeable observations are described below:

Customer service is not fast because of few computers in this branch.

Processing of cheque and account open take long time. Sometimes it takes

more than an hour for processing.

The bank personnel and officials are very busy with their occupational

activities. So, it is little difficult for them to complete their work in schedule

time.

There are few computers in this branch. So the officials have to share the

computers. It slow downs the work performance.

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Some of the officers and staff are not efficient.

CBL takes long time to disburse the big loan.

Information about old and new clients is not upto date.

Other then these, the officers were mostly courteous, friendly in nature and eager

to help despite the tremendous workload. As a private bank, CBL Bank is trying it’s best

to extend their service to the public.

2.4 Recommendation:

Branch should intensify its quality of client services: Branch must be careful

about the quality of its service. To keep the customers in the branch, proper value

should be given to them while they are in the bank.

Add new features: CBL should diversify its banking service and add new

features in its service so that it can attract customers from all groups of people.

Information about client: It is important to keep close personal and extra

friendly relationship with client for obtaining first hand information, as early as

possible.

More power to branch manager: For reducing loan-processing time branch

manager should be given more power to sanction loan.

Proper training: Proper training must need to improve the efficiency of

employees.

Unique Product: CBL should provide any unique service that can attract new

customer.

Information system should be developed: Information system with in branch

must be developed. All the branches must be online. So that it can communicate

with other branches very quickly.

Insurance Facilities: CBL should give more Insurance facilities to their clients.

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3.0 Summary:

The report has been prepared as a reflection of my activities and achievement during the

internship program, which underwent at New Market Branch in the City Bank Ltd. It is a

descriptive type of study. I interviewed almost all the employees. For this is purpose, I

made a questionnaire.

General banking operation areas as follows: all kinds of deposits like Savings,

Current, and Short term deposits, Fixed deposit, different Scheme, cash remittance etc.

Bank loans are greatly emphasized and we can call all this as the “Heart “ of the

bank, because they are a major source of bank’s income. They are very important to the

economy as a whole because the expansion and condition of the bank loan affect the level

of business activity through their effect on the Nation’s money supply. The banks

extended its credit facilities to different sectors to diversify it’s credit portfolio in

compliance with credit policies of Bangladesh Bank as given: Industrial, Housing

(Commercial), Work order, Working Capital for traders, Manufacturing processing plants

and other business.

Import finance is given by the way of opening irrevocable documentary letter of

credit granting post import finance such as PAD, LIM, LTR etc. Pre-shipment and post -

shipment export finance is rendered by way of negotiation/purchase/discount of export

bills, packing credit, Back-to-Back L/C etc. Bank remits money of the clients both with

in the country and outside the countries by telex transfer, telephonic transfers, pay order,

demand draft etc.

During my internship, I found that the New Market Branch provides all kinds of

commercial banking services to its customers.

3.1 Description of the Project

Internship program is attempt to orient the students with the real world situation,

give the students to personally observe the complexity and find out the various ways to

solve different problems applying the theoretical thought in the department.

14

The Internship program designed to provide the M.B.A student with an

opportunity to obtain on the job training, aim at bringing together the two facts of

learning the theoretical and practical.

3.1.1 Objective of the Project

The objective of the Internship is to familiarize with the real life banking and to

compare it with the books that we have learnt.

The main objectives of the practical orientation are as follows:

To understand the role of banks in Loans and Advances.

To familiarize with practical banking activities of CBL.

To know the General Banking practices of CBL.

To know how CBL does deal with Foreign Exchange.

3.1.2 Type of study: It is a descriptive type of study.

3.1.3 Methodology of the Study:

The Framework Of methodology is illustrated below:

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Concept Building Staffs InterviewLiterature Review

Desk Work

Setting Research Objectives

Data Analysis

Questionnaire Development & Administration

Report Writing

Data Collection

3.1.4 Sources of Information

Data have been collected from two sources. Sources of Information are as follows:

(1) The Primary Sources of Data:

Face to face interview with the bank officers and staff.

(2) The Secondary Sources of data:

Annual Report of the City Bank Limited.

Different publications of the City Bank Limited.

Different Brochure of the City Bank Limited

File study of different sections

Different Textbooks.

Reading Material of Bangladesh Institute of Bank Management

(BIBM) etc.

3.1.5 Organizational scope:

As the study has been concentrated on “Product Mix of The City Bank Limited”

so in term of organization the study has covered the product of General Banking, Foreign

Exchange, Loan and Advance department offered by .the City Bank Limited In this

report, I did not cover the Islamic Banking product of the City Bank Limited

3.1.6 Limitations of the Study:

During my internship I was able to learn a lot of things but still it was not enough.

There were some limitations that I can’t ignore. The main limitations were:

Time Constraint: First of all the duration of our orientation was not enough

to cover all aspects of banking. So some desks were visited in a very short

time..

Business Secrecy: Some time required data are not available because of

security and business policy.

Budget Constraint: There is no sufficient fund to prepare the paper.

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4.0 Product Mix of The City Bank Limited (CBL):

A product mix is the set of all products and items that a particular seller offers for sale. A

company’s product mix has certain width, length, depth, and consistency. These concepts

can be applied in case of The City Bank Limited (CBL) in the following way:

4.1 Width of product of CBL: The width of a product mix refers to how many different

product lines the company carries.

Table: 1 Shows CBL product-mix width of three lines:

General Banking

Foreign Exchange

Loan and Advance

4.2 Length of product of CBL: The length of a product mix refers to the total number

of items in the mix.

Table:1 Shows CBL product-mix Length of 12. We can also find the average length of a

line. This is obtained by dividing the total length (here 12) by the number of lines (here

3), or an average product length of (Here, 12/3) 4.

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Current Account

Savings Account

Fixed Deposit

12 months

1 Month/ 2 Months / 3 Months

4-11 months

Short Term Deposit

Public Deposit

Bank Deposit

Other than Bank Deposit Priv

ate Deposit

Deposit Scheme

Three Stage scheme

Monthly Benefit scheme

Junior saving Scheme

Lakhopoti saving Scheme

Marriage Savings Scheme

Import L/C

LI

M

Payment Against Documents (PAD)

LTR

Export L/C

Inland or Local L/C

Back-to-Back L/C

Foreign L/C

Packing Cash Credit

Export cash Credit

Export Development Fund

Bil

ls P

urch

ase

Foreign remittance

Private F C

Traveler’s cheque

F.C Account

NFCD

RFCD

Mid Term

Consumer Credit Scheme

Commercial House Building Loan

Tran

spor

t

Loa

n

Lea

se F

inan

cing

Long Term

Indu

stri

al lo

an

SM

E L

oan

Installment

Overdraft

Revolving

Work Order

Others

SOD (FO)

Pro

duct

-Mix

Wid

th

Pro

duct

- L

ine

Len

gth

Loan & Advance

Foreign Exchange

General Banking

Tab

le:1

Pro

duc

t-

Mi

x

Wi

dth

and

Pro

duc

t-

Lin

e

Len

gth

for

The

Cit

y

Ban

k

Ltd.

Pro

duc

ts

Credit Card

City Card

4.3 Depth of product of CBL: The depth of a product mix refers to how many variants

are offered of each product in the line.

Table:2 Shows CBL product-mix depth of General Banking is

Current Account :1

Fixed Deposit :3

Short Term :3

Deposit Scheme :5

City Card :1

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TaBle:2 Product-Mix Width and Product-Line Length for General Banking Products

Pro

duct

-

Lin

e L

engt

h

Deposit Scheme Three

Stage scheme

Monthly Benefit scheme

Junior saving Scheme

Lakhopoti saving Scheme

Marriage Savings Scheme

Pro

duct

-Mix

Wid

thCurrent Account

Savings Account

Fixed Deposit

12 months

1 Month/ 2 Months / 3 Months

4--11 months

Short Term Deposit

Public Deposit

Bank Deposit

Other than Bank Deposit Privat

e Deposit

Cit

y C

ard

Cre

dit

C

ard

Table:2 Shows CBL product-mix depth of Foreign Exchange is

Import L/C : 2

Export L/C : 6

Foreign Remittance: 4

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Export L/C

Inland or Local L/C

Back-to-Back L/C

Foreign L/C

Packing Cash Credit

Export cash Credit

Export Development Fund

Bil

ls P

urch

ase

Foreign Remittance

Private F C

Traveler’s cheque

F.C Account

NFCD

RFCD

Import L/C

LI

M

Payment Against Documents (PAD)

LTR

Pro

duct

-Mix

Wid

th

Pro

duct

- L

ine

Len

gth

Tab

le:4

Pro

duc

t-

Mi

x

Wi

dth

and

Pro

duc

t-

Lin

e

Len

gth

for

For

eig

n

Exc

han

ge

Pro

duc

t

Table:1 Shows CBL product-mix depth of Loan and Advance is

Mid Term :3

Long Term :2

SME Loan :5

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25

Mid Term

Consumer Credit Scheme

Trans

port

LoanLea

se F

inan

cing

Commercial House Building Loan

Long Term

Indu

stri

al lo

an

SM

E

Installment

Overdraft

Work Order

Others

SOD (FO)

Revolving

Pro

duct

-Mix

Wid

th

Pro

duct

- L

ine

Len

gth

Tab

le:5

Pro

duc

t-

Mi

x

Wi

dth

and

Pro

duc

t-

Lin

e

Len

gth

For

Loa

n &

Ad

van

ce

Pro

duc

t

4.4 Consistency of the product of CBL: The consistency of the product mix refers to

how closely relate the various product lines are in end use, production requirements,

distribution channels or some other way.

CBL product lines are highly consistent in terms of:

End Use: This means customers are using all the offerings of CBL. There is no further

processing or reselling of CBL offering.

Example: FDR, MBS, TSSS etc.

Production Requirement: All the production requirements (Documentation) of CBL are

same. Example: Papers requirement for Account open, loan sanction etc.

Distribution Channels: This means all products of CBL are offered through all its

Branches. All of the offerings (services/products) are same.

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5.1 Introduction:

During my Internship, I was placed in New Market Branch of The City Bank

Limited (CBL). First, I have completed General Banking in this branch. General Banking

of this branch consists of different sections, namely Account Opening section, Cheque

Book Issue and Dispatch section, Remittance Section, Clearing and Bills Section,

Accounts Section, Cash Section.

The City Bank Limited (CBL) offers different types of products or accounts under

General Banking Department.

According to the Law and Practice, the Banker – Customer relation arises only

from contract between these two. And opening of Account is the contract that establishes

the relationship between a banker and a customer. So this section plays a very important

role in attracting customer and therefore should be handled with extra care.

According to the International code of conduct banks should maintain following

steps regarding their customers:

Banks will act fairly and reasonably in all their dealings with their

customers,

Banks will help customers understand how their accounts operate and

seek to give them a good understanding of banking services,

Banks should maintain confidence in the security and integrity of

banking and payment systems.

General Banking consists of the seven sections in the branch. These areas follows_

1. Cash section.

2. Accounting opening/Customer service/Front Desk function.

3. Check clearing section.

4. Remittance section.

5. Computer section.

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6. Financial controlling and account division

7. Other services.

5.2. Cash section:

Cash department is the most vital and sensitive department of the branch that deals with

all kinds of transaction in cash receipts and payments are made through this department.

This department starts the day with cash in vault. Everyday some cash are transferred to

the cash officer from the vault. This amount of cash is called the opening cash balance.

All the day a bank makes some cash payments and takes some cash receipts. Net balance/

figure of these receipts and payments are added to the opening cash balance. This figure

in called the closing balance. This closing balance is balance is the then added to the

vault and this is the final cash balance figure for the bank at the end of the day.

5.2.1 Function of cash department:

Main Cash

The cash section is engaged in taking deposit form client and grieving back their money

at the time of the necessary. Since the officer/ staffs engaged in this ranged come in

direct and close contact with the customer, there performance and dealing has a great

value in creation good banker customer relationship and to increase the bank reputation.

a) Cash Receipt

The account holders use the prescribed deposit slips supplied to them for depositing cash

in their respective account. So a cashier carefully scrutinizes the deposit. Slips. If any

information is mission it is filled by the depositor processing of the cash received is as

follows-

1. Count the notes and list the amount on the bank of deposit slip in order to

denomination, staring form highest.

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Compare listing with the cash mount shown on the face of the deposits slip.

2. Place the cash in the cash draw duly stored according to the denomination.

3. Enter the particulars such as serial No. A/C No, titer of A/C, amount received in

the cash received register.

4. Put cashier signature on the deposit slip and simultaneously get the same

countersigned and the entry in the cash received register duly altercated by the

head cashier/ Officer.

5. Validate the deposit slip on the face with the validating rubber stamp and texture

the depositor retaining officer copy for bookkeeping purpose.

b) Cash payment:

The following procedure are observed in passing cheque for on depositors accounts.

1. The token clerk issue a token to the present against of cash cheque after

scrutinizing the material parts of the cheque, the number of which he enters with

his initials on the back of the cheque under a rubberstamp.

2. The cheque is also scrutinized by the computer operation / officer who must

satisfy himself that is on order in every respect. that it is from drawer SBAC

cheque book and that the amount does not exceed the credit balance of the

amount.

3. He will then post the amount in the lodger, enter the folio number in the top left

corner of the cheque and initial the cheque to signify that it is order and has been

posted.

4. Then the cheque is sent to an authorized official who after satisfying him that it is

order in every respect inclusive of verification of signature will pass it for

payment and recording the entire in cash payment register. Both the cashier and

Head cashier will put their initials against the centers in the cash payment register.

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5. After payment of cheque instrument the cashier affixes the PAID seal on the

instrument. The denomination of the currency noted paid is also recorded on the

back of their instrument.

5.2.2 Books maintained by this section:

Vault Register: This book keeps accounts of cash balance in the vault at the bank.

Cash receipt Register: Cash received in the whole of the day is recorded here.

Cash payment Register: Cash payment made in a day is interned here.

Rough vault Register: Cash calculation for final inter in vault is done here, because

no error and subsequent correction in vault resist in acceptable.

Cash balance book: Cash balance by counting the notes and corns physically are

seconded here.

5.3 Account Opening Section:

Account opening process is done by front desk section. It receives the account opening

application from the application, examines and scrutinizes the application and then

selects final customer selection of customer in very important for the bank because banks

success and failure largely depends on their customer. It the customer is not good, they

may create fraud and forgery by their accounts with the bank and thus destroy hampers

the good ill of banks. So this section needs extreme caution is selecting is customer.

Procedure of opening and operation of accounts

There are certain types of accounts, which require an extra care in their opening and

operation. Opening of an account binds the banker and customer into a contractual

31

relationship. Some persons like the miners, lunatics, intoxicated persons and insolvent

persons are incompetent to contract. Similarly against trustees, a banker may have limited

power of contracting. Besides a banker nay have institutions like clubs, schools, colleges,

municipal corporation societies etc. as his customer.

Dealing with such customers require certain special precautions to be observed at the

time of opening an account as well as later, while operating. Such a account may be a

deposit account or a borrowing account but in any case, certain principles governing

special types of accounts must be know to and observed by the banker.

Different Types of Account or Product:

New Market Branch has the following types of accounts:

1. Saving Account

2. Current Account

3. Short Term Deposit (STD) Account

4. Fixed Deposit Receipt (FDR) Account

5. Deposit Scheme Account

5.3.1 Saving Account:

There are certain limitations in Savings Account- one of these is the number of drawing

is limited i.e., customer can draw only twice a week if they want to get interest on the

deposited money. If a customer draws more then twice in a week (s)he will not receive

any interest for that month.

It is a sound savings for retail customer. CBL gives the major facilities and

services to their customer through 77 branches allover in Bangladesh with their skilled

manpower.

Minimum balance: Taka 500/-

Interest Rate:

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Customer Benefit:

* Cheque-Book facility

* Opportunity to apply for - safe deposit locker facility

* Utility payment service

* Collect foreign remittance

* Transfer of fund from one branch to another by

- Demand Draft

- Mail Transfer

- Telegraphic Transfer

* Online banking service

5.3.2. Current Deposit Account:

The New Market Branch of The City Bank Limited (CBL) facilitates customers

with different types of Current Account. There are Current Accounts for Individuals,

Proprietorship firms, Partnership firms, Joint Stock Company, School, College,

Association, Trust and N.G.O. Account opening form for these categories are different.

Some terms and documents may differ but the overall process of account opening

is similar to that of the saving account. Here I like to state what kinds of information to

be furnished in the form and which documents customer should provide.

Current Account (Individual): New Market Branch uses the forms distributed by

the CBL Head Office for opening a current Personal/ Individual account. A Customer

should meet the following requirements to see an account has been opened in his/her

name:

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Below Tk. 1.00 Lac 6.00 %

Above Tk. 5.00 lac 8.50 %

Tk. 1.00 lac to Tk. 5.00 lac 8.00 %

Amount Rate

Name of the Applicant

Profession or Business of Applicant

Address of the Applicant

Photographs of the Applicant

Introduction by an account holder of the branch

Signature on the Application Form

Signature on the Specimen Signature Card

Verification of details and signatures by Authorized Officer.

Current Account (Proprietorship): To open a Proprietorship current account

photocopy of Trade License, attested by the concerned officer, is required along with the

procedure mentioned for Individual Current Account.

Current Account (Partnership): Opening procedure of a Partnership Current

Account is almost same as the opening of Individual Current Account but some

additional documents are required which are as follows:

Partnership Deed

Letter of Partnership

Trade License

Current Account (Joint Stock Company): All the formalities of Individual Current

Account opening should be met for the opening of Joint Stock Company Account

additionally following documents also should be submitted to the bank. These documents

are:

Registration Certificate from Register of Joint Stock Companies

Certificate of Incorporation

Memorandum of Association

Articles of Association

Annual Audit Report

Copy of Board Resolution containing

34

Name of the persons authorized to operate the bank account on behalf

of the company.

Name of the persons authorized to deal documents with the bank.

Current Account (Socites/Association): All the formalities of Individual Current Account

opening should be met for the opening of Socites/Association Account additionally

following documents also should be submitted to the bank. These documents are:

A true copy of By-laws and regulations duly certified by the chairman.

Certified copy of resolution authorizing to open account.

List of member of the Managing Committee.

Certified copy of certificate of registration.

CBL current account meets the needs of individual and commercial customers

through its schedule benefit.

Minimum Balance : Taka 5,000/-

Interest Rate : Nil

Customer Benefit:

Cheque-Book facility

Opportunity to apply for - safe deposit locker facility

Collect foreign remittance in both T.C. & Taka draft.

Transfer of fund from one branch to another by

Telegraphic Transfer

Demand Draft

Mail Transfer

Collection of cheques through Clearing House.

Online banking service.

35

Documents that are given to the Account holders:

After all the account opening formaties have been complete, Bank opens an account in

the name if the applicant. Bank then provides customers with-

* Deposit or pay in Slip

* A cheque Book

Issuing cheque book to the customers:

* Customer fills up a requisition ship

* If account holder does not come physically to collect cheque book, then the

account holder authorized a person to received his cheque book.

* For Savings A/C 10 25 leves and for Current A/C 10/25/50/100 leaves and for

STD A/C 25/50 leaves chequebooks are issued.

* Necessary entry is passed on register.

Transfer of an account:

Account holder may transfer his account from one branch to another branch. For this

he/She must apply to the manager of the branch where he is ministering account. Then

manager sends a credit Advice to the manager of that branch were the account holder

wants to t4ransfer his account. With the credit advice, he sends original copy of account

opening application and specimen Signature Card and photocopy of application for

transferring the account with the balance remain in the account .

Closing of the Account:

An appicaiton to close the account from customer is received.

Signature is verified

Draw amount form the A/C keeping Tk. 25 for Savings and Tk. 50 for Current

A/C as closing charge.

Chequebook is destroyed.

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Payment of interest:

It is usually paid on maturity of the fixed deposit or on the date of anniversary, which is

applicable. But the Bank may pay interest to depositor every 6 months or credit the

amount of interest to his savings or current account, at his request.

5.3.2 Short Term Deposit (STD):

Short Term Deposit or STD Account opening procedure is similar to that of the

Saving Account. The difference is the interest rate.

5.3.3.1 Bank Deposit:

5.3.3.2 Other Than Bank Deposit:

City Bank Deposit : (Govt., Semi Govt.Autonomous Body, Educational Institution,

Association, Trust and N.G.O)

Amount Interest Rate

Below 5 Crore 4.0%

5-10 Crore 5.5%

Over 10 Crore 6.5%

Amount Interest Rate

Upto 1 Crore 6.0%

Above 1-5 Crore 7.0%

Above 5-10 Crore 7.5%

Above 10 Crore 8.5%

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Private Deposit :

Features:

Minimum 7 days notice is needed for the withdrawn of the both STD. But it is

now become practice to withdrawn money by the client without any earlier notice.

If any financial organization or any autonomous bodies open this account then

no excise duty will be deducted but tax will be deducted.

Interest rate is calculated on daily basis.

5.3.4 Fixed Deposit Receipt:

Fixed Deposit is the amount deposited by the customer for a fixed period of time.

It offers comparatively higher rate of interest.

Period of Scheme:

It can be opened for a 1 month to 12 months and above.

Procedure of FDR Account:

Bank provides the interested customer a Fixed Deposit form.

Customer fills the form, which contains Name of the customer, Amount of

money, Duration, Rate of interest etc.

Amount Interest Rate

Upto 1 Crore 5.5%

Above 1-5 Crore 6.0%

Above 5-10 Crore 6.5%

Above 10 Crore 7.0%

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1 Month/ 2 Months / 3 Months 08.00%

12 months 11.00%

4 Months to 11 Months 10.00%

Period Rate

After filling the form customer pay the money in cash or by cheque.

After receiving the form from the customer the respected officer look for the

cash seal or transfer seal. If any of these are present and the form is properly

signed the Officer provides a specimen signature card to the customer.

Customer signs thrice on the specimen signature card along with his/her full

name.

At the same time respected officer issue a Fixed Deposit Receipt on the

specific FDR Block.

This Block includes:

Name of the customer

Amount of money deposited

Date on which the money is deposited

Due Date – on which the FDR will be matured

Duration for which FDR has been made

Rate of interest to be paid

An FDR is renewed automatically for three months if the customer does not come

to cash it after the maturity period. It can also be renewed upon the direction of the

customer.

Features:

Interest is compounded once a quarter

Loan may be allowed upto 80% of the deposited amount under lien.

Excise duty and source tax etc. are deductible from the depositor profit.

5.3.5 Deposit Scheme:

Under deposit scheme, the City Bank Ltd. (CBL) offers different types of

products (scheme) to help the fixed income people to save money and meet any future

financial obligations. The schemes offer a large amount of money after a certain period of

time if the account holders deposit a specific amount on monthly basis. These schemes

are-

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1. Three Stage Savings Scheme

2. Monthly Benefit Scheme

3. Marriage Savings Scheme

4. Junior Savers Scheme

5. Lakhpati Savings Scheme

Details of these aforesaid products are discussed following:

5.3.5.1Three Stage Savings Scheme (TSSS):

The Scheme is designed to help the fixed income group to save money and build up a

sizable funds with which they can go for some income generating venture to improve the

quality of their life and/or meet any future financial obligations. Any citizen of

Bangladesh can open this scheme. The scheme can be opened in the name of an

individual only. TSSS is perfect for those 18 years of age or elder.

Product Name

The name of the scheme is " Three Stage Savings Scheme".

Monthly Deposit Amount

To open the scheme requires monthly installment of BDT 500 or its multiple up to BDT

5000 till maturity. This is a fixed term deposit savings scheme.

Tenure

The scheme is for 2, 4 & 6 years (every 2nd year is known as a stage)

Rate of Interest:

8% -12%

Loan Facility:Loan may be allowed upto 80% of the deposited amount under lien on the

same after at least 2 (Two) years of regular payment of installments.

Example: Monthly Deposit Tk.500/-

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Period Interest Rate Receiving Money

1 year 8 % 1st Stage

13,093.002 year 9 %

3 year 10 % 2nd Stage

28,955.004 year 11 %

5 year 12 % 3rd Stage

48,548.006 year 13 %

5.3.5.2 Monthly Benefit Scheme (MBS):

The Monthly Benefit Scheme (MBS) is a deposit scheme where the depositor gets

monthly benefit out of his deposit. The scheme is designed for the benefit of persons who

intend to meet the monthly budget of their families from the income out of their deposit.

Product Name

The name of the scheme is " Monthly Benefit Scheme "

Who can open?

Any citizen of Bangladesh can open this scheme. The scheme can be opened in the name

of an individual only. MBS is perfect for those 18 of age or older.

Tenure

To open the scheme requires deposit of BDT 1,00,000/- or its multiples but maximum

BDT 1,00,00,000/-. The deposit will be for a period of 2/3/5 years and the principal

amount is refundable on maturity.

Monthly Benefit

Benefit will be as per the following example:

Term (Years) Deposit (BDT) Monthly Benefit (BDT)

Payable after tax (10%) (BDT)

2 years 1,00,000.00 900.00 810.00

3 years 1,00,000.00 900.00 810.00

5 years 1,00,000.00 945.00 850.00

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Loan Facility:

To meet short-term needs depositors are eligible for a loan upto 90% of the total

deposited amount.

5.3.5.3 Marriage Savings Scheme:

This scheme is designed for saving money to bear expense of children’s marriage

occasion in future. City Bank Marriage Savings Scheme is an exclusive savings scheme.

Period of Scheme:

The term of savings shall be for 12 years.

Installment size:

Monthly installment Size is Tk. 250, Tk. 500, Tk. 1000, Tk. 1500, Tk. 2000 and Tk. 2500

Maturity:

Depositors draw the following maturity amount at a time:

Loan Facility:

Loan may be allowed upto 80% of the deposited amount under lien on the same after at

least 2 (Two) years of regular payment of installments.

5.3.5.4Junior Savers Scheme:

The Junior Savers Scheme is a perfect way to encourage saving for children's

future educational needs. This is a scheme that will grow with their child.

Monthly Deposit Maturity Amount

250.00 65,000.00

500.00 1,30,000.00

1000.00 2,60,000.00

1500.00 3,90,000.00

2000.00 5,20,000.00

2500.00 6,50,000.00

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City Bank Junior Savers Scheme is a unique savings scheme designed to help

clients save for their children and it's a “children financial education program”.

Product Name

The name of the scheme is " Junior Savers Scheme"

Who can open?

Junior Savers is perfect for those 18 years of age or younger, who will be beneficiary/

nominee. Account must be opened in the name of parent/ natural/legal guardian.

Monthly Deposit Amount

To open the scheme requires an initial deposit of BDT 5000/=, which will be followed by

monthly installment of BDT 1000 till maturity. The applicant will have the option of

depositing any amount in multiples of the above. This is a fixed term deposit savings

scheme. Customers can buy any number of JSS.

Matured Value (will as per the following example):

Period Initial Deposit Monthly Installment

Matured Value

10 years(12

installments)

BDT5,000.00

BDT 1,000.00

BDT 200,000.00

Tenure

The scheme is for TEN YEARS (120 equal monthly deposits).

Insurance

The scheme is 100% insurance coverage. In case of death of the account holder during

the period of scheme, nominee/ beneficiary will get only the amount covered by

insurance i.e.; maximum limit payable upon maturity or upon death of the account holder

shall not exceed the limit covered by the scheme. (Death due to any cause, detail

workings attached)

Loan Facility:

Loan may be allowed upto 80% of the deposited amount under lien on the same after at

least 2 (Two) years of regular payment of installments.

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5.3.5.5 Lakhpati Savings Scheme:

The Lakhpati Savings Scheme, person gets the opportunity to build up savings by

contributing monthly installments and become a Lakhpati just after Six years.

The Scheme is designed to help the fixed income group to save money and build

up a sizable funds with which they can go for some income generating venture to

improve the quality of their life and/or meet any future financial obligations. The scheme

can be opened in the name of an individual only. LSS is perfect for those 18 years of age

or older.

Product Name

The name of the scheme is " Lakhpati Savings Scheme"

Monthly Deposit Amount

To open the scheme requires an initial deposit of BDT 3000/=, which will be followed by

monthly installment of BDT 1075 till maturity. The applicant will have the option of

depositing any amount in multiples of the above. This is a fixed term deposit savings

scheme. Customer can buy any number of LSS.

Matured Value (will as per the following example):

Period Initial Deposit Monthly Installment

Matured Value

6 years BDT3,000.00

BDT 1,075.00

BDT 100,000.00

Tenure

The scheme is for SIX

Insurance

The scheme is 100% insurance coverage. In case of death of the account holder during

the period of scheme, nominee/ beneficiary will get only the amount covered by

insurance i.e.; maximum limit payable upon maturity or upon death of the account holder

shall not exceed the limit covered by the scheme.

Surrender of Deposit recipes before maturity date :

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A Banker is bound to accept surrender of the deposit before its maturity However in

practice Banker accepts such a request form its customers. In order to such tendency the

interest on such a fixed deposit is reckoned at less than the rate applicable to the period

for which the deposit has already run

5.3.6 City Card (Credit Card):

The City Bank Limited launched their smart card - ATM card, credit card &

utility bills payment card all in a single card in the name & style of "City Card"

The features of the "City Card" are as under:

The City card provides round the clock banking through ATMs from which

customers can avail:

Cash withdrawals

Balance inquiry

Mini statement

Cheque Book request

Utility bills payment facilities

POS terminals at the merchant end will operate/provide service throughout the day &

beyond banking hours to offer: -

Debit transaction

Credit transaction

Account information

City card loading

Online or offline

The "City Card" network can operate both online or offline in case line failure. Since city

card can store account information within & record transaction offline ATM & POS

services can be accessed without the need for online authorization from bank. City card

helps clients for self-service banking any time anywhere though ATMs & POS terminals.

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5.4 Clearing & Collection

At first we discuss the branch level clearing:

All branch of same bank do not the clearing house only one nominated branch of bank to

the clearing house. At first branch shooting their there cheque according to the Brach and

then they separated the cheque and give the cheque to there nominated brach. They use

post date when they give there cheque to there nominated branched at the same time they

collect the money to there monies branch through there account they do not collect the

money as a heart cash. After completing this procedures principle Brach taken over the

cheque and they present the cheque to the Bangladesh bank on behalf of there branch.

Now we discuss the branch level clearing procedure

1) Cheque deposit

2) Affixing speical crossing on the cheque

3) Register entry

4) Separate in paying sleeping and cheque

5) Bank branch wise shooting

6) Preparing of schedule

7) Summary schedule

8) Affixing clearing stamp both in cheque an sleep.

9) Arrange a internal house

10) Prepare endorsement

11) Preparation of vouchers

12) Advice and sent it to principal branch

All procedure must be done advance date

All cheque, demand draft and other credit instrument tendered for the depositors at the

clearing counter of this branch deliver credit to customer ‘s accounts. The clerk

examines such deposit at the time of receipt carefully to ensure that-

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1. The name of the account is very clear on the deposit slip.

2. The particular of the deposits such as cheque number, name of the

bank etc. are properly entered on pay in slip

3. The depositor has singed the pay in slip

4. On items deposited the payee’s discharge and the chain of

endorsement are in order.

All cheque and other instrument are crossed immediately on receipts with the bank

special cross and particular endorsement given at the bank to the instrument. Items

intended for clearing house are branched with the branches clearing stamps. If the

deposits are made at when is to too late for these to be present to drawer banks on the

same day, the stamp Too late Today’s clearing “ is affixed on the counterfoil.

After the preliminary checking and stamping of instruments are done all deposits are

classified into four groups-

1. Transfer

2. Transfer delivery

3. Clearing

4. Outstation collection

Transfer

When all the instrument draw on the receiving branch and deposited for the credit of

customers accounts than it is treated as transfer and sent to deposit and other section for

necessary action.

Transfer delivery:

When all instrument are drawn on easily accessible location branches of Agrani Bank

other than receiving branch and deposited for credit of customer’s accounts than it is

47

Same BranchSame Bank

treated as transfer delivery and it will inter into T.D. Register and T.D. schedule before

sending for collection.

Clearing:

Principal branch first receiving all the clearing items with schedule. Than make it

confirm that no. Of cheque in document and the originally is same. The principal branch

will complied items, bank wise and also makes it confirm according to the post than

principal branch argument the entire cheque branch wise and send it to the respective

branches.

The respective branches make it confirm and check it all the items. If it is not alright for

payment than they will return it to the principal branch before 4MB.

Principle branch send to the clearinghouse at the 5.30 PM. Next day received all the

clearing items form the respective branches send to the clearinghouse through principle

branch at 10 AM. These items are deliver bank wise with is schedule and also receive all

the items of Agrani Bank from different bank.

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Other BranchSame Bank

Different BranchDifferent Bank

Check clearing section:

This section provides service to the customer deposit check. Pay order Demand draft of

other banks in moghbazar branch of PBL, for cash collection these are sent to the

clearinghouse.

Type of checks for clearing:

There are two types of checks for clearing. These are.

A. Out-word clearing.

B. In- ward clearing.

A. Out-ward clearing:

The cheques, pay order (PO), Demand Draft (DD) of the other banks which are submitted

to CBL, New Market branch for collection known as out-ward clearing check. The

procedure is quite lengthy. The bearer of such check. PO, DD must have as account in the

branch. The account holder desiring to deposit the check/PO/DD has to fill up a form

mentioning different particulars. This form is precisely termed as "deposit slip." The front

desk officer receives the check together with the deposit ship, checks up the particulars

like name of bank, check number, amount, date of the check etc. and then it is sent to

clearing section. The clearing officer again checks the check and then enters all these

particulars in the logbook. The Dearing officer arranges check/PO/DD to be signed and

authorized signature. After collecting all the cheques/PO/DD in the proper order and the

end of the scheduled depositing hour, the clearing officer prepares a summary. In the

summary the clearing officer puts the total number of cheques, the total amount of money

and also mans of the corresponding banks. After completing all these formalities, the

clearing officer sends all the check/PO/DD together with the summary to the Principal

Branch of PBL. The PBL then sends other to the Bangladesh Bank for clearing. PBL

after differentiating the instruments makes arrangement for the immediate payment of the

PO but sends the cheques of different banks the DD to the Bangladesh Bank for clearing.

Bangladesh Bank check out whether there is any problem with instrument or not. It not

then they makes necessary arrangements for payments. In this way, it takes 48 hours to

clear a DD/check. The CBL, New Market branch, on receiving back the instruments after

49

clearance enters/ dishonored by Bangladesh Bank, then they returned it to the client in the

same way making the reasons for dishonored clearing.

The reasons may be one or more of the followings.

* Account close

* Insufficient fund/ not arrange

* Payment stopped

* Refer to drawer

* May be presented again

* Amount in words and figures bank confirmation

* Payee's endorsement requires bank confirmation

* Clearing house stamp missing, etc.

B. Inward clearing:

Inward clearing involves clearing chq./PO/DD house for collection. The clearing officer

receives then enters then in the inward logbook. Then sends them to the computer section

for checking the account condition. If any problem is found is the instrument, it is marked

as "dishonored" reason is same as outward clearing. And it is returned to the clearing

officer. He removes chq./ DD from logbook and inform the matter to the principal

branch.

-Banks within the Dhaka Metropolitan city are induced in the clearinghouse. It is not

possible to clear any chq. Outside the range of clearinghouse.

- If there is any chq. Whish needs to be cleared the other Branch of PBL, then the check

do not go through the clearinghouse. It goes through inward Bills for collection and

outward Bill for collection.

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5.5 Remittance:

Other then this, General Banking deals with various services for their customers.

During my practical orientation I have observed the Gulshan Branch deals with various

types of services. These are:

i. Demand Draft (DD),

ii. Pay Order (PO),

iii. Telegraphic Transfer (TT),

I. Demand Draft (DD):

Demand Draft or DD is an instrument containing an order by the issuing branch

upon another branch known as drawee branch, to pay a certain sum of money to the

payee or to his/her order on demand. This is the easiest way to carry a large amount of

money from one place to another with minimum risk.

Demand Draft Issue:

Customer is supplied with DD/MT form.

Customer fills up the form, which includes the name of the Drawer, name of

the Payee, amount of money to be sent, exchange, name of the Drawee

branch, signature and address of the drawer.

The customer may pay in cash or by transferring the amount from his/her

account (if any).

After the money is paid and the form is sealed and signed accordingly it is

given to the DD issuing desk.

Upon receiving the form concerned officer issue a DD on a particular block.

DD block has two parts, one for bank and another for customer.

Bank’s part contains issuing date, drawer’s name, payee’s name, sum of the

money and name of the drawee branch. Customer’s part contains issuing date,

name of the payee, sum of the money and name of the drawee branch.

After furnishing all the required information entry of the DD is given in the

DD issue register and at same time bank issue a DD confirmation slip

addressing the drawee branch. This confirmation slip is entered into the DD

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advice issue register and a number is put on the confirmation slip from the

same register. Later on the bank mail this slip to the drawee branch.

At least two Grade-I officer sign the DD block and if the amount of the DD is

Tk.20,000/= or more than the amount is sealed on the DD with a special red

seal to protect it from material alteration.

The number of DD is put on the DD form.

Next the customer signs on the back of the DD and is supplied with his/her

part of DD.

Accounting entries:

Cash/ Party A/C ......................................................... Dr.

HO A/C has drawn of Br. ........................................... Cr.

Income A/C ................................................................ Cr.

After giving necessary entries and IBCA is prepared illustrating that the branch is

credited to whom it is drawn.

An IBCA implies the following entries:

HO A/C of Issue Branch ...................................................Dr.

HO A/C has drawn of Br. ................................................. Cr.

The IBCA is sent to the drawn on branch

II. Pay Order (PO):

Payment Order or PO gives payee the right to claim payment from the issuing

branch. In other words it is an undertaking by the issuing bank to pay a certain sum of

money to the payee or to order on demand.

Following procedure is maintained for the issuance of PO:

Customer is supplied with PO form.

After filling the form the customer pays the money in cash or by cheque.

52

The concerned officer then issues PO on its specific block. This block has

three parts, one for bank and other two for the customer. ‘A/C Payee’ crossing

is sealed on all Pay Orders issued by the bank.

The officer then writes down the number of the PO block on the PO form.

Two authorized officers sign the block.

At the end customer is provided with the two parts of the block after signing

on the back of the Bank’s part.

Following accounting entries are given-

Cash A/C ...................................................... Dr.

Bills payable (PO) A/C .................................... Cr.

Income A/C .................................................... Cr.

or

Customer A/C ................................................ Dr.

Bill payable A/C ............................................... Cr.

Income A/C .......................................................Cr.

(When customer account is debited other than taking cash money)

Settlement of PO:

When PO is submitted bys the collecting bank through clearing house the issuing bank

gives payment.

According entries given by issuing bankBill payable A/C .......................................Dr.

Balance with main branch .............................Cr.

Entries given by collecting bank:

Balance with main branch ....................................... Dr.

Customer A/C .......................................................Cr.

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Role of the Drawn on branch:

After receiving the instrument, the IBCA lodgment is don by the branch necessary entries are given in DD In Ward registers”

Accounting entries:

Issuing Br. A/C with HO .........................................................Dr.Bills Payable A/C .................................................................... Dr.

If the IBCA is yet to reach, but the instruments has already been presented is made form

the suspense A/C.

Entry:

Suspense A/C ......................................................................Dr.

Customer’s A/C .................................................................. Dr.

To adjust this payment when the IBCA is reached following entire is passed.:

Issuing Bank A/C with HO .................................................Dr.Suspense A/C ....................................................................... Dr.

Cancellation of DD:The following procedure is following for cancellation of a DD-* Obtain application from the party along with the original DD

* Verify the signature

* Prior permission is required from manager before refunding the amount on

cancellation.

* Prescribed collection charge is recovered from the application.

CAUTION OF DD PAYMENT To Check:

1) Date of issuing

2) Name of payment branch

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3) DD serial no

4)Advice letter incase of without taken advice letter must be payable and give a seal DD

paid without advice

5)DD test number

III) Pay Slip

Pay slip is issued by the bank to make payment on account of tis own dews of accounts payable. For example rent. taxes, bills etc. Payable by the bank is paid through pay slip. It is the form of receipts and discharged on revenue stamp of appropriate value there is not charge.

IV) Telegraphic Transfer (TT):

At customers’ request branch transfers fund to another branch through Telex and

it is known as the TT, in short. TT facility is available only in that branch having Telex

facility. Now, it is easy to done by mobile.

TT (Issue):

Customer fills up the TT form and pays the amount along with commission in

cash or by cheque.

The respected officer issues a cost memo after receiving the TT form with

payment seal, then sign it and at last give it to the customer.

Next a TT confirmation slip is issued and its entry is given in the TT issue

register.

A test number is also put on the face of the slip. Two authorized officer signs

this slip.

Telex operator then transfers the message to the drawee branch mentioning

the amount, name of the payee, and name of the issuing branch, date and test

number.

The confirmation slip is send by post.

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5.6 Financial Controlling and Accounts Section:

This section deals with the increase and expenditure of the branch and stores each any

every transaction of the bank. The account officers check all the paper works. Like bills.

Vouchers cheques and deposit slips every days. They also propose a supplementary sheet

that is prepared for banks transition security to avoid any fraud or miss-guidance. A

junior officer is designated in this Moghbazar branch as the account officer in-charge of

this department. Supplementary sheet consists of three heads such as General, clients and

income and expenditure. Staminate of affairs. Originating credit extracts, responding

debit extracts, summary, Audit Trial checking-these works are completed in this section

daily. And all submit these to the manager operation for his signature and finally these

are send to the principal Branch.

5.7. Computer section:

This branch has been provided with computer for computerization of deposit and clearing

The task of this section are prevention of account number, name and address of clients,

posting their transaction voucher, supply of statements of account clearing task etc. there

are 10 computer in this branch.

5.8 Other Services:

Safe Deposit Locker

Utility Services

Online Banking

Safe Deposit Locker:

Only Savings / Current account holder of CBL can apply for a locker. There are

three (3) types of locker available in Gulshan Branch. These are:

(1) Large (2) Medium (3) Small

Charges:

Locker Types Charges (per year)

Large Tk. 2,500

Medium Tk. 2,000

Small Tk. 1,500

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Minimum balance:

Savings / current account balance Taka 5,000.00

Features:

Rented for a period of one year and will automatically be renewed

Access at anytime during the bank’s business hours

All rentals are payable annually in advance

Utility Services:

The City Bank Limited offers multiple special services with its network of

branches throughout the country in addition to its normal banking operations.

For Collection various types of Bill:

Electricity Bills

Telephone/Mobile Bills

Water/Sewerage Bills

Customs & excise duties

Gas Bills

For Sale & Encashment/Purchase different products:

Prize Bonds

Lottery tickets of different Semi-Govt. and Autonomous Bodies

Hello Calling Card (BTTB)

SIM of Tele-talk Mobile (Post-Paid)

Pre-paid Card of Tele-talk Mobile

VII) Online Banking:

Out of 77 branches including one Islamic Banking, CBL operates 32 branches as online

banking. These branches are designed to serve its valued clients. Under this system, client

will be able to do the following type of transactions:

Easy to withdraw or deposit from any online branch

Fund transfer with one click, no need TT/DD.

Client can easily tell which payments have cleared

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5.9 Analysis of the department:

Deposit Mix of New Market Branch on 23 September 2006 stood as follows:

Comment: The City bank Ltd gives highest interest rate (12%) on Fixed Deposit. So the

Bank has big amount on this account.

Growth in Deposit:

Types of Deposit Amount (Tk)

Current Account 21,64,99,830.00

Saving Account 32,60,00,580.00

Short Term Deposit (STD) 9,08,61,895.00

Fixed Deposit 1,23,50,15,720.00

Deposit Scheme 12,52,73,461.00

Years Deposit (In Million Tk.)

2001 17484

2002 19683

2003 20046

2004 22237

2005 30648

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Comment: Total deposit of he bank as at 31st December 2006 raised to tk. 30648 ml

registering a growth of 38% over preceding year’s position of tk. 22237 ml. Growth in

deposit was noticeable, mainly due to the initiatives taken by the Bank.

5.10 TERMS USED GENERAL BANKING:1. Advice: request to credit its account with another, or request for permission to

debit anther’s account.

2. Bill: All kinds of cheques, pay order and demand draft are called bill.

3. Chit. Current left after hundred prices of notes of same denomination.

4. Credit Voucher: by which bank credits any account.

5. Debit Voucher: By which bank debits any account. Account in which no

transaction takes place within one year.

6. IBC: inward bills for collection which another bank or branch sends us to

collect.

7. IBCA: Inter Branch Credit Advice by the which one branch credits the

account of another branch head office.

8. Inward Clearing Bill: Cheques received in clearing house.

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9. OBC: Outward Bills for collection that we sent to another branch or bank for

collection in favour of us.

10. Outward Clearing Bill: Cheques received on the counter for collection.

11. Pay in Slip: Slip by which money is deposited or paid to the bank.

12. Transfer: This term used in cash department for taking some cash by one cash

officer from another cash officer. No. paper record is maintained for this

purpose.

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6.0 Introduction:

Profit is the pivot on which the entire business activity rotates. Banking is essentially a

business dealing with money and credit. Like every other business activity banks are

profit oriented. A bank invests its funds in many ways to earn profit. The bulk of its

income is derived from loans and advances.

Banks make loans and advances to traders, businessmen and industrialists against

security of some assets or on the basis of personal security of the borrower. In either case,

the banks bear the risk of default in repayment. Therefore the banks have to follow a

cautious policy and sound lending principles in the matter of lending.

6.1 Forms of Advances

1) Secured advances: - Secured advance means an advance which is made against

the security of any asset, the market value of which will never be less than the

advanced amount.

2) Unsecured advances: - An unsecured advance is granted to a borrower without

obtaining any security from him but bank can impose restriction on the borrower

time to time.

Banks look out for Person himself, Relation with the bank, transactions with the

bank and viability of business of that particular borrower. Then banks consider the

securities offered by the borrower.

Bankers make loans and advances to the businessmen and industrialists against

various types of securities. CBL also required sufficient securities before sanction of a

loan or advances. Security can be two types—

(1) Tangible Security-------Land, Building, Machinery

(2) Intangible Security-----Bonds, Shares, Debentures, Sanchaya Patra, ICB unit cert.

Etc.

But following classification of securities is important for bankers. These are—

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(1) Primary Security

The security deposited by the borrower himself as cover for the loan is called

the primary security.

(2) Collateral Security

The securities deposited by the third party to secure advances for the borrower or

on which the creditor (bank) has a personal right of action on the debtor in respect

of the advances.

Generally following are considered as security—

Land

Land and Machinery

Permanent Assets (Building, Factory etc.)

Gold ornaments

Economic liabilities

Work-order

FDR / DPS

All govt. security bonds (ICB unit cert., Wage earners bond,

Sanchay Patra etc.)

Insurance Policies

Shares and Debentures

Movable properties (Inventory, Stock etc.)

Personal guarantee

6.2 Practices in Banks

The officials of banks generally follow the guidelines of the bank strictly.

Government security & other bonds are considered as a safest security for sanctioning

advances. Collection of security depends upon the party's reliability also.

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There are 6 types of modes of charging on securities.

(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 and share as well as

documents of title to goods such as railway receipt, bills of lading, dock warrants etc.

duly endorsed in bank’s favor.

(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

favor of the lending bank.

(3) 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 dose 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.

(4) 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.

(5) Assignment

Assignment means transfer of any existing or future right, property or debt by one person

to another person. The person who assigns the property is called assignor and the person

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to whom it is transferred is called assignee. Usually assignments are made of actionable

claims such as book debts, insurance claims etc. In banking business, a borrower may

assign to the banker (1) the book debts (2) money due from government’s dept. (3)

insurance policy.

(6) Set-off

Set-off means the total or partial merging of a claim of one person against another in a

counter claim by the latter against the former. It is in effect the combining of accounts

between a debtor and a creditor so as to arrive at the net balance payable to one or the

other, It is a right which accrues to the banker as a result of the banker-customer

relationship.

Set-off arises when a debtor or his creditor wishes to arrive at the net figure owing

between them when separate accounts or debt are involved.

Pledge Movable property (Goods/Stocks/Shares/Debentures etc.)

Hypothecation Movable property (Raw materials of factories/stocks in a godown,

showroom /motor vehicles etc.)

Mortgage Immovable property (Land/Building/Factory)

Lien FDR/DPS/Sanchay patra/ICB Unit Cert./Wage Earners Bond etc.

Assignment Insurance Policy/Money due from govt. Dept./Work order etc.

Set-off ********

6.3 Loan Area of CBL:

Bank, as financial institution is a service-oriented organization. It provides

financial services to the economy by mobilizing fund from surplus unit to deficit unit.

CBL has mobilized funds by introducing various financial products. Efficient &

effective fund mobilization depends on individual bank’s capability of designing

financial products.

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These are: -

Cash Credit (Hypothecation)

Cash Credit (Pledge)

Overdraft Facilities

Secured Overdraft Facilities

Secured Overdraft (Work Order)

Letter of Credit (L/C)

Back to Back Letter of Credit (BTB)

Loan against Trust Receipt (L.T.R.)

Loan against Imported Merchandise (L.I.M)

Packing Cash Credit (P.C.C.)

These are Short Term Loan. Short Loan means term of loan is equal or less than

one year. New Market Branch of CBL gives first 5 (Five) above mentioned credit

facilities under this term by the Credit Department. Foreign Exchange Department

provides rest of the loan facilities.

CBL considers the loans that are sanctioned for more than one year as term loans.

Under this facility an individual or enterprise is financed for various purpose. These are:

Mid Term Loan

Consumer Credit Scheme

Transport Loan

Lease Financing

Long Term Loan

House Building Loan (Commercial)

Industrial Loan

SME (Small & Medium Enterprise) loan

Revolving

Installment

Overdraft

SOD (FO)

Work Order

Others

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6.3.1 Mid Term Industrial Loan

Mid Term Industrial Loan means term of loan is upto 5 years. The City Bank

Limited has a vision to improve the financial sector of Bangladesh i.e. economic

condition of Bangladesh by providing effective and innovative banking and financial

product in financial market. However, in every economy of the world financial sector is

highly regulated sector.

Mid Term industrial finance is allowed for the purposes:

To set up a manufacturing facility i.e. acquire land, buildings, plant and

equipment, etc, collectively known as fixed assets

To finance for BMRE where “B” means for balancing, “M” modernization,

“R” for replacement and “E” expansion

Purchasing of adequate inventories comprising of raw materials, stock in

process and finished goods, retaining sufficient cash and extending credit to

their customers.

6.3.1.1 Consumer Credit Scheme

Consumer credit scheme offers the customers to buy their needed items of goods

without paying the full cost of the item. Bank used to buy the product in favor of the

customer. Customer needs to repay the loan with a fixed installment for a certain period

of time. Since Bangladesh is one of the poorest country in the world. The majority of our

population is forced to live substandard life. The middle class family cannot afford to buy

their essential utility product with their fixed monthly income. In this connection banks in

our country has introduced the scheme of consumer credit to extend credit facility to

limited and fixed income group to improve their standard of living.

Eligible items under the consumer credit scheme, CBL finances:

Domestic appliances:

Air conditioner,

Refrigerator,

Deep freezer- washing machine,

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Microwave,

Furniture.

Sewing machine.

And other domestic appliances.

Vehicles:

Car,

Small jeeps,

Motorcycle etc.

Office Equipment:

Personal Computer,

Photocopier,

I.P.S., U.P.S,

And other office equipment.

Entertainment items:

Television,

VCD, DVD Player

Music system,

Sound system,

Video camera etc.

Repayment arrangement:

Consumer will repay the loan 24/36 monthly installments.

Loan: The loan limit is Tk. 20,000 to Tk.5, 00,000.

Rate of Interest: 14.50% -17%

6.3.1.2 Lease Financing

CBL Lease Financing is given for Equipments/Machinery for Industry or for BMRE of

business project

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CBL finance Leasing of

Capital Machinery

Heavy construction equipments

Lifts/ Elevators

Air Conditioners

Vehicles like Luxury bus, Mini-bus, Taxi-cab, Car, Pick-up,

Trucks, etc

Medical equipments

Generators, Computers, etc

Apartment/Building

Other costly consumer's durable

The City Bank Limited offers lease financing facilities on the’ above items under pleasing atmosphere.

The Basic Terms:

Selection Autonomy:

The lessee bears all the liberty to decide and select the brand, specifications, price,

supplier/seller and purchase terms & conditions of the leased items.

Lease term:

i) Capital Machinery, Equipment and Medical Instrument - Maximum 5

(five) years.

ii) Vehicles & other Consumer durable - Maximum, 4 (four) years.

iii) Apartment/Building Case to Case basis.

Payment Mode:

Entire financed amount along with interest and charges would be recovered by equal

monthly installments.

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Lease Deposit:

A minimum deposit equivalent to 3 (three) months lease rentals is required, which

shall be refunded/adjusted on expiry of the lease term.

Rate of Interest:

14% -16%

Security:

a) Leased item itself

b) Bank/Insurance guarantee

c) Encashable securities like FDR, BSP, Share Certificates of listed

companies, ICB unit Certificate etc.

d) Immovable properties along with cash security if the value of tangible

security falls short of the value of leased assets and

e) Personal guarantee of a gentleman acceptable to the Bank.

Insurance:

Clients have to take insurance coverage on bank stipulated insured value for the

entire lease term at his own cost (Year to year basis).

Maintenance:

Clients have to maintain the leased items in usable condition throughout the

whole lease period at his cost and shall be solely responsible for any damage or loss

although insurance will cover most of the abnormal risks.

Full Funding:

Under the method CBL provides 100% funding while only 50%-60% of financing

is made under traditional system.

6.3.1.3 Transport Loan:

Any finance, which is given against the hypothecation of vehicles like trucks,

buses, marine vessel etc is termed as transport Loan. CBL gives advances under

Transport Sector for the following purpose:

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Purchase of imported/locally assembled Buses, Minibuses, Trucks, and

Scooters

Import of reconditioned buses is subject to Import regulations.

Construction or Purchase of Water vessels- passenger & cargo vessels

locally built.

Repair of watercrafts including purchase of engine.

Rate of Interest:

15% -16%

Interest rate is depend on the amount is taken for the time period.

Requirement:

3 sets of quotation/pro-forma invoice of the vehicles.

Quotation of the vehicles body building from a recognized body building

firm if not imported in complete form.

6.3.2 Long Term Industrial Loan:

Long Term Industrial Loan means term of loan is more than 5 years.

6.3.2.1 House Building Loan (Commercial):

CBL House Building Loan (Commercial) means that are given for construction of

buildings or structures to be used not for residential accommodation of the borrower but

commercial utilization like renting or sale after the construction.

This is given for Land development, civil construction and renovation of building.

Sometimes it is allowed for procuring Escalators, Air condition, Generator, Electrical

equipment, Furniture & Fixture etc.

Requirement:

Business plan (project profile) on the project

Approved plan of the competent authority with the letter of approval

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Estimation of construction cost prepared by engineer, reputed

engineering firm/ enlisted surveyor of the bank.

Survey report of Land by enlisted surveyor of the bank.

6.3.2.2 Industrial Loan:

The City Bank Limited has a vision to improve the financial sector of Bangladesh

i.e. economic condition of Bangladesh by providing effective and innovative banking and

financial product in financial market. The purpose of Industrial Loan is almost same with

Mid term Loan. But the differences are the time period and interest rate.

6.3.3 Small & Medium Enterprise (SME) Financing:

CBL finances an enterprise that has with minimum 3 and maximum of 60

employees can apply for SME loan. Applicant should minimum 2 years experience in

business. But start-up business will be considered if projections are very good. Enterprise

should minimum annual turnover Taka 500,000 to maximum Taka 5 cores. The loan size

is of minimum Taka 100,000 to a maximum of 1 core for a client.

CBL provide working capital or asset finance through:

Overdraft - secured & unsecured

Installment loan

Letter of credit

Guarantee / bonds

Who can avail the facilities?

Shop keepers

Small & medium entrepreneurs, manufacturers, traders etc.

Suppliers to corporate businesses

Professionals (doctors, engineers, etc)

Business services

Cottage industries

Fleet (navy) financing

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6.3.3.1 Revolving loan

The revolving loan is one, which provides for restoring the credit to the original

amount after it has been utilized. How many times it will be taking place must be

specifically mentioned in the credit. The revolving credit may be either cumulative or

non-cumulative. CBL provides this loan facility.

6.3.3.2 Installment loan

An installment loan, also known as closed-ended loan, is the borrowing of a

certain amount of money from Bank and the repayment of it in installments over a set

amount over a specific period of time. CBL gives this loan entrepreneurs, manufacturers,

and traders as working capital, to buy goods etc.

6.3.3.3 Overdrafts:

Advance in form of overdraft is always allowed on a current account. Cheques

will operate this account. The customer may be sanctioned a certain limit within which he

can withdraw his loan amount for several times within a stipulated period. Here interest

will be charged on the withdrawal loan amount. Overdraft facility normally given to the

party for the expansion of business and this facility is given for maximum one year.

Advances allowed against to the individuals, or firms against financial

obligations, i.e., lien on DPS, FDR, and ICB etc.

Against work order

There are three types of overdraft may take place.

6.3.3.3.1 Secured Overdraft (SOD):

Secured credit involves putting up some collateral that the creditor can take to

satisfy the debt in case of default. The collateral may be personal property, real property

of liquid assets. In most cases 90% credit is covered. On basis of bank-customer

relationship coverage may vary.

CBL gives this loan against the financial obligation of:

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DPS

FDR etc

Loan may be allowed upto 90% under lien on DPS , FDR, etcerc

6.3.3.3.2 Work Order

This kind of advance is allowed against the work order of a contractor involving

construction, supply of goods or services.

Documents to be obtain for CBL loan:

Work/Supply order for project/Supply of goods etc.

Confirmation letter from the work awarding authority that all cheaque against

the work/ supply order shall be paid to the bank direct.

6.3.3.3.3 Others:

It is another secured loan. This loan is given against: Sanchaya Patra

ICB unit cert. etc

6.4 Selection Of Borrowers:

Selection of borrowers refers to the identification of suitable or appropriate borrowers

whom loan can be sanctioned or credit can be provided. The borrowers range from

individuals to partnership, companies, societies, corporations etc. A banker must be

careful in selecting borrowers and their projects. Right type of borrowers and right type

of projects can ensure safety lending. It is the most crucial task of credit system to have

selection of borrowers. In the lending process, before sanction of credit the banker should

get conformed that about 5 ‘C’s which are as follows-

1. Collaterals: It needs to consider that the value of the collaterals and the maximum

amount of loan can be given against this. The validity and legality of the

collaterals are another concerning matter of selecting the borrower.

2. Character: In order to have select of the borrowers of loan, bank should judge the

intension of the borrowers whether he will repay the loan.

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3. Capacity: It refers to the borrower’s capabilities of using the amount of loan

perfectly thereby repay the loan with least cost.

4. Conditions: It refers general business conditions those are required to maintain

while to borrow fund from the bank. So the bank needs to judge the ability and

capacity of the borrower whether he could maintain the requirements.

5. Capital: The banker must required to judge the financial strength of the individual

or corporation that it can handle any uncertain situation as well as repaying

lending.

Or about 5 ‘P’s needed to consider which are as follows_

1. Person: The banker needs to judge about the personal information about the

borrower’s businesses, capital, experience, etc.

2. Price: The considerable demanding amount of loan is refers as price here.

3. Products / Place: It refers the company, its location, product, marketing etc.

information required for giving the advance against.

4. Purpose: Here the required matter is the issue for which the borrower is

demanding loan. He could ask loan for expansion, install renewed technology,

working capital etc. purpose.

5. Profit: The banker must judge the profit of the existing firm before extending any

credit facilities to him.

Or about 5 ‘M’s needed to consider which are as follows_

1. Man: The banker needs to judge about the personal information about the

borrower’s businesses, capital, experience, etc.

2. Money: The demanding amount of loan is refers as money here.

3. Materials: It refers the company, its product etc. information required for giving

the advance.

4. Market: It refers the company, its location, marketing etc. information required

for giving the advance.

5. Management: Management refers to the governing bodies of the company that are

demanding advances. It refers the background of them also.

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Or about 5 ‘P’s needed to consider which are as follows_

1. Responsibility: Generally the borrower has to perform the planning, organizing,

staffing, motivating, controlling, marketing etc. responsibility.

2. Reliability: It refers the previous attitude of the borrower towards the bank or

having any reliable guarantor.

3. Respectability: It refers the reputation of the borrower.

4. Resources: The banker must judge the resources or collateral offered by the

borrower.

5. Returns: The banker must judge the profit or return of the existing firm before

extending any credit facilities to him.

By any of the above method a borrower can be selected. But effective selection refers the

banker must see educational background, family background, past experience, training

acquired, reputation in the society, integrity. These are the factors, which help to judge

the borrower’s ability to direct a business effectively.

6.5 Principles Of Sound Lending:

It is a fundamental concept of banking that advances are made to customers in reliance on

his promise to repay, rather than the security held by the banker. The bankers require

security as a protection against unexpected default in repayment by the customer. Thus

the object of both the external and internal controls is to ensure the employment of bank

funds in a profitable manner without under risk of loss to the capital.

Although all lending involve risks yet a bank has to go with it but the fact is that while go

on lending a bank must follow certain principles so that risk involvement may be kept at

minimum or zero. Pre-sanction activities of credit system require the following aspects,

as for good lending purpose of loans and advances. Here are the several elements of pre-

sanction activities that are needed to be evaluated_

Safety: A bank is a business for making money. It mainly uses depositors fund as a

means of its earnings but safety should never be sacrificed for profitably. The money of

the depositors being repayable on demand or after short notice. All the loans and

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advances should be lend kept in mind that it will be recover in time. If there is any doubt

of not repayment or delayed repay, it should reject.

Liquidity: Liquidity means availability or readiness of bank funds on short notice. The

liquidity of advance means its repayment of demand on due date or after a short notice.

The loan must have fair chances of repayment according to repayment schedule

otherwise the liquidity position of a bank may be threatened. Liquidity also means

conversion of assets into cash without loss or insufficient loss. Whenever a depositor

demand’s cash, bank is bound to pay him and the bank cannot pay him until it got

recovery of money from its advances. That’s why bank should normally grant short term

advances which can be recalled in time to satisfy the demand of the depositors. A bank

cannot afford to lend short-term funds for a long term lending. That is why sizable

portion of bank advances are granted for the working capital requirement.

Purpose: The bank should not lend money for any purposes for which a borrower may

want. The requirement of the borrower may be free from all risks but if the funds

borrowed are employed for unproductive purpose like marriage ceremony, pleasure trip

etc. Bank therefore, discourage advances for hoarding stocks and refuse advances for

speculative activities. Lending needed to be in productive sectors so that it can make

repayment of both interest and principal.

Profitability: Before sanctioning a loan it must consider whether the firm is a profitable

venture and thereby what extent of profit the bank can get for lending loan to this

venture. They have also to meet their establishment charges and other expenses. Interest

earned by a bank on its advances is the main source of its income. The bank always need

to kept in mind that a reasonable profit must be made.

Dispersal / Spread: The advance should be as much broad-based as possible and must be

in keeping with the deposit structure. The advances must not be in one particular

direction or to one particular industry, because any adversity faced by that particular

industry would have serious repercussions on the bank. Again advance must not be

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granted in one area alone. There should be spread of advances against different securities,

industries as well as areas. In order to sanction a loan it need to consider that whether the

project is diverse in respect of risk? If the projects are selected through analyzing

correlation among the projects the projects will be relatively diverse.

Security: security is considered as insurance or a cushion to fallback upon in case of an

emergency or uncertainty. A banker would not normally like to recover the advance from

the sale of security. They would prefer an advance to come b back from the normal

source. Security serves as a safety value for an unexpected emergency. If they are left

out, there are chances that the borrower may raise funds elsewhere by charging their to

other to that extend the bank’s position is jeopardized.

National Interest: Whether the bank is maintaining the govt. rules thereby the national

benefit of providing the loan is also a concerning matter. Banking industries has

significant role to play in the economic development of a country. They may advance in

priority sector in the larger national interest. Such as financial assistance to self employed

person etc. Side by side to promote retail trade, transport business, small businesses etc.

are also being taken into consideration.

Borrower judgment: Borrower judgment is a vital aspect for a banker before have a

lending approach. Of course this is a typical and crucial thing among human abilities. But

it can be done to a little extent through analyzing the following items_

Loan application: It is the formal format of request letter represents the demand and

cause of money. The type and amount of money that required is described here.

Financial statements: While to apply for the credit the business firm needs to submit

previous financial statements of several accounting periods to the bank. These

statements help the banker to have some general assumptions about the business firm.

Study of account: In order to have a better idea about the borrower the banker could

make a study of its bank account. He can check the amount of money transferred to

the account over months through several accounting period.

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Market reputation: The bank can study the firm’s position and reputation to have the

real estimation of the firm. It may differ the firm reputation with the actual position of

the firm due to unawareness about the business.

Project proposal: Banker can have an evaluation about the borrower through the

project proposal. A project proposal includes the previous position of the firm, future

forecasting, financial statements, and commercial –technical – organizational –

financial feasibility. Thereby the project proposal describes an estimated evaluation

of the project and the risks related with this project.

Registration of Joint Stock Company: If the company is a registered company then

there will have a less chance to face deception or duplicity from the company. And

this registered company will be treated as a relatively secured one to the bank.

Report from CIB: It is very important matter to have a report from CIB regarding to

this firm. CIB has been established for those firms who take loan from different banks

against of same project proposal and collateral. CIB report describes whether the

borrower has taken loan from different banks or not showing the same project

proposal.

Revenue municipal: It needs to collect the information from the municipal of the city

about the reputation of the company.

VAT return: This criterion of an organization may help to evaluate and establish a

concept about the business firm. If the company regularly pays VAT and maintains

the required regulations, then naturally the company would be a reputed or good

quality company. Thereby it can be expected that the firm will repay the loan in time.

Personal query: The banker can do personal inquiry to the borrower about _

Businesses he has

His capital

His experience

His perception regarding to the borrowing loan

Source of repayment

Mortgage offered

Etc.

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Personal inspection: If the banker is in doubt about the borrower then he can arrange

a personal inspection about all the required maters related to the loan and loan-

repayment.

By this way a banker can judge the borrower ultimately before giving him loan. In reality

it is very tough to understand a human and his thoughts. But rationally, by the following

method no one can get escaped having loopholes. Thus according to the procedure and

evolutionary techniques a borrower can be judged.

6.6 SANCTION PROCEDURE:

Completion of credit sanction is a stepwise procedure and a matter of hazard. A lot of

documents need to prepare for this. The steps of the credit procedure is describing

bellow:

Step 1: (Loan interviewing / Selection of borrower): In order to have the interviewing

for loan it requires judgment of the following_

Borrower’s identity.

Family background.

Reputation in business circle.

Friends

Competitors

Employees

Qualification.

Experience physical fitness

Earnings

Security offered against the loan.

Own stake in business

Eagerness

Expected term of repayment

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Other sources of income

Normal expenditure of maintaining his family

Knowledge / Experiences to run the business.

Beside these things a banker must know the following things related to business_

Whether the borrower is going to do any speculative business.

When do he is going to start the business.

Does he have any assumption about the popularity and marketability of the products?

Estimation about the availability of raw materials.

Whether the raw materials is produced in our state.

If raw materials are imported then how friendly relationship exists between our and

that states.

Transport and communication costs.

Liabilities and involvements in other businesses.

Keeping these fundamental points in mind the banker need to form a balanced opinion on

the following issues like moral ethics. Which refers moral risk in respect of bank about

borrower’s reliability on character. And business ethics of the borrower so that as a social

element any hazard is not creating. Lastly property risk, which refers borrower’s capital

and capabilities, needed to be judged. If the banker’s opinion is favorable, banker will

step in the starting point of lending that of giving a application form to the borrower.

Step 2: (Borrower submits application form):

This step starts when the clients submits formal loan application form to the bank along

with the necessary formal documents.

Step 3: (Bank evaluate the loan case):

In this step the banker scrutinize the loan case, evaluate and correlate the collected

information about the party. The sources from which the banker can get information has

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been described in the phase of “Borrower judgment” of Loan application, Financial

statements, Study of account, Market reputation, Project proposal, Registration of Joint

Stock Company, Report from CIB, Revenue municipal, VAT return.

Step 4: (Preparation of credit report / Project proposal):

This project proposal is mainly expresses for which the loan is demanding on side by side

the overall position of the firm. All the elements that exist in a project proposal are as

follows_

Name.

Address.

Date of compilation of report.

Nature of the firm and date of establishment.

Nature of business.

Investment in the business.

Allied or subsidiary concern, if any.

Brief history regarding the proprietors or owners.

Annual income.

Sales.

Market reputation.

Means.

Bank account in this bank and experience.

Bank accounts in other banks and their experience.

Preparation and signing of the credit report.

Revision of the credit report.

Whenever the credit report or the project proposal will be ready it need to submit to the

bank manager.

Step 5: (Submit the project proposal):

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In this step the manager of the bank decides about the suitability of the proposed loan. If

the manager found or decide the proposal suitable then the sanction procedure will get

progressed to the next step.

Step 6: (Assessment):

After the manager of the bank found that the proposal is suitable to make loan to it, now

in the step 6 it need to check the feasibility of all aspect of the firm likes_

Commercial feasibility: Whether the product has demand on the market and to what

extent.

Management / Organizational feasibility: Whether the firm has suitable managers

who can manage the firm strongly.

Technical /Production feasibility: This refers whether the firm can produce the

expected production limit. Are the spare parts are available. And other technical

problems are concerned here.

Financial feasibility: This is the most important aspect for the bank. Financial

capability is evaluated here.

Economic feasibility: This part describes whether the state will be benefited to the

firm if the firm gets the loan. For example – 100 Person can get job here thereby

employment rate will be increased in this state.

LRA: This refers lending risk analysis about the concerning business firm.

This assessment will confirm eventually about the prospect of the firm. If the firm is

found satisfactory then the sanction process can progress further.

Step 7: (Recommendations)

Step 8: (Sanction)

Step 9: (Sanction advance and other terms and conditions)

Step 10: (Repayment and repayment schedule)

Step 11: (Interest rate):

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Bank charges the specific interest rate to the firm against its loan. When the interest rate

is fixed up and the firm agrees to pay then the company becomes ready to get loan from

the bank.

While assessing the credit the banker needs to keep in mind the following points_

Borrower’s own investment

Actual valuation of land / building; cost of machineries, quality of machineries etc.

Availability of raw materials, power, fuel, accessories.

Marketing of product, present and future competitors thereby profit

Will the advance be recovered?

Has the knowledge, skill, tact and foresight ness been applied sincerely?

Is the advance goes against bank’s policy, government policy and central bank’s credit

restriction policy?

6.6.1DOCUMENTATION:

While to make arrangement of the credit procedure there required to prepare some

documents which are as follows_

Documents should be hand written with indelible ink

Documents should be executed in the presence of branch manager or responsible

officer.

Documents should be signed with full signature.

Any cutting, alteration and erasing is prohibited.

Signature of loans in all pages of documents should uniform.

Each and every page should be signed.

Executor’s signature should be verified by the manager or authorized officer.

No document or column of any documents should leave blank.

All documents should be recorded in register or security register serially and

properly.

Manager himself must authenticate guarantor’s signature. Full address of the

guarantor be recorded in the letter of guarantee forms.

Lawyer’s opinion kept allows with original set of loan document.

Proper and correct stamping is strongly recommended, which are_

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@ Judicial stamp

@ Non-judicial stamp

Adhesive

Special adhesive

Embossed stamp

6.6.2 ALL ABOUT SECURITY:

Security is an important matter for a bank because in case of any uncertainty of the

borrower, the bank can withdrawal its loaned capital. So it has become a vital issue for

the bank. And whenever the bank evaluates the security, it checks it very carefully. There

are several procedures of calculating and value judgments of the securities. Here are all

about securities_

TYPES OF SECURITIES:

Securities are basically two types, which are as follows_

1. Intangible securities:

o Borrower’s liability (If the borrower itself a reputed person)

o Guarantee of a respectable third party

2. Tangible securities:

o Primary security

o Collateral security / Goods or properties

Movable security

Immovable security

ATTRIBUTES OF A GOOD SECURITY:

To be a good security, the specific collateral needs to posses some criteria. In case of

absence of any of the criteria the collateral will be considered as a bad collateral or

having a loophole. The criteria are as follows_

Marketability

Easy ascertainment of value

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Stability of value

Storability

Cost and labor of supervision

Durability

Ascertainment of title

Easy transfer of title

Absence of contingent liability

Yield

In actual practice, hardly any security possesses all the desirable attributes mentioned

above and taking a higher margin or insisting on other guarantor as exists in the security

sometimes covers such defects.

6.6.3 VALUATION OF SECURITIES:

Valuation of securities is an important aspect for the banker since the advance value or

withdrawal limit is fixed on the basis of value of securities less specific stipulated

margins. There are several methods of valuing securities depending upon the type of

security offered. Valuation may be based on market value, invoice value or controlled

value.

In order to evaluate or select a good borrower from the side of bank interest, bank may

use the following credit screening tools_

6.6.3.1 Financial Spread Sheet (FSS):

FSS provide a quick method of assessing business trends and efficiency like_

Assess the borrower’s ability to repay.

Realistically show the business trends.

Allow comparisons to be made within the firm.

Borrowers who provide the financial statements are more likely to be good borrowers.

FSS is an important tool in a disciplined organized approach to credit analysis. The

historical reports of a company are a primary indicator of its future financial position.

FSS allow proper analysis of financial statements.

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FSS means of presenting the main balance sheet and income statement categories in a

form whereby a comparison can be made between similar figures on different dates. The

officers should use this FSS as by preparing the loan proposals. Any decision makers can

use this FSS. Thereby all credit officers for post sanction monitoring should use the FSS.

FSS is divided into four sections, which are_

1. The cash flow statement:

This is a basic financial statement that provides information about the cash receipts and

cash payments of an entity during a period, as operating, investing and financial activities

in a format that reconciles the beginning and ending cash balances.

Operating activities: Cash flow activities that include the cash effects of transactions that

create revenue and expenses and thus enter into determination of net income.

Investing activities: Cash flow activities that include acquiring and disposing of

investments and productive long-lived assets thereby lending money and collecting on

those loans.

Financing activities: Cash flow activities that include obtaining cash from issuing debt

and obtaining cash from stockholders and providing them with a return on their

investment.

2. The fund flow statement:

The statement of changes in financial position, prepared to determine only the sources

and uses of working capital between dates of two balance sheets is known as fund flow

statement. Working capital can be defined as the difference between current assets and

current liabilities. Working capital determines the liquidity position of the firm. The

components of fund flow are as_

Sources of fund: Data can be get from decrease of non-current assets or increase of non-

current liabilities or increase of equity/net-worth.

Uses of fund: It can be used for increase of non-current assets or decrease of non-current

liabilities or decrease of equity/net-worth.

Fund flow statement describes about the sources of fund. It also describes the causes

behind changes in the firm’s working capital position.

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3. The ratio analysis:

Ratio analysis expresses the relationship among selected items of financial statement

data. A ratio expresses the mathematical relationship between one quantity with other.

The relationship is expressed in terms of a percentage rate or a simple proportion. It can

be analyzed through_

Vertical / Common size analysis: A technique for evaluating financial statement that

expresses each item within a financial statement in terms of a percent of a base amount.

Horizontal / Trend analysis: It is a technique for evaluating a series of financial statement

over a period of time.

And lastly the comparison of ratio can be made by three procedures which are as

follows_

Inner firm comparisons: It refers to evaluate data by years of a same company.

Inter firm comparisons: It refers to evaluate data by based on competitors in the same

industry.

Industry average: It refers the type of comparisons based on average ratios for a specific

industry.

6.6.4 LENDING RISK ANALYSIS:

Bank lends money to have the responsible investment of depositors’ money. The other

objectives of lending are_

To make good loans to protect depositors investments.

To prevent good loans from becoming bad.

To recover / collect / strengthen deteriorating / bad / classified loans.

To earn a profit on loans made to ensure the ongoing viability of the bank.

Here the banks follow the strategy like funding to the profitable enterprises to have

growth. And thereby loss-making firms are refused funding to out of business. We all

know that lending for future period involves a great deal of uncertainty. Here the bank

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considers the risk that it will not recover the lending capital totally. Bank analyzes the

risk by the following way_

1. Business risk: It refers the risk of insufficient cash flow. That is, complete repayment

will not occur and repayment will not be occurred in time.

2. Security risk: It refers the risk against the collateral. In case of any uncertainty bank

needs to sell the collateral and recover its money. But it could happen that the value

of the collateral has declined. Or the collateral that deposited is false.

Here the risks that of the both business and security risks are described bellow with all its

components chronologically_

6.6.5 SANCTION DOCUMENTATION AND DISBURSEMENT PROCESS OF

CREDIT SYSTEM:

We all know the common thing of bank’s operation of borrowing money from public and

lending it to the people. But in the prospective of bank, it is a business enterprise and it

always tends to earn profit. Thereby the bank collects money by accepting deposits from

the public at a rate of interest and this money is lent to the public for trade, commerce,

industry and agriculture at a higher rate than it is collected. As the differences of two

interest rates will be higher as higher would be the profit of bank.

6.6.6 SUPERVISION AND MONITORING:

For both at the pre-sanction and post-sanction stages supervision is necessary in order to

ensure the safety of money lent. It is as important as the collateral. It can be classified

into 3 steps.

Supervision: Supervision starts right after the selection of the borrower.

Monitoring: Monitoring starts when the project / activity enters implementation phase.

Follow-up: Follow-up starts just after disbursement of loan.

These things are necessary for problem solving like loan to be doubtful; check regular

return of fund; check about compliances of terms and conditions etc. And in case of any

deviation, necessary correction can be taken to recover the problem. There methods to

make supervise and monitor are_

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Desk supervision / off-site: This method operates through checking periodic reports,

discussion, operating statements and cash flow statements.

Field supervision / On-site: This method operates through visiting and based on nominee

directors.

When to supervise, it needs to consider the following things_

Stock statements (Hypothecation and pledge)

Operation of customers’ accounts

Financial position of borrowers and guarantors

Purpose of loan

Confirmation letters of balance and securities

Diary notes

Other accounts

Miscellaneous

6.6.6.1 Early Warning System of loan reviewing and monitoring:

Early warning system is a loan monitoring and recovery system. The objectives of this

system are as follows_

Address problems while adequate alternative action exists.

Prevent loan to be bad, interest revenue loss and loan provisions.

Warning signals: The warning signals are as follows_

Material changes

Industry pattern changes

Management composition

Economic trends (Local, international)

Client performance vs. budget

Bank vs. client relationship

Evidence of weakness in borrower.

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Prevention: The prevention and control elements of early warning system are as follows:

Understand client’s business

Analyze client’s financials

Frequent visits to client

Perfected legal documentation

100% security cover for bank’s risk

Investigate market rumors

Use credit bureau cheekiness

Corrective measures: The elements of corrective measures are as follows_

Legal review of documents and situation

Workout strategy and action

Loss evaluation vs. security cover

Stay or leave decision and reclassification

Continuous visits to the client (Defaulter)

Negotiation vs. court action

Legal expenses multiplying

6.6.7LOAN RECOVERY:

Recovery plan is one of the components of performance plan. It is a future intended

action in respect of recovery. In other words, it is a conscious and deliberate effort to

recover all current dues and overdue loans.

Steps for recovery:

Loan recovery procedure is a stepwise procedure. The steps are as follows_

Step 1: (Existing loans and advances):

Make due dates of repayment

Regular follow-up

Periodical inspection

Supervise visit

Other necessary steps

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Step 2: (Overdue loans and advance):

Preparation of quarterly lists likes branch copy, controlling office copy and

head office copy.

Attempts are to be made for adjustment of loans before application of

quarterly interest.

Loans must be adjusted before classification.

Target for recovery.

Steps for declassification.

Other necessary steps for recovery of overdue loans.

Step 3: (Provision for classified loan):

Un classified = 1%

Substandard = 10 ~ 20%

Doubtful = 50%

Bad / Loss = 100%

Step 4: (Interest exemption): Finding out the legitimacy of interest exemption it needs to

follow the instruction of Bangladesh Bank and head office.

Step 5: (Write off): Finding out the legitimacy of writing off for a particular loan case it

needs to follow the instruction of Bangladesh Bank and head office.

Step 6: (Others): In case of any other situation, recovery will be happened as the

requirements of the Bangladesh Bank and as the requirements of this Pubali bank.

6.6.8Reasons behind non-recovery of general loans: The reasons for non-recovery of

general loans are as follows_

Not careful while identifying the borrowers with 5 seconds

Weak points while preparing credit reports.

Negligence on preparing sanction advice, borrowers can take advantage of the situation.

Other internal or external causes.

6.6.9Reasons behind non-recovery of project loans: The reasons for non-recovery of

project loans are as follows_

Feasibility report is not properly made.

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All-important papers / documents are not obtained.

Wrong valuation of pledged goods / mortgage property.

When problems or short falls are detected, proper measures are not taken.

Lack of proper control, supervision and monitoring

Inspections are not done regularly

Other lacking

Remedial measures:

Ascertain reasons for non-recovery

Persuasion

Litigation

Negotiation

Training and motivation of bank’s stuff / officers

Classification

Other interest, exemption, re-scheduling, write-off etc.

Strategies:

Tailor-made strategies.

Timely wisdom

Follow-up done with co-obligates

Old loan cleared for new loan

Friendship with the elite people of the society like DC, SP, MP etc.

Undertake crash programs for recovery. Etc.

6.6.10 Early warning system in loan recovery:

This system can also be applied when reviewing a borrower’s performance. The factors

are more subjective than the quantitative criteria just described but generally considered

to be more important in identifying problem loans at an early stage.

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Substandard: Loans would tend to reflect a borrower with the following things_

Adverse tends in sales and earnings

Labor problems

Lack of management depth ness

Over reliance on a single product or customer

Products subject to intense competition or technological obsolescence

Unfavorable regulatory, political or market environment

Balance sheet deterioration

Inductee or outdated financial data

Qualified auditor’s opinion

Debt restructuring problems

Doubtful: Loans would have the foregoing characteristics but even more adverse

conditions would exist_

Uncertain collateral coverage

Negative net worth and working capital

Fill recovery dependent upon unlikely events

Ineffective borrower’s recovery allots

Consistent failure of borrower to meet commitments

Bad / Loss: Loans would show that the possibility of the recovery is virtually nil. The

bank’s actions would then be confided to filling suits against the borrower / guarantor and

quantifying the security and collateral shortfall vis-à-vis the borrower’s outstanding and

the bank’s costs. It is this shortfall, which will determine the ultimate loss to the bank.

6.6.11 PROCEDURES OF FILLING OF SUIT IN THE COURT:

Filling of suit is the final step for recovery of loans and advances. There are three types of

acts usually on which suits can be filed like_

P. D. R. act July 1, 1913

Money Loan court act, 2003

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Bankruptcy act, 1997

The acts operated in banking sector are as follows_

Contract act

Sales of goods act

Partnership act.

Companies act.

Transfer of property act.

Negotiable instrument act 1881

Foreign exchange regulation act

Banking company act

Public demand recovery act, 1990

Bankruptcy act, 1997 etc.

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7.0Introduction:

Amongst early communities and primitive tribes the only way in which a man could

satisfy a want, which he could not himself supply, was by exchanging the products of his

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own personal effects for those of his neighbors. In international trade the seller wants to

make sure that the buyer is able to pay in time once the goods have been shipped and that

risk of nonpayment is minimized. He therefore, wants to find out how a third party, i.e.

the bank can help him in the practical arrangements for these transactions. Similarly, the

buyer is interested that he gets possession of goods before he pays for them and he is able

to make sure that the goods are exactly those he ordered. It is important to decide in

advance how seller is going to get payment before handing over possession of goods and

how the buyer is going to get constructive possession of the goods before making

payment.

This is more so because. the parties are located in two different countries separated by

distance, with different political, legal, monetary and trading system and possibly without

knowing each other well. The two trading partners wish to reconcile the conflicting

interests and converging them into one acceptable solution. This object led to research for

a system, which is mutually convenient, reliable and safe, taking into, accounts their own

individual problems, apprehensions and requirements. The solution resulted in the

evolution of Documentary Credit method where a bank acts as a fiduciary agent to

safeguard the interest of both the parties, namely, ensuring constructive delivery of goods

by the seller to the buyer and payment being made by the buyer on presentation of

documents complying with the terms and conditions of the Credit.

Foreign Exchange, like Foreign Trade is a part of economic activities of a country. The

term foreign Exchange is defined as ‘the system or the process of converting one national

currency into another and of transferring money from one country to another”.

Foreign Exchange as Foreign Currency, which includes deposits, credits, and balances

payable in Foreign Currency as well as Drafts, Traveler’s Cheques, Letter of Credit, Bill

of Exchange drawn in local currency but payable in Foreign Currency.

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Thus, the international trade and movement of money and capital are the mainsprings of

Foreign Exchange dealings. In the modern day, the Banking service specially foreign

department, is performing a great role, dealing with Foreign Trade, which are as follows:

1) Import

2) Export

3) Foreign Remittance

At New Market Br. of CBL, foreign Exchange department has divided into 3 distinct

sections.

These are i) Import Section, ii) Export Section and iii) Foreign Remittance Section.

Some national and international laws regulate functions of this department. Among these,

Foreign Exchange Act, 1947 is for dealing in foreign exchange business and Import and

Export control Act, 1950 is for Documentary Credits (UC’PDC-1993 revision &

International chamber of terms and conditions between exporter and importer law for

settlement of terms and condition between exporter and importer in international factors

for import and export operation for banks).

7.1 Meaning of Foreign Exchange

Money as earlier state is a common denominator in which the relative values of goods

and services can be expressed. When a person makes a payment to another person living

in the same country _ he uses any of the different forms of money currency in the

country. Foreign Exchange refers to the process or mechanism by which the currency of

one country is converted into the currency of another country. Foreign Exchange is the

means and methods by which rights to wealth in a country's currency are converted into

rights to wealth in another countries currency. In banks when we talk of foreign

exchange. We refer to the general mechanism by which a bank converts currency of one

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country into that of another. Foreign trade gives rise to foreign exchange. Foreign trade is

transacted either in the currency of the exporters country or that of the importers country.

Or that of a third country acceptable to both the exporter and the importer. Dr. Paul

Eingiz defines Foreign Exchange as the system or process of converting one national

currency into another and of transferring the ownership of money from one country to

another. In the words of Mr. H. "Foreign Exchange is that section of Economic Science

which deals with the means and methods by which rights to wealth in one country s

currency are converted into rights to wealth in terms of another country's currency. It

involves the investigation s of the method by which the currency of one country is

exchanged for that of another, the causes which render such exchange, may take, and the

ratios or equivalent values at which such exchange are effected. The expressions "Foreign

Exchange" are also popularly used to denote a foreign currency. A bank is said to buy or

sell foreign exchange, which deals in claims on foreign currency or the actual legal tender

money of other countries. But this is not the only meaning of the expressions. In the study

of foreign exchange as a branch of foreign trade, it has been given a much wider

interpretation. It covers all method by which the claims expressed in terms of one

currency are converted into another currency and the rate at which exchange take place.

The term "currency" as earlier stated includes not only such notes and coins as are legal

tenders, but also bank balances and deposits in foreign currency and all instruments

credit instruments which are capable of being used as currency. Such as bill of exchange,

cheques, drafts, airmail transfers, telegraphic ( cable) transfer and all other instruments,

which convey to holder a right to wealth. Thus foreign exchange means foreign currency

and includes- All deposits, I credits and balances payable in any foreign currency and any

drafts, traveler cheques, letters of credit and bills of exchange, expressed or drawn in

local currency but payable in any foreign currency; and Any instruments payable, at the

option of the drawee or holder thereof or any other party thereto, either in local currency

or in foreign currency or partly in one and partly in the other. Foreign exchange is

concerned with the settlement of international indebtedness, the methods of effecting the

settlements and the instruments used in this connection, and the variation in the rates of

exchange at which settlements of international indebtedness is made. Foreign Exchange

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is concerned with the settlement of international indebtedness. the methods of effecting

the settlements and the instruments used in this connection, and the variation in the rates

of exchange at which settlement of international indebt ness is made. The Central Bank

of country, being the controller of currency and credit and head of the money market is

vested with the responsibly to ensure internal as well as external stability of its currency.

The internal stability is controlled by its monetary and credit policy while the external

stability by bringing and maintaining equilibrium in country's balance of payment with

rest of the world, which includes control of gold, dollar and sterling reserves of the

country. In terms of Foreign Exchange Regulation Act. 1947, as adapted in Bangladesh,

Foreign Exchange means foreign currency and includes all deposits, credits and balances

payable and foreign currency instruments, such as, Drafts, Travelers, Cheques, Bills of

Exchange, Hundi and Promissory Notes payable in any foreign country.

7.1.1Fundamentals of Foreign Exchange

There are 3 fundamental aspects of the general mechanism of Foreign Exchange:

A. Every country has its own currency - legal tender/ distinctive unit of account.

B. Banks 'by book- keeping entry carried out into two centers concerned effect the

conversion of one currency into another.

C. These exchange are effected by means of credit instruments viz, Draft, Mail Transfer,

Telegraphic Transfer etc.

Each country has its' own currency distinct from the others and useful possession of any

such distinctive unit of account can be had only within that country in which it is in

circulation; that is so, because it discharges the limctions of money in the country of

which it is legal tender. Foreign currency for us is like any other commodity. This"

commodity character" of foreign currency is very significant and should be borne in mind

at all times. The only peculiarity which distinguishes foreign currency from other

commodities is that in the country where it is legal tender. It is money.

7.1.2 Administration OF Foreign Exchange in Bangladesh

The statute for administration 0 foreign currency in Bangladesh is the Foreign Exchange

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Regulation Act, 1947 as adapted in Bangladesh. Under the Act, 1947 as adapted in

Bangladesh. Under the Act, the responsibility and authority of administration of foreign

exchange invested by the government with the Bangladesh Bank. Central Bank the

country. Any who deals with foreign exchange has to abide by the directions given by

Bangladesh Bank in that behalf. Foreign exchange is a highly specialized business and is,

therefore, concentrated in selected branches of the schedule banks situated in

metropolitan cities and other places where either import or export predominates or inflow

of foreign remittances is expected to be high. Such branches can, however, function

within the guidelines prescribed by HEAD office of the Banks from time to time. A

senior executive of the bank having deep knowledge of the rules and regulations of

foreign exchange business and particulars and banking in the international economic and

political fields heads Foreign Exchange Department, which is also called International

Division.

7.1.3 Authorized: Dealers

In exercise of the powers conferred by of the Foreign Exchange Regulation Act, 1947 on

certain schedule banks, which are authorized to deal in foreign exchange by Bangladesh

Bank, the selected branches of the bank can transact such businesses. They are known, as

"Authorized Dealers" Bangladesh Bank does not directly wit the members of the public;

the transactions are done by Authorized Dealers in accordance with the guidelines given

by Bangladesh Bank.

Authorized Dealership License

License to deal in foreign exchange are normally granted only to schedule banks who

have offices in Bangladesh, after being satisfied that they have adequate number of staff /

officers properly trained in handling foreign exchange transactions and will be able to

comply with the requirements of the administration of exchange control. Authorized

Dealership License can at any time be withdrawn by Bangladesh Bank if the bank in

whose favor it is issued fails to conduct its business to the satisfaction of the Bangladesh

Bank. License to deal in foreign exchange is given in respect of individual branch of

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Authorized Dealers.

The licenses are of two types:

a. Universal

b. Limited

A universal license authorizes the bank to conduct all types of permitted foreign

exchange transactions in all permitted currencies. A limited license, on the other hand,

authorizes Handling of only those transactions, which are specially mentioned in the

license by the Bangladesh Bank.

Responsibility of Authorized Dealers:

Authorized Dealers act as agent of Bangladesh Bank. It is, therefore, very important: for

the authorized dealers to familiarize themselves with the underlying objectives of

exchange control and various instructions issued trom time to time with regard to

operations of exchange control. They should carefully follow the instructions contained

in the Exchanged Control Manual/Guidelines for Foreign Exchange Transactions issued

by Bangladesh Bank through Foreign Exchange Circulars, Circular Letters, Local

Circulars etc. Authorized Dealers should be careful in scrutinising applications received

trom the customers for the purpose of, say. Import payments, issue of export performance

benefit, release of foreign exchange for invisible payments etc., to ensure correctness of

the information given in the applications. Authorized Dealers should also bring to the

notice of the Bangladesh Bank any attempt, direct or indirect, of evasion of any provision

of Foreign Exchange Regulations Act, 1947 or any orders, directions or instructions

issued there under.

7.1.4 Foreign Trade

The Foreign trade of a country refers to its imports and exports of merchandise from and

to other countries under contract of sale. No country in the world produces all the

commodities it requires. On the contrary, a country may produce more of those

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commodities in the production of which it has a greater or comparative advantage, and

mayor may not produce smaller quantities 0 those in the production of which it has a

greater or comparative disadvantage.

Need for Foreign Trade

A country may decide to be- sufficient but that would force its people to forgo the use of

many commodities, which they cannot produce either because they have no capacity and

the resources to produce them or the production, of which is possible only at a

tremendous cost. Foreign trade enables, a country to have much larger flow and much

more diversified form of wealth than are possible without it.

There is a wide difference in respect of the material and human resources, stage of

technical and scientific progress, and possession of capital equipment in difference

countries.

-----The first of these differences is that of natural resources. A country,

which lacks in mineral products, has to import them from other countries. Climate and

soil conditions may not suit the production of some essential raw materials and

foodstuffs.

-----Secondly, differences in size and density of population also give rise to trade

between countries. A country with a population which is too large and dense in relation to

its recourses has to import food, clothing, and other consumer goods.

-----Thirdly, the stage of industrialization and technical and scientific

development generates foreign trade. A highly industrialized country exports capital

goods but may have to import raw materials and semi- processed goods. Fourthly the

high and rising standards of living of a country necessitate large imports or various

commodities. A country with mass consumption maintains a high level of foreign trade.

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7.2 Import Department:

Import section helps business and other people to import goods. In international

environment, buyers and sellers are often unknown to each other. So sellers always seek

guarantee for the payment for his goods exported. During this time, Bank gives export

guarantee that it will pay for the goods on behalf of the buyer. This guarantee is called

letter of Credit. Thus the banker gives the contact between importer and exporter by its “

Letter of Credit”

7.2.1 Import (L/C)

A letter of credit is a letter by a bank (known as the opening or the issuing bank)

at the instance of its customer (known as the opener) addressed to a person or a company

(beneficiary) undertaking that the bills drawn by the beneficiary will be duly honored by

it (opening bank) provided certain conditions mentioned in the letter have complied with.

When a buyer goes to import some goods from a foreign buyer, he requests his bank

make payments to the exporter of goods. And the bank recovers the amount from the

importer.

7.2.2Advantages of Letter of Credit:

to the exporter

A letter of credit is generally a very safe method of obtaining payment provided

the exporter complies with the terms of credit.

An irrevocable credit cannot be amended without his knowledge agreement.

A confirmed irrevocable undertaking of a bank generally in the exporter's country

A credit open in his favor can often lead to a credit being opened on his behalf in

favor of his supplier (to-back credit); alternatively the credit may be transferable.

Finance may be available by means of:- negotiating of his bills.

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The exporter has indirect control of the document of title.

Better than collection as a means of securing payment.

To the Importer

Protect own position by stating the precise documentation required.

He should consider making a status report on the supplier and in the case of a

large order call for a performance bond.

Credit can be obtained from the exporter by insisting on the use of a term bill or

exchange.

He could also consider the use of a revocable credit, which would be particularly

appropriate where the goods are dispatched in part shipments as soon as the first

lot of goods arrives. The importer can inspect them and if they are not up to

quality, can cancel the credit, hopefully before other shipments are mode.

The advising bank will only make payment when the exact document specified

has been received.

Once the specified documents which will usually be the documents of title are in

the hands of the advising bank then it will only be a matter of time before they are

sent to the issuing bank allowing him to collect the goods subject to their safe

arrival.

Finance may be available by means of

a. Ordinary bank loan / overdraft

b. Loan against imported merchandise.

c. Acceptable credit.

7.2.3 Parties to The L/C Importer Who applies for L/C Issuing Bank It is the bank which opens / Issues a L/C on behalf of

the importer.

Confirming Bank It is the bank, which adds its confirmation to the credit and it, is done at the request of issuing bank, Confirming bank may or may not be advising bank.

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Advising or It is the bank through which the L/C is advised to the exporters. This bank is actually situated in exporters country.

Notifying Bank It may also assume the role of confirming and / or negotiating bank depending upon the condition of the credit.

Negotiating Bank It is the bank, which negotiates the bill and pays the amount of the beneficiary. The advising bank and the negotiating bank may or may not the same. Sometimes it can also be confirming bank.

Paying It is the bank on which would reimburse the negotiating bank after getting payment- instruction form issuing bank.

7.2.4Steps for Import L/C Operation

Registration with CCI & E:

For engaging in international trade, every trader must be first registered with the

Chief Controller of Import and Export. Trade can take license only for import or only for

export or both. For getting license, trader has to pay some specified fees to the CCI & E.

The license is called IRC/ERC – (Import/Export registration Certificate). For opening

L/C with bank, this IRC must be showed to the bank.

Document required with L/C application Form:

Pro-forma invoice / Indent Invoice

Liability Sheet

Demand Promissory Note

Authority to debit account

A filled up amendment request form

A declaration of importer that his application has no illegal matter.

IMP form

Insurance cover note, etc.

7.2.5 Opening of L/C by the bank for the opener:

After getting filled up application form from the importer, the banker may open

letter of credit in favor of exporter if the bank satisfies with the credit worthiness of his

customer. But, before opening L/C, bank collects credit of exporter from exporter’s

country through his foreign correspondence there. Opening bank then issues credit by air

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mail or cable followed by credit advice as asked for by the opener through his foreign

correspondent or Advising bank as the beneficiary on his own form where it is addressed.

The opening banker’s credit advice contains all information of the credit and a

reimbursement clause stating how the negotiating banker would get reimbursement of his

payment made against the documents. The reimbursement of his payment made against

the documents. The reimbursement agreement may be to debit of the opening banker’s

account held with the negotiating bank of opening banker in the place of beneficiary.

Such account is called NOSTRO ACCOUNT. If no NOSTRO ACCOUNT is maintained

in the beneficiary’s country, then the negotiating bank is asked to claim reimbursement

from another bank either at the place of beneficiary or else where by drawing a

reimbursement draft.

DOCUMENTARY CREDIT CYCLE:

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IMPORTER ISSUING BANK

EXPORTER ADVISING/CONFIRMING BANK

REPRESENTING/NEGOTIATION BANK

7. ASK FOR SETTLEMENT

IMPORT L/C

3. ISSUE L/C

5. RESENT DOCUMENTS FOR NEGOTIATION

1.SALES CONTRACT

6. SEND DOCUMENT FOR REIMBURSEMENT

2. APPLY L/C

4. ADVISE/CONFIRM L/C

EXPORT L/C

Cash L/C or Margin L/C:

In this case, opening bank require some specified margin for opening L/C. The rate of

margin is depended on relationship with customers. When it is industrial concern, the rate

of margin is 5-10%. When it is commercial concern, the rate of margin is 20-50%. It

could be 100% cash margin for the new customers.

Nature of Credit:

Document Vs Clean Credit: All import credit is generally documentary credit that is

bill of exchange must contain documents to the title of goods. Here presentation of B/E

by exporter is sufficient for honoring the bill in case of Documentary credit. Clean credit

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requires no document with B/E for it’s honoring clean L/C. Clean L/C is not allowed in

Bangladesh except with the prior approval of the exchange control of the country.

Revocable Vs Irrevocable:

In revocable L/C, the opener of L/C can anytime withdraw his commitment to

honor the bill of exchange of the exporter. But incase of irrevocable L/C, opener cannot

withdraw his obligation anytime. Here opener’s commitment is legal obligation. In

international trade, only irrevocable L/C is used.

Adding Confirmation:

Sometimes the exporter may not rely on the L/C our bank. Exporter requires the

L/C to be confirmed by another bank situated in his counter. Any bank in exporter’s

counter gives guarantee about the payment. This is called confirming Bank. Generally

this confirming bank is advising Bank. By adding such confirmation, confirming banks

undertakes the liability to honor the bill of exchange of exporter and for this it debit the

account of issuing bank with it.

Amendment of Credit:

Sometimes, the importer may require amendment to be made in L/C. But this

amendment must be made with the consent o exporter otherwise amendment will have no

validity.

Validity and Expiry of Credit:

All L/C must mention the expiry date of L/C within which documents for

payment/acceptance/negotiation must be presented. This date must exceed the last date of

shipment. L/C must also stipulate a specified time period after the date of issuance of the

bill of lading or other shipping documents, during which presentation of documents for

payment/acceptance/negotiation must be made. In the absence of a specified period of

time being stipulated the period will be assumed to be 21 days from the date of the bill of

lading.

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7.2.6 Mode/Types of shipment:

I) FOB Price (Free on Board):

Under FOB basis, the exporter quotes the price covering all his expenses until the

buyer with the freight and the insurance being paid by the buyer delivers the goods duly

packed ‘on board’ the carrying vessel named and arranged. The importer bears any cost

incurred and all risks from the time the goods are placed on board.

II) C & F/ CFR (Cost and Freight):

In this case, the exporter quotes the FOB price plus freight. Importer bears

insurance cost. The exporter makes all arrangements for the shipment of the goods. Most

of the Bangladeshi importers exercise this kind of shipment.

III) CIF (Cost, Insurance and Freight):

Under CIF, the exporter quotes C & F price plus insurance cost. The

responsibilities of carrying out all formalities for shipment of the goods devolve upon the

seller.

IV) FAS (Free Alongside Ship):

Under FAS, the seller quotes the price covering all his charges until such time as

goods are loaded on ship at the specified seaport. The buyer is responsible for all further

necessary arrangements and charges.

V) Free on Rail:

Under this type of contact the seller quotes the price covering all his charges until such

time as the goods are loaded on train at the specified railway station. The buyer is

responsible for all further necessary arrangements and charges.

VI) EX-Exporter:

The seller quotes the price of the goods Ex-factory on the date agreed. The

importer is responsible for all charges from the time he takes delivery of the goods from

the exporter’s Yard.

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7.2.7 Shipment of goods and submission of documents by exporter:

Then exporter ships the goods to the destination of the importer country and sends

the documents to the L/C opening bank through his negotiating bank. The documents

must be made in accordance with L/C condition. Generally the following documents are

sent to the opening Banker with L/C.

Documents:

Bill of Exchange,

Bill of Landing.

Commercial Invoice,

Certification of Origin,

Packing List,

Advice Details of Shipment,

Pre-shipment Inspection Certificate,

Vessel Particular, and

A certificate stating that each packet contains the description of goods

over the packet.

Bill of Exchange (Draft):

a. Whether it is in order

b. Whether the amount of draft corresponds with L/C amount. Draft

c. Amount should be equal or less than the L/C amount.

d. Whether the date is within the date as stipulated in the L/C.

e. Whether the amount in figures corresponds exactly with the amount in words.

f. Whether the draft is in good order without erasures and properly endorsed.

g. Whether the draft is enfaced with profit clause if indicated in the credit.

COMMERCIAL INVOICE:

a. Whether the merchandise is invoiced by the beneficiary or by the assignee if the

credit is assigned.

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b. Whether the merchandise is invoiced to the party on whose account the credit is

opened.

c. Whether the description and the unit price of the goods correspond with that given

in the credit that all calculations in the invoice are correct.

d. Whether the invoice does not include extraordinary expenses such as cable

storage commission etc unless specifically authorized in the terms of the letter of

credit.

e. Whether the Import License number mentioned in the letter of credit advice

appears on the invoice and that the invoice is strictly in accordance with the

proforma invoice if furnished with Letter of Credit advice.

f. Whether as many copies of the invoices (s) as the credit stipulates, are presented.

BILL OF LADING:

1. Whether the Bill is 'Clean' and 'On Board'.

2. Whether signature of the shipping authority is there.

3. Whether the date of B/L is within the date of shipment as per L/C.

4. Whether the freight is pre-paid.

5. Whether the port of shipment and that of destination are similar as per L/C.

6. Whether title of B/L belongs to LIC opening Bank.

7. Whether the bills of lading cover the merchandise described in the invoice, by

description, quantity, marks and number;

8. Whether the dates on the bills of lading (or other documents) are not 'Stale' i.e.

not dated in unreasonably long time prior to negotiation;

9. Charter party Bills of Lading are not acceptable unless so stipulated in the

latter of credit;

10. Whether full set of BIL dispatched by Nego. .Bank.

INSURANACE:

Under the existing Exchange Control Regulations, insurance on the imports is to be

covered in Bangladesh. The risks to be insured are mentioned in our Letter of Credit

Application form. The branch opening the. Letter of Credit obtains insurance cover,

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covering all risks mentioned in the Letter of Credit Application from before advising the

Letter of Credit. Such cover stipulates the address to which advice of shipment is to send.

In the Letter of Credit Advice full address to which the advice .of shipment is to be send

and the latest date for such intimation should be given. The beneficiary should further be

required as mentioned in the letter of Letter of Credit Advice to endorse a copy of such

intimation to the opining branch and to forward a copy with a certificate that the

intimation was duly dispatched to the given address along with other documents. On

receipt of documents under a credit, the opening branch should check to see that the

certificate and the intimation given by the beneficiary correspond exactly with the

stipulations laid down in the Letter of Credit Advice.

CERTIFICATE OF ORIGIN:

a. Whether the merchandise covered therein is the merchandise covered by the

invoice;

b. Whether it has been issued by our Consul unless it is definitely known that this is

not required;

c. Whether the weight and description shown in the Consular documents are

identical with those shown;

Lodgments of Documents by the opening Banker from the negotiable bank:

After receiving the documents, the opening banker scrutinizes the documents to

verify whether they are free of discrepancy. If any discrepancy found, it informs the

importer. If importer accepts the fault, then opening bankers call importer retiring the

document. At this time many thing can happen. These are indicated in the following.

Discrepancy found but the importer accepts:

In this case no problem occurs. Importer accepts the bill of exchange and retires

all the documents.

Discrepancy found and importer not agreed to accept:

In this case, importer protest and send back all the documents to the exporter and

request him to make in the specified manner. Here opening importer is not bound

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to pay because the documents send by exporter is not in accordance with the

terms of L/C.

Documents are OK but importer is not willing to retire the documents:

In this case bank is obligated to pay the price of exported goods. Since importer

did not pay bill of exchange, this payment by bank is one kind of credit to the

import and this credit in banking is known as PAD (Payment Against Document).

Everything is O.K. but importer fails to clear goods from the port and request

bank to clear: In this case banks clear the goods and takes delivery of the same by

paying customs duty and sales tax etc. So, this expenditure is debited to the

importer’s account and in banking it is called LIM (Loan against Imported

Merchandise).

After these steps, L/C operation for a particular import is completed.

7.2.8 Credit Facilitates:

During L/C operation some Credit facilities evolved to the importer. This credit

facilitates are mentioned below:

Payment Against Documents (PAD):

This loan is related to cash L/C after opening L/C foreign exporter sends goods to the

importer and a bill of exchange along with shipping documents to the L/C opening

bank. Upon receiving bill of exchange and other documents, bank immediately make

payment to the exporter if no discrepant is found on the shipping documents. Bank

hands over the shipping documents to the importer only to exporter on the basis of

shipping documents, this is called payment documents.

Loan against Imported Merchandise (LIM):

LIM is occurred from PAD. After payment to the exporter on the basis of shipping

documents, bank recovers the amount from the importer. The negotiation bank Sends

bill of exchange to the Opening Bank. In this case, importer requests to the opening

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bank to treat PAD as credit and hand over the shipping documents to him so that he

can clear the imported goods from the port. Then bank converts the PAD to regular

credit and hand over the documents to loan. Since this loan is given on the imported

goods, this is called Loan against Imported Merchandise. Duration of this loan is one

month only, If the loan is no repaid after one month, it is treated as forced LIM.

Loan Against Trust Receipt (LTR):

LTR is also a post shipment import finance like LIM. The essential difference is that

in LTR, shipping documents are delivered to the client on trust. The act of trust is

based on past experience with and credit worthiness of client. LTR facilities usually

have validity of 60 to 90 days. In industrial units, period of limit may be longer. In

case of this facility, the clients always pay duty and charges. The Bank Manager must

be absolutely sure that the client will deposits the sale proceeds towards payment of

the bank dues within the stipulated period.

Terms of Trade

Terms of trade are the rate at which a country obtains its imports in exchange for its

exports. It is the quantity of import the country gets for a unit of its exports or the

quantity of export it has to pay from a unit of import. A simple and convenient definition

of terms of trade is the volume of imports that can be bought with a given volume of

exports, the ratio of export prices to import prices. Movements in the terms of trade

therefore are expressed by index numbers. The value of the index method is, of course,

historical rather than prophetic. The ratio between two index numbers of average prices is

instructive when trend of international trade are interpreted and it explains the degree of

physical efforts required to improve a country's external trade.

Balance of Payment

Foreign trade, in its broad sense, includes not only visible trade involving import and

export of commodities but invisible items also. These invisible items include shipping,

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banking, insurance, tourist traffic, gifts, investment, interest on investments, technical

know how, constancy etc. The balance arrived at taking into account both the visible and

invisible items in foreign trade is _own as the balance payments. Thus balance of

payments is more comprehensive than balance of trade and other invisible items of

foreign trade.

Import Restrictions

When imports are restricted the balance of payments position no doubt improves and the

reductions in imports is easier but when imports consists of raw materials for the

manufacture of export goods at may not be wise to restrict such imports. Imports

restrictions are effected trough such measure as imposition of tariffs or import duties,

fixing of quotas, allowing imports only against license. Tariffs are import duties levied on

goods entering the country. Tariffs thus make imports dearer and are intended to

discourage imports.

7.3 Export L/C:

Export L/C operation is just reverse of the import L/C operation. For exporting goods by

the local exporter, bank act as a collection bank (negotiable bank) for the exporter.

As negotiable bank it receives documents from the Advising Bank and hands it

over to the exporter. Sometimes it adds confirmation of the L/C on request from the

Opening Bank. By adding confirmation, it assumes the responsibility to make payment to

the exporter.

As Negotiable Bank, it negotiates the bills and other shipping documents in favor

of the exporter. That is, it collects the proceeds of the export-bill from the drawee and

credits the exporter’s account for the same. Collection proceed from the export bill is

deposited in the bank’s an account that a bank holds with a foreign bank account in the

importer’s country. Sometimes the bank purchases the bills at discount from the local

exporter and waits till maturity of the bill. When the bill matures, bank presents it to the

drawee to encase it.

A local seller gets some order from a foreign buyer and the seller has to

manufacture these goods for exporting. For manufacturing these goods, the seller may

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have to purchase raw materials from local or abroad. For purchasing the raw materials,

local seller goes to the bank to open L/C. And the banker opens L/C against the lien of

the export L/C.

Since this import L/C is opened against any export L/C, this is called Back-to-

Back L/C. This facility is given by Bangladesh Bank to the exporter for importing raw

materials to manufacture the goods. Arrangements for exporting to Back-to-Back L/C are

such that export L/C matures first. Then out of this export profit, import L/C is paid out.

The back-to-back letter of credit must conform to the terms and conditions of the original

letter of credit with the following exceptions:

1. Name of the original beneficiary shall be substituted by the of the actual supplier.

2. The credit amount shall normally be lower than that of the original letter of credit,

the differences being the amount of profit the exporter expects to earn from the

deal.

3. The back-to-back letter of credit shall be made valid for shipment and negotiation

prior to expiry of the corresponding date.

7.3.1 Back-to-Back L/C

Back-to-Back L/C may be two types:

1. Inland or Local L/C and

2. Foreign L/C

7.3.1.1 Inland L/C or Local L/C:

ILC means L/C within the same country. Inland L/C operation is same as Import/Export

L/C operation. It opens L/C on request from the buyer in favor of the seller. That is, it

undertakes the responsibility to make payments to the seller on behalf of the buyer. In the

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inland L/C, currency involved is denominated in foreign currency (Dollar or Pound) or

local currency (Taka).

7.3.1.2 Foreign L/C:

The local exporter can open L/C to import raw materials to manufacture his

export’s goods. It is some as the inland L/C operation.

In our country, Export and Import operation of bank is very much related with

one another because of use of Back-to-Back and maturity of payment for Back-to-Back

L/C is set in such that it cannot be paid out of export proceeds. So export and import

sections works as one unit. These two operations can hardly be separated from one

another in this branch.

Features of Back of Back L/C:

Is an import L/C to procedure goods/raw materials for further processing

Is opened based on Export L/C

Is a kind of Export Finance

Export L/C is at Sight but Back to back L/C is at Usance.

No margin is required to open back to back L/C

Checklist to open Back to Back L/C:

* Application is registered with CCI & E and has bonded warehouse license

* The Master L/C has adequate validity period and has no defective clause

* L/C value shall not exceed the admissible percentage for net FOB value of

relative Master L/C.

* Usance period will be up to 180 days.

* Papers requires opening Back to Back L/C:

* Import Registration Certificate & Export Registration Certificate

* L/C Application & LCA form.

* Performa Invoice Indent.

* Insurance Policy.

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* IMP form.

* In addition to above following papers are required for Readymade Garments

Industry—

* Bonded Warehouse license.

* Quota Allocation letter from EPB

* Letter of disclaimer form landlord if rented premises.

Steps to issue Back to Back L/C:

* Obtain all required papers.

* Check the credit limit

* Prepare officering sheet if regular credit line is not available

* Mark lien on the Master L/C

* Issue the L/C.

7.3.2 Kinds of credits occurred in L/C Operation

During L/C operation some Credit facilities evolved to the exporter. This credit

facilitates are mentioned below:

7.3.2.1 Export Development Fund (EDF):

The main objective of creating and Export Development Fund (EDF) at the Bangladesh

bank is to assure a continued availability of Foreign Exchange to meet the import

requirements of non-traditional manufactured items. This facility is available to the non-

traditional exporters, particularly newer exporters diversifying into higher value exports

and exporters diversifying into new markets .An exporter identified above is eligible to

avail of EDF facilities on the basis of the conditionalities stated below:

He must be an exporter of non-traditional manufacturing items.

The value added of these products could be 20% except in the case of garments

where it has to be 30% and above.

The loan should be utilized in the case of importing raw material for

manufacturing the exportable products.

The exporter must have and export L/C

He must create a back-to-back L/C for importing raw materials.

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The period of loan is 180 days.

The exporter can borrow as many times as he likes in a year.

An exporter can borrow an amount not exceeding $500,000 in a single case but

outstanding should not be over $ 10,00,000.

Here import L/C matures first. In that case Bangladesh Bank gives the fund to the raw

materials. When export proceeds come, first Bangladesh Bank loan to the importer is

adjusted and remaining part goes to the importer of raw materials.

7.3.2.2 Export Cash Credit:

Under this arrangement a credit is sanctioned against hypothecation of the raw

materials or finished goods intended for export. Such facility is allowed to the first class

exporters. As the Bank has got no security in this case, except charge documents and lien

of export L/C contract, Bank normally insists on the exporter in furnishing collateral

security .The letter of hypothecation creates a chare against the merchandise in favor of

the bank but neither the ownership not the possession is passed to it.

Such credit facility may be allowed against pledge of exportable goods or raw materials.

In this case cash credit facilities are extended against pledge of goods to be stored in go-

down under bank’s control by singing letter of pledge & other pledge documents. The

exporter surrenders the physical possession of the event of failure of the exporter to honor

his commitment, the bank can sell the pledge merchandise for recovery of the advance.

Credit limit may be sanctioned against trust Receipt (T.R). In this case also unlike

pledge, the exportable goods remain in the custody of the exporter. He is required to

execute a stamped export trust receipt in favor of the bank, where in a declaration is made

that goods purchased with financial assistance of bank are held by him in trust for the

bank. This typed of credit is granted when the exporter wants to utilize the credit for

processing, packing & rendering the goods in exportable condition and when it seems

that exportable goods can not be taken into bank’s custody. This facility is allowed only

to the first class party and collateral security is generally obtained in this case.

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7.3.2.3 Packing Cash Credit

In this case credit facilities are extended against security of Railway

Receipt/Steamer/Receipt/Barge Receipt/Truck Receipt evidencing transportation of

goods to the port for shipment of the goods in addition to the usual charge documents and

lien of export letter of credit. This type of credit is sanctioned for the transitional period

from dispatch of he goods till negotiation of he export documents. The drawings under

Export cash credit (Hypothecation/Pledge) limit are generally adjusted by drawing s in

packing credit limit which is , in turn , liquidated by negotiation of export documents .

7.3.2.4 Purchase of DP & DA Bills

In such a case, the banks purchase/discount the DP (Documents against Payment) and

DA (Documents against Acceptance) bill at rate published by the Exchange Rate

Committee of authorized dealers. While doing so, the banks should scrutinize all the

export documents separately and minutely and clear instructions are to be obtained from

the drawer of the bill in regard to all important issues related to the negotiation of the

bills.

7.4 Foreign Remittance Department:

This bank is authorized dealer to deal in foreign exchange business. This authorization is

given by Bangladesh Bank under Foreign Exchange Regulation Act, 1947 (Section 3). As

an authorized dealer, a bank must provide some services to the clients regarding foreign

exchange and this department provides these services.

The basic function of this department are outward and inward remittance of

foreign exchange from one country to another counter. In the process of providing this

remittance service, it sells and buys foreign currency. The conversion of one currency

into another takes place at an agreed rate of exchange, which the banker quotes, one for

buying and another for selling. In such transactions the foreign currencies are like any

other commodities offered for sales and purchase, the cost (convention value) being paid

by buyer in home currency, the legal tender.

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7.5 Product of Foreign Remittance:

In the remittance department, we can identify two kinds of product that offer for the

customers:

1. Traveler’s cheque Issue

2. Different kinds of Foreign Currency (F.C) Account open

7.5.1. Traveler’s Cheque Issue:

Traveler’s Cheques are useful to persons who are frequently traveled abroad. This Bank

issues traveler’s cheque of AMEX. Customers can encase the TC in abroad from the

drawee bank. TC is alternative to holding cash and it provides better securing than

holding cash in hand.

Buying of Traveler’s Cheque: Customer buys traveler’s cheque for use in abroad.

But some leaf may be remained unused. The customer can surrender this unused

leaf against payment of equivalent amount. All payments are made in local

currency. Banks generally buy only those TC.

Traveler’s Cheque received for collection: This Bank for collection receives

unused leaves of traveler’s cheque issued by another banks. Generally it takes 21

days for collection and customer can draw cash after one month.

7.5.2 Different kinds of Foreign Currency (F.C) Account:

According to Guidelines for foreign exchange transactions, CBL (Authorized Dealer,

Gulshan Branch) may open following types of FC accounts without prior permission of

Bangladesh Bank:

I. Private Foreign Currency Accounts

II. Non-Resident Foreign Currency Deposit (NFCD) Account

III. Resident Foreign Currency Deposit (RFCD) Account

7.5.2.1 Private Foreign Currency Accounts:

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Private Foreign Currency Accounts may be opened in the names of:

a) Bangladeshi nationals residing abroad

b) Foreign nationals residing abroad or in Bangladesh

c) Foreign firms registered abroad and operating in Bangladesh or abroad

d) Foreign mission, International development organizations and their expatriate

employees.

e) Bangladeshi nationals working with the foreign/international organization

operating in Bangladesh provided their salary is paid in foreign currency.

f) International NGOs, Donor agencies

g) Diplomatic Bonded Warehouse (Duty free shops) licensed by the Custom

Authorities

h) Exporter to keep his foreign exchange retention quota in this account

i) Industrial units operating in Export processing zone (EPZs)

Credit to such account may be made against Inward Remittance of foreign exchange in

any form or transfer from another foreign currency account or Non-resident Taka

accounts of banks abroad.

The account holder can freely remit from this account in foreign currency and where in

the world. All payments in Bangladesh should be in the local currency.

Features and Requirement for opening Private Foreign Currency Accounts in the name of

a Bangladesh national residing abroad (wage earners):

- Account can be opened without initial deposit

- Remains operative even if operation not made for a particular time

- Wage earners can remit fund from abroad

- First transaction normally takes place when remittance deposited

- Wage earners may also deposit currency notes, traveler’s cheques, drafts brought

into Bangladesh

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- Entire remittance from abroad is free from income tax.

Documents required

- Account opening form duly filled in and signed

- Photographs of the account holder

- Photocopy of the employment contract

- Photocopy of passport of the account holder (first 7 pages) and Visa

- Photographs of the nominee duly attested by the account holder

- Letter of authority (For nominee)

- Specimen signature card which is used both for the account holder and the

nominee

Any person intending to open FC account from abroad may send all the aforesaid papers

duly attested by authorized officers of nearest Bangladesh Mission to the authorized

dealer in Bangladesh.

7.5.2.2 Non-Resident Foreign Currency Deposit Account (NFCD)

All non-resident Bangladesh nationals and person of Bangladesh origin including

those having dual nationality and ordinarily residing bearing time deposits named “Non-

Resident Foreign Currency Deposit Account” with the ADs.

NFCD account may be opened by Bangladesh nationals serving with

embassies/high commissions of Bangladesh in foreign countries and the

officer/staff of the govt. /semi govt./autonomous/nationalized banks posted abroad

or deputed with international and regional agencies like IMF, World bank, IDB, ADB

etc. during their assignment abroad may open such accounts.

NFCD Accounts are in the nature of term deposit account maturing after one

month, three months, six months and one year. The accounts may be maintained

in US Dollar, Pound sterling, Deutsche mark, Japanese Yen and Euro with

minimum amount of USD 1000 or Pound sterling 500 or equivalent.

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Application in prescribed form may be sent by the eligible Bangladesh nationals

along with a set of specimen signatures of the opener duly verified by Bangladesh

mission abroad or authorized dealer’s foreign correspondent.

These accounts may be maintained as long as the account holders desire. Eligible

persons are also allowed to open such accounts within six months of their return

to Bangladesh

The account holder can freely repatriate the balance and the interest accrued

thereon, in foreign exchange to the country of his residence or any where in the

world.

7.5.2.3 Resident Foreign Currency Accounts:

RFCD Accounts may be maintained by resident Bangladeshi with origin exchange

brought in at the time of their return to Bangladesh from visits abroad.

These Accounts may be opened by any amount of foreign exchange brought in

with declaration to customs authority in form FMJ and upto USD 5000 brought in

without any declaration.

RFCD Accounts may be opened in US Dollar, Pound sterling, Deutsche Mark and

Japanese yen and may be maintained as long as the account holder desires.

Interest in foreign exchange shall be payable on balances on such accounts if the

deposits are for a term of not less than one month and the balance is not less than

USD 1000 or Pound sterling 500 or equivalent. The rate of interest shall be one-

quarter percent less than the rate at which interest is paid on balances of banks in

their foreign currency clearing accounts maintained with the Bangladesh Bank.

7.6Miscellaneous services provide by this Department:

Student File Open:

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Students who are desirous to study abroad can open file in this bank. By opening

this file, bank assures the remittance of funds in abroad for study. Moreover, Bank

sends financial information to the diplomatic office, which is very helpful for

opener to get visa.Student can endorse $200.00 at a time in his own name. But if

the amount exceeds $200.00, then the student has to open a student file. for

opening a student file, the following documents are required:

(a) Preliminary application and information for admission.

(b) Letter of approval of the student by the university.

(c) A filled up application form for currency in aborad.

(d) “Transcript of Records” given for the last degree by the university.

(e) Certificate given by the Board for SS.C. / H.S.C. or equivalent

examination.

(f) A photocopy of 1-7 Visa form.

In case of tuition fees, applicant must send the currency in favor of the insitute. He cannot

take the fees of the institute with him perosnally. Usually a student has to endorse at least

one third of the fees of a year.

Foreign Transfer:

Foreign Demand Draft: Bank issues Demand Draft in favor of purchaser or any

other according to instruction of purchaser. The payee can collect it for the

drawee bank in which the Issuing bank of Demand Draft holds its NOSTRO

Account. Bank also makes payment on DD drawn on this bank by its foreign

correspondence bank through the VOSTRO Account. In the process of

remittance, bank must have to make profit as a business institution. Bank makes

profit in two ways - 1. Commission charge and 2. Differences between the buying

and selling rate.

Telex Transfer

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Outward TT: Bank also remit fund by tested telegraphich message via its

foreigncorrespondence bank in which it is maintaining its NOSTRO Account.

Incoming TT: In the same manner, CBL makes payment according to telegraphic

message of its foreign correspondence bank from the corresponding VOSTRO

Account.

Cash Remittance

Cash Dollar/Pound Sell: Bank sells Dollar/Pound for using in abroad by the

purchaser. The maximum amount of such sell is mentioned in the Bangladesh

Bank publication of Convertibility of Taka for Currency Transactions in

Bangladesh.

Cash Dollar/Pound purchase: Bank can purchase dollar from resident and non-

resident Bangladeshi and Foreigner. Most dollars purchased comes from

realization of Export bill of exchange.

These are the various types services given and operated by Foreign Exchange

Department.

SWOT Analysis of Foreign Exchange Department:

Strength:

Experienced manpower in the area of Foreign Exchange Department.

Good relation with the Business Person (Exporter & Importer).

Positive reputation as a sound Bank to the sellers as well as Banker.

Online banking system facilitates maximum services to the client.

Good banking relation with foreign banks of different countries as well as home

country.

Credible to the clients.

Prompt service in Foreign Exchange Department.

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Low commission rate attracts the client.

Authorized dealer of Foreign Exchange.

Weakness:

Follow conservatism to open L/C.

Lack of available branches in remote areas of business and services.

Lack of manpower in Foreign Exchange Department.

Dependent on Hong Kong Bank for international communication by using S.W.I.F.T.

mechanism.

Lack of promotion to expand the Foreign Exchange business.

Opportunities:

Increase transactions in the area of foreign business of Bangladesh.

Open market policy of the Government.

Convertibility of Taka creates the opportunity to maintain the conversion rate as per

international market rate.

Value of foreign currency depends on market demand.

Government regulations favor the foreign transaction.

Flexible market in Foreign Exchange.

Threats:

Clients prefer foreign bank for foreign transaction.

Increased number of new bank creates sever competition in Foreign Exchange

banking.

Government new regulations like as L/C margin reduce the Foreign Exchange

transaction.

Slow growth of the economy.

Well spread “Hundi Business”.

Frequent devaluation of Taka.

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Strict controlling of Central Bank in foreign currency endorsement.

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8.0 Conclusion:

It is a great pleasure for me to have Internship in The City Bank Limited. Because

without practical exposure it couldn’t be possible for me to compare the theory with

practice. And it is well established that theory without practice is blind. During the

Internship I have observed the function of General Banking, Foreign Exchange, Credit

department, Account department of CBL that may help me a lot to be a professional

banker in future.

Out of the above discussion a conclusion can be drawn after saying that, the present

customer dealing procedure is quite well at this moment and the computerized transaction

makes the system efficient and effective.

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Appendix

Questionnaire for CBL

1. What is your name?

2. What is your position in the bank?

3. In which department do you work?

General banking department

Foreign exchange department

Loan &Advance department

General Banking department

4. What is the main task of General banking department?

5. How do you collect information about new client?

6. What are the requirements for opening a new account?

7. What kind of products (Scheme) does CBL offer for Clint?

8. What is the interest rate for the different scheme?

9. What is FDR,TT,DD?

10. What are the Current, saving and STD account?

11. What kind of products (service) does the CBL provide through this department?

12. How do the customers communicate with the bank?

*Through Online *Through Physical visit

13. What are the ways to keep records?

*Online *Manual *Both

Foreign Exchange Department

14. What is the main task of foreign exchange department?

15. What is LC (letter of credit)?

16. What is the rule for opening an Import LC (letter of credit)?

17. What is the rule for opening an Export LC (letter of credit)?

18. What is traveler Cheque?

19. What is student file?

20. What is Foreign Currency Account?

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21. What kind of products (service) does CBL through this department?

Loan & Advance

22. What is the main task of loan & Advance department?

23. What are the minimum requirements for taking loan?

24. What is the process of loan sanction?

25. What kinds of loan are offering in this Branch?

26. What is present disbursement system of the loan?

27. What is Interest rate to charge for the loan?

28. What kinds of security are used for the loan?

29. Why do you need guarantor for loan?

30. What kind of products or service CBL does through this department?

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Reference

1 Different Types Foreign Currency Accounts

A.K.M Sajedur Rahman Khan

Former Faculty Member, BIBM

Ref: Guidelines for Foreign Exchange Transactions, volume-1, published by Bangladesh

Bank , Head office, Dhaka .

2. Convertibility of Taka” Bank Parikrama. FE Circular( various issues) Bangladesh

Bank .1997

3. “Guidelines for foreign exchange transaction” Alam .Khorshed. “Bangladesh Bank,

Vol-1 Bangladesh Bank ,Dhaka.

4. “Credit Management” Training Manual, The city Bank limited

5. Annual Report 2006, The city Bank limited

6. Reading Materials for the Training Course on “ International Trade Parment& Foreign

ExChange”, (September 18-30,2004), Shah Md. Ahsan Habib & Md. Atiar Rahman

Mollah, Bangladesh Iinstitute Of Bank Management.

7. Marketing Management, Philip Kotler, 11th Edition

8. Website: www.thecitybankltd.com

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