Recruitment & Selection Practices of SBL

7/30/2019 Recruitment & Selection Practices of SBL

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Chapter:1

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INRODUCTION

1.1 ORIGIN OF REPORT

1.2 OBJECTIVE OF THE REPORT

1.3 METHODOLOGY OF THE STUDY

1.4 ORGANIZATION OF THE REPORT

1.5 LIMITATIONS OF THE STUDY

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Chapter-1: Introduction1.1 Origin of Report:Masters of Science in Business Administration (MBA) is a post-graduate

program which is mainly designed for managers, executives,

supervisory staff and fresh but matured graduates from commerce,engineering, medicine and other disciplines with experience in

business of education to prepare them for successful careers in

modern competitive business professions and increase their

knowledge in economic, social and political environment of business,

firm, especially quantitative techniques, management and

communication skills.

I was a student of MBA, Chittgong University Bangladesh. I was

required to take practical knowledge after completion of regular

courses. For this reason I complete my internship by Standard Bank Ltd

. This was a great opportunity for me and for gathering information to

prepare my report. And I was placed Standard Bank Ltd, Imamgonj

Branch.

This report is originated on the Banking Activities operated byStandard Bank Ltd.

1.2 Objective of the Report:General:

To observe the general banking, and advance operation of SBL,

and their services

To get an overall practical knowledge concerning banking

activities as a financial institution

How a bank operates their activities in different areas being a

single organization

What a bank is doing for Bangladesh to develop nationaleconomy.

Specific

Presentation of an introduction to the organization- Standard

Bank Limited as a whole

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To get overall idea about the credit and general banking of SBL

To recommend necessary steps to overcome such problems

faced by the SBL

Find out the marketing strategy of SBL and how they formulate

their marketing strategy.

Make overall export, import performance analysis.

To identify the major areas of inefficiency.

1.3 Methodology of the Study:

In order to make the Report more meaningful and presentable, twosources of data and information have been used widely.The Primary Sources are as follows-Face-to-face conversation with the respective Executives & officers of

the Bank. Informal conversation with the clients.

Practical work exposures form the different desks of thevarious departments of the Branch covered.

Relevant file study as provided by the officers concerned.

The Secondary Sources of data and information are- Annual Reports of Standard Bank Limited.

Periodicals published by Bangladesh Bank.

Various books, articles, compilations etc. Regarding generalbanking functions, foreign exchange operations and creditpolicies.

1.4 Organization of the Report:The report is divided into five chapters. The first chapter contains

introduction of the report. The second chapter includes an overview of

financial system and Banking sector of Bangladesh. Third chapter

contains Corporate review of Standard Bank Limited. Chapter four

describes Functions of General Banking and Accounts department.

Chapter five describes Credit operations of Standard Bank Limited.1.5 Limitations of the Study:To prepare this report I have faced the following limitations:

Most of the time SBLs employee was very busy. So they cant

provide enough time to get information for preparing this report.

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SBL is very new Bank, so its impossible to make comparison

with others. So the study is limited only on SBL.

The most functions of SBL are manual and lengthy though it is

trying to upgrade.

Chapter:2Review of Financial System and

Banking Sector

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Chapter-2: Review of Financial System and BankingSector

FINANCIAL SYSTEM

The financial system of Bangladesh consists of Bangladesh Bank (BB)as the central bank, 4 nationalized commercial banks (NCB), 5

government owned specialized banks, 30 domestic private banks, 10

foreign banks and 28 non-bank financial institutions. The financial

system also embraces insurance companies, stock exchanges and co-

operative banks.

2. 1 Central Bank and its policies

Bangladesh Bank (BB), as the central bank, has legal authority to

supervise and regulate all the banks. It performs the traditional central

banking roles of note issuance and of being banker to the government

and banks. It formulates and implements monetary policy, manages

foreign exchange reserves and supervises banks and non-bank

financial institutions. Its prudential regulations include: minimum

capital requirements, limits on loan concentration and insider

borrowing and guidelines for asset classification and income

recognition. BB has the power to impose penalties for non-compliance

and also to intervene in the management of a bank if serious problems

arise. It also has the delegated authority of issuing policy directives

regarding the foreign exchange regime.

2.1.1 Interest Rate Policy

Under the new interest rate policy which became effective in January

1990, all deposit (Bank / Financial Institutes) rates are decontrolled.

Lending (Bank / Financial Institutes) rates are all freely determined by

the market, except for exports.

2.1.2 Capital Adequacy

In January 1996, BB announced a new policy on Capital Adequacy

along the lines recommended by the Basle Committee on banking

supervision. The Revised policy on capital adequacy requires

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scheduled banks to maintain at least 9% of off-balance sheet risk and

risk in different types of assets as capital.

2.1.3 Loan Classification and Provisioning

Bangladesh Bank introduced new accounting policies with respect to

loan classification, provisioning and interest suspense in 1989 with a

view to attaining international standards over a period of time. A

Revised policy for loan classification and provisioning was introduced

from 1st January,1999. The Revised policy calls for an independent

assessment of each loan on the basis of qualitative factors and

objective criteria. Each loan is branded with the worst level of

classification resulting from these independent assessments.If a Continuous Credit or a Demand Loan remains non-performing

for 6 months or more it is classified Sub-standard. It is classified as

Doubtful if it remains non-performing for 9 months and classified as

Loss if non-performing for 12 months or more.

In the case of a Term Loan, which is repayable within a maximum

period of 5 years, if any installment is not repaid within the specified

period and if the time-equivalent of such unadjusted balance is 6

months, it is classified Sub-standard. A Term loan is classifiedDoubtful and Loss if the time-equivalent of unadjusted balance is 12

months and 18 months respectively.

Agricultural Loan and Micro-Credit is classified Sub-standard if

non-performing for 12 months, Doubtful if non-performing for 36

months and Loss if non-performing for more than 60 months.

Under the existing system scheduled banks are required to maintain

provisions against unclassified and substandard loans in addition to

doubtful and loss loans. They are allowed to book interest againstclassified loans only on cash basis.

Whether a credit is classified or not under the objective criteria, it is

subjected to classification under qualitative judgment if any doubt

arises regarding repayment of loan.

2.1.4 Foreign Exchange System

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On March 24, 1994 Bangladesh Taka (domestic currency) was declared

convertible for current transactions in terms of Article VIII of the IMF

Articles of Agreement. Consequent to this, current external

settlements for trade in goods and services and for amortization

payments on foreign borrowings can be made through banksauthorized to deal in foreign exchange, without prior central bank

authorization. However, because resident owned capital is not freely

transferable abroad (Taka is not yet convertible on capital account),

some current settlements beyond certain indicative limits are subject

to bonafides checks.

Direct investments of non-residents in the industrial sector and

portfolio investments of non-residents through stock exchanges are

repatriable abroad, as also are capital gains and profits/dividends

thereon. Investment abroad of resident-owned capital is subject to

prior Bangladesh Bank approval, which is allowed only sparingly.

2.1.5 Exchange Rate Policy

The exchange rate policy of Bangladesh Bank aims at maintaining the

competitiveness of Bangladeshi products in the international markets,

encouraging inflow of wage earners' remittances, maintaining internal

price stability, and maintaining a viable external account position. Priorto the inception of floating exchange rate regime, adjustments in

exchange rates were made while keeping in view the trends of Real

Effective Exchange Rate (REER) index based on a trade weighted

basket of currencies of major trading partners of Bangladesh and the

trends of other important internal and external sector indicators. Under

the existing floating exchange rate regime (that started from

31/05/2003), the interbank foreign exchange market sets the

exchange rates for customer transactions and interbank transactionsbased on demand-supply interplay; while the exchange rates for the

Bangladesh Bank's spot purchase and sales transactions of US Dollars

with ADs is decided on a case to case basis. Bangladesh Bank does not

undertake any forward transaction with ADs. The ADs are free to quote

their own spot and forward exchange rates for interbank transactions

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and for transactions with non-bank customers. However, along with

intervention in the taka money market, the US dollar purchase or sale

transactions take place by the Bangladesh Bank as needed, to

maintain orderly market conditions.

2.2 Bank Licensing

Bank Company Act, 1991, empowers BB to issue licenses to carry out

banking business in Bangladesh. Pursuant to section 31 of the Act,

before granting a license, BB needs to be satisfied that the following

conditions are fulfilled:

"that the company is or will be in a position to pay its present or futuredepositors in full as their claims accrue; that the affairs of the company

are not being or are not likely to be conducted in a manner detrimental

to the interest of its present and future at, in the case of a company

incorporated outside Bangladesh, the Government or law of the

country in which it is incorporated provides the same facilities to

banking companies registered in Bangladesh as the Government or law

of Bangladesh grants to banking companies incorporated outside

Bangladesh and that the company complies with all applicableprovisions of Bank Companies Act, 1991."

Licenses may be cancelled if the bank fails to comply with above

provisions or ceases to carry on banking business in Bangladesh.

2.2.1 Commercial BanksThe commercial banking system dominates Bangladesh's financial

sector with limited role of Non-Bank Financial Institutions and the

capital market. The Banking sector alone accounts for a substantial

share of assets of the financial system. The banking system is

dominated by the 4 Nationalized Commercial Banks , which together

controlled more than 54% of deposits and operated 3388 branches

(54% of the total) as of December 31, 2004.

2.2.2 Specialized Banks

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Out of the 5 specialized banks, two (Bangladesh Krishi Bank and

Rajshahi Krishi Unnayan Bank) were created to meet the credit needs

of the agricultural sector while the other two ( Bangladesh Shilpa Bank

(BSB) & Bangladesh Shilpa Rin Sangtha (BSRS) ) are for extending

term loans to the industrial sector.

2.2.3 Financial Institutions (FIs)

Twenty-eight financial institutions are now operating in Bangladesh. Of

these institutions, 1(one) is govt. owned, 15 (fifteen) are local (private)

and the other 12(twelve) are established under joint venture with

foreign participation. The total amount of loan & lease of these

institutions is Tk.29,729 million as on 30 April, 2003. Bangladesh Bank

has introduced a policy for loan & lease classification and provisioning

for FIs from December 2000 on half-yearly basis. To enable the

financial institutions to mobilize medium and long-term resources,

Government of Bangladesh (GOB) signed a project loan with IDA, and a

project known as ``Financial Institutions Development Project (FIDP)``

has started its operation from February 2000. Bangladesh Bank is

administering the project. The project has established ``Credit, Bridge

and Standby Facility (CBSF)`` to implement the financing program with

a cost of US$ 57.00 million.

2.3 Capital Market

The Capital market, an important ingredient of the financial system,

plays a significant role in the economy of the country.

1.Regulatory BodiesThe Securities and Exchange Commission exercises powers under the

Securities and Exchange Commission Act 1993. It regulates institutions

engaged in capital market activities. Bangladesh Bank exercises

powers under the Financial Institutions Act 1993 and regulates

institutions engaged in financing activities including leasing companies

and venture capital companies.

2. Participants in the Capital Market

The SEC has issued licences to 27 institutions to act in the capital

market. Of these, 19 institutions are Merchant Banker & Portfolio

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Manager while 7 are Issue Managers and 1(one) acts as Issue Manager

and Underwriter.

i) Stock Exchanges

There are two stock exchanges (the Dhaka Stock Exchange (DSE) and

the Chittagong Stock Exchange (CSE) ) which deal in the secondarycapital market. DSE was established as a public Limited Company in

April 1954 while CSE in April 1995. As of 30 June 2000 the total number

of enlisted securities with DSE and CSE were 239 and 169 respectively.

Out of 239 listed securities with the DSE, 219 were listed companies,

10 mutual funds and 10 debentures.

ii) Investment Corporation of Bangladesh (ICB)The Investment Corporation of Bangladesh was established in 1976

with the objective of encouraging and broadening the base of industrialinvestment. ICB underwrites issues of securities, provides substantial

bridge financing programmes, and maintains investment accounts,

floats and manages closed-end & open-end mutual funds & closed-end

unit funds to ensure supply of securities as well as generate demand

for securities. ICB also operates in the DSE and CSE as dealers.

iii) Specialized BanksBangladesh Shilpa Bank (BSB), Bangladesh Shilpa Rin Sangstha(BSRS), BASIC Bank Ltd., some Foreign Banks and NCBs are engaged

in long term industrial financing.

2.4 Insurance

The insurance Sector is regulated by the Insurance Act, 1938 with

regulatory oversight provided by the controller of Insurance on

authority under the ministry of commerce. General insurance is

provided by 21 companies and life insurance is provided by 6

companies. The industry is dominated by the two large, state-owned

companies--SBC for general insurance and JBC for life insurance--which

together command most of the total assets of the insurance sector.

2.5 Microfinance Institutions (MFIs)

The member-based Microfinance Institutions (MFIs) constitute a rapidly

growing segment of the Rural Financial Market (RFM) in Bangladesh. At

present, Grameen Bank is the only formal financial institution among

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them, established in 1983 under a special law with the initial support

from Bangladesh Bank. The poor borrowers of Grameen bank who are

mostly women own the bank and it is the pioneer organization of this

type. Besides Grameen Bank there are more than 1000 semi-formal

institutions operating mostly in the rural sector of the country; BRAC,ASA, and PROSHIKA are being considered three big NGO-MFIs. These

institutions have an explicit social agenda to cater to the needs of the

poorer sections of population, and have a focus towards women

clients.

Till June 2002 the total coverage of microfinance programs in

Bangladesh is approximately 13 million households. Four big

institutions including Grameen Bank dominate the microfinance market

of Bangladesh. Grameen Bank, BRAC, ASA, and PROSHIKA account for

60% of the total amount of outstanding loans made by all MFIs, and it

is widely believed that top 20% institutions account for 80% of the

total market. The Grameen Bank alone provides about one-third of the

total amount of outstanding microloans. There is no cap or spread on

interest rate offered for deposit and loan in case of NGO-MFIs.

However, in practice on average NGO-MFIs offer mostly 5-7% interest

on deposits to the members and charge 15% interest on loan in flat

method.

At present NGO-MFIs are not regulated or supervised or monitored by

any single authority in Bangladesh; they are under the system of off-

site supervision by the authorities that provide them registration as

non-government organizations (NGOs). However, the regulatory issue

has come to the forefront because MFIs are providing financial services

and products to the poor, outside the formal banking system.

Considering the need to develop an appropriate regulatory andsupervisory system for this sector the Government of Bangladesh has

established a Unit named "Microfinance Research and Reference

Unit (MRRU)" in Bangladesh Bank. A high power national Steering

Committee under the leadership of Governor of the bank looks after

the various functions of the unit. The Committee is also responsible for

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formulating a uniform guideline and the legal framework of a

regulatory body for this rapidly growing financial sector.

The unit has already published an operational guideline for these NGO-

MFIs with the help of the committee and has been collecting quarterly

information since January 2004 on governance, savings, credit, receiptand payment from them. The unit is also providing training to these

institutions on the operational guideline supplied to them. Recently the

committee has submitted a draft law to the Government, hence it is

expected that after the promulgation of the law this sector will be

under formal financial system in near future. All these programs

mentioned above (guideline, training and information collection) going

on under the unit are being considered as the background work

towards the formulation of a full-fledged regulatory framework for themicrofinance sector in Bangladesh.

2.6 Banking Sector

The financial institutions taken over by the government after liberation

turned out to be passive instruments of the governments' economic

objectives. The directed lending policies required banks to expand fast

into the rural sector and to channel credit into agriculture and other

production oriented 'priority' pursuits at concessional lending rates;

there were detailed sectoral credit restrictions, ceilings and curbs on

lending for 'non-priority' purposes. In the urban sector, banks were

directed to continue financing loss making public enterprises; and

industrial term loans to the private sector by SBs were heavily

influenced by external pressure. Eventually, loan default and loan

delinquency became commonplace. To reverse the situation and in

order to induce a market environment where financial institutions

would compete to mobilize savings and seek its efficient allocation,

major reforms were put in place starting from 1990. These related to

interest rates liberalization, abolition of sectorally directed lending and

abolition of sectoral refinancing from the central bank.

2.6.1 Interest Rate SpreadIn the banking literature the concept of spread has been variously

interpreted. First there is the difference between the weighted average

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lending and deposit rates. However, an alternative concept of net

interest margin (NIM) is often more prevalent.10 NIM is typically

defined as the difference between interest expenses and interest

income per unit of total bank assets. This is believed to be an

important indicator of intermediation efficiency. Ordinarily as thebanking industry matures and competition prevails, NIM should

gradually decline, especially in the industry segments that are not

subject to pubic directives. The weighted average spread for both PCBs

and NCBs have followed a rather similar and stable path (i.e., between

5 and 6 percentage points)over the past six quarters or so. For SBs it

declined during FY04, but stabilizing at about 4 percentage points over

the past 12 months or so, the lowest spread among all the major bank

groups in the country. Conversely, the spread for FCBs has graduallyincreased from the fourth quarter of FY04 for the next 6 quarters

before easing a bit (but still in the 8-percentage point range) in

December 2005. Moreover, it is the highest among all bank groups

over the same period.

While in Bangladesh NIM has declined in each of last three years for

both PCBs and FCBs, the latter exhibit the highest spread. In contrast

the NCBs experience low spread on account of various restrictions that

are imposed on their priority borrowers as well as to the interest ratesthey can charge of these clients. Comparing the private sector banks

internationally, the Bangladesh figure would appear high by Asian

standards. Hence lowering of the spread would require substantial

improvement in the current situation of limited competitive pressures,

as well as overstaffing, high administrative costs, and burden of NPLs,

which mostly affect the state sector banks.

2.6.2 Earnings and Profitability:An analysis of banks earnings and profitability shows that the NCBs

share of the market was the highest in deposits collection and loan

disbursements than PCBs, FCBs and SBs before 2002, but private

banks have since matured and have taken a lead over the rest in these

areas and also in earning interest income. In case of interest

expenditure, NCBs also have higher expenditure than other scheduled

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banks. However, it is interesting to note here that in case of non

interest income (bills, commission, brokerage fees) foreign banks

raised the most revenue in spite of their low asset-liability base. In

terms of ROA and ROE the foreign banks perform the best compared to

their competitors. Of late (especially since calendar year 2004) thePCBs have started to close the gap with FCBs in earning profits.

Though FCBs still boast of an ROA which is about three times that of

their nearest rival, PCBs, in ROE, the PCBs are rather close (19.5 and

16.6 percent in 2004 and 2005 respectively as against 22.5 and 18.6

percent for FCBs). While between groups of banks, there is this sign of

emergence of dynamism among the industry leaders in each group,

the high sustained profit figures would support the claim that there is

not a great degree of competition. Indeed a regime of tacit collusionmay explain the maintenance of high level of fees and commissions,

high interest rate spread and high profits.

2.6.3 Non-Performing Loans (NPL)NPL has declined significantly from its highest level of 41 percent in

FY99 to 14 percent in FY05 due to improvements of legal and

regulatory framework initiated by BB. Updated provision for writing off

bad loans and the services of BBs Credit Information Bureau (CIB), for

example, have contributed to this process.NCBs and SBs however still have significant non-performing loans due

to past policies and the continuation of what remains of directed

lending to SOEs and priority sectors. Indeed the high NPL ratio for

NCBs and SBs especially for industrial term lending and agricultural

and micro lending suggests that the underlying model for the delivery

of such products is faulty and not meant to be a profitable activity.

While the situation is likely to change once the on-going restructuring

(and eventual privatization) of NCBs gains momentum, alternative

measures require exploration in the interim. Only a major re-focus

whereby the relevant agricultural and industrial lending (both short

and long-term) is redirected to the private sector (possibly with NGO

intermediation in agriculture) may hold the promise of sustainable

lending to these important activities.

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2.6.4 Divestiture of the Nationalized Commercial Banks:With respect to NCB reform, MOUs have been signed with all four of

them relating to major issues such the rationalization of credit growth,

branch network, classified loans, single-borrower exposure, operating

expenditures and human resource development. Management supportteams are now in place in Agrani, Janata, and Sonali banks. Given the

unfortunate delays already experienced, intensified efforts are

underway to ensure the successful divestment of Rupali Bank. All

outstanding legal challenges to Rupali

Banks divestment has been resolved, and the issue of its

recapitalization has already been worked out. In addition, at the point

of transaction, the government will remove from Rupalis books and

assume full responsibility for the liabilities of existing pensioners andfor the accrued rights of current employees, with cash payments made

from the governments budgetary allocation as these payments

become due. The eventual majority shareholder will have management

control over all aspects of the banks operations, including human

resource policies and pay scales. With respect to the other three NCBs,

the government is committed to bringing Agrani to the point of

divestment in the near term.

2.6.5 Default Risk, Write Off and Loss Provisions:This study shows that the provision shortfall in the banking sector

between 1997 to 2005 fluctuated within the range of about BDT 33

billion to BDT 55 billion (i.e., about 3.5 to 8.4 percent of total lending

as of appropriate dates). It reached the peak in 2003 (about BDT 55

billion) and then consistently decreased to BDT 45.75 billion in 2005.

One of the main reasons behind the downward trend is due to the

immediate response by the scheduled banks to the new BB write-off

policy, which was introduced in January 2003. As bad loans were

removed from the balance sheet by the accumulated provisions, both

regulatory provision and actual provisions against classified loans went

down sharply. Though actual provision declined by about BDT 23 billion

in 2003, bad loans declined by about BDT 42 billion. It can be argued

that the Money Loan Court Act, 2003, governments remission of

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interest burden (about BDT 5.0 billion) on agricultural credit, relaxation

of rescheduling criteria (without collateral) for agricultural loan and

provision of incentives to officials of government-owned banks for the

recovery of stuck-up overdue loans, among other, might plausibly

contribute to reducing a significant part of the accumulated bad loans.Further analysis excluding NCBs shows that the remainder of the

banking sector's performance in terms of provision shortfall and

provision maintenance ratio (PMR) improved significantly in the recent

period. The PMR was 70.50 percent in 1997 which increased to 82.70

percent in 2005. However, compared to 2004, PMR moved downward

in 2005, which was mainly due to one of the PCBs that suffered from

acute provision shortfall. In terms of different categories of banks, two

notable features are observed. A significant part of loan portfolio ofSBs was short-term agricultural and micro-credits. Since provisioning

criteria for these categories of loans are much relaxed than other

categories of loans, their provisioning requirement was much less

onerous despite the high percentage of classified loans. It is also likely

that loans of SBs were highly collateralized than those in the NCBs.

Provision shortfall in NCBs remained significantly high since 2003

despite a decreasing trend in its share of classified loans. A significant

percentage of bad loans supported by low collateral and their decliningtrend inprofitability,which in turn retarded the build up of their actual

provision, is a contributory factor.

It can be concluded that Write-off Policy supported by Provisioning

Policy and the Money Loan Court Act 2003, among other, became

indeed effective tools to clean up the impaired asset base from the

banks balance sheets. Consequently, provision shortfall in the banking

sector consistently declined since 2003. In terms of regulatory

provision as a percentage of banks loan portfolios, banking sector inBangladesh, notably the PCBs, experienced robust performance over

the last 8 years. In 1998, the required provision as a percentage of

total lending was about 17.6 percent, which came down to about 6.8

percent in 2005. This trend may further facilitate current efforts for

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restructuring and privatization of government-owned banks such as

the NCBs.

2.6.6 Maturity Profile of Assets and LiabilitiesThe overall increase in the mismatch between 2002 and 2004 is largely

due to SBs. Secondly, while the number of banks experiencingmismatch has increased over time, the absolute size of the gap has

decreased for PCBs and NCBs. Thus more banks in each of the latter

two categories are sharing on average a smaller amount of the gap

than two years ago. Hence one can conclude that systematic risk has

moderated over time.

2.6.7 Capital Base AdequacyThe total capital position of the scheduled banks consistently increased

in the last 7 years, except for a small decline in 2004. In fact, the total

amount of capital rose from BDT 45.88 billion in 1999 to BDT 90.28

billion in 2005. This increase was caused by several factors such as

rising standard of regulatory capital which led to issuing right shares,

bonus shares and IPOs, entrance of new banks in the financial market,

and the legal requirement to transfer a portion of bank's annual

income to its statutory reserve fund. The downward movement in total

capital in 2004 was mainly due to the fall of Agrani Banks capital that

declined by BDT 21.59 billion from the previous years position.

Considering the minimum regulatory standards (fixed capital or

riskweighted asset whichever is higher) set by the Bangladesh Bank

through different circulars and also by the Bank Company Act (BCA),

1991, it is found that since 1999, the total amount of capital in the

banking sector has been consistently below the regulatory

requirement. In fact, the gap between regulatory capital and actual

capital increased significantly over the years. In 1999, capital shortage

in the banking sector was BDT 6 billion which increased to more than

BDT 27.99 billion by the end of 2005. They were the NCBs that

substantially contributed to this cause. On the other hand, though

some of the 3rd generation banks could easily meet the fixed capital

requirement (BDT 1 billion) they are yet to approach the capital

market. Once this is done, their own position as well as the overall

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capital position of the banking sector will improve significantly. In

terms of risk-based capital regulation, risk-weighted capital ratio

(RCAR) during 1999 to 2005 remained within the range of 6.7 to 8.4

percent, i.e., marginally lower than the regulatory standard. Indeed,

significant downward trend of risk-weighted capital ratios forgovernment owned banks such as NCBs and SBs pulled down the

aggregate risk-weighted capital ratios. Excluding NCBs, it can be seen

that RCAR for the banking sector as a whole remained stable and

above the regulatory requirement. Though capital requirement for the

period 1999 to 2002 was 8 percent of RWA, actual capital varied

between 8.5 to 9.7 percent. As Bangladesh Bank raised RCAR from 8

percent to 9 percent in 2003, actual capital in the banking sector (i.e.,

minus NCBs) moved up and remained 11.1 to 11.5 percent of RWAbetween 2003 and 2005. It can therefore be concluded that except

government owned banks, capital regulation was indeed able to guide

the behaviour of the scheduled banks in Bangladesh. The study shows

that due to a lack of instruments suitable for inclusion in Tier II Capital,

banks kept most capital in Tier-I. This fact points to the primacy of

further financial and capital market development. On the other hand,

implementation of Basel Accord II may require the banks, particularly

the domestic ones, to raise their capital significantly. A gradual andorderly capital adjustment would appear desirable for the overall

stability of the banking sector.

2.6.8 Banking Sector OutlookThe financial sector reforms were implemented in a generally stable

overall macro-economic environment, and the post-reform financial

system behaved in a manner that is consistent with broad macro-

economic stability. The reforms have successfully put in place an

operating environment and a regulatory structure appropriate for

market based financial intermediation between savers and investors.

Collectively the recent reform measures have started to produce

results though with a delay. The above review reveals that the industry

still suffers from limited competition, weak adherence to the regulatory

framework (e.g., provision and capital requirement), and a selective

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but unsustainable (i.e., particularly among NCBs and SBs) exposure to

NPL. The latter is in part contributed by excessive borrowing by some

loss-making SOEs from NCBs, a process often mediated by various

government ministries with or without an explicit loan guarantee.

Looking forward, it would appear that industrial term lending andgeneral agricultural loans by NCBs and short-term agricultural and

micro credit activities of NCBs require a major overhaul as to program

design and delivery. The rising concentration ratio since 1999 among

FCBs (with the top firm alone controlling over 50 percent of the sector

assets) is also of concern. These indicators may be helpful in the

decision to rationalize the structure of ownership of the banking sector

as a whole.

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Chapter: 3CORPORATE REVIEW OF

STANDARD BANK LIMITED

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Chapter-3: Corporate review of Standard Bank Limited

3.1. Historical PerspectiveStandard Bank Limited was incorporated as a public limited

company on 11th May, 1999 under Companies Act, 1994 started its

commercial operation on 11th May, 1999 as a private sector

commercial bank having authorized capital of Tk.750 million and paid

up capital Tk.200 million. The Bank has increased it's Authorized and

Paid up Capital upto Tk.1250 Million and Tk.520 Million respectively

subject to the approval of Bangladesh Bank who is regulating authority

and the allocation of which are as follows:

Sl. Capital Structure Amount Tk.

1 Initial Authorized Capital. 750 Million

1-A Authorized Capital enhanced in 2005. 1250 Million

2 Initial Paid-up Capital 200 Million

2-A Paid-up Capital enhanced in 2005. 910.80 Million

2-A The total equity of Sponsors Directors andstatutory reserves 300 Million

3 Through issuance of IPO (Initial Public Offer) of2600000 shares of Tk.100 each. 300 Million

3.2. No of Branches:

At present Standard Bank limited has 22 Branches and there are

proposed 5 branches to be opened in this year.

3.3. Corporate Information

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Corporate InformationSBLSTANDARD BANK LIMITEDESTABLISHED IN 1999Registered Office:

Metropolitan Chamber Building (3rd

Floor)122-124, Motijheel Commercial Area, Dhaka-1000Phone: 7175698, 7169134, 9560299, 9558375Tele. Fax:7175698, 7169078E-mail: [email protected]: www.standardbanbd.com

AuditorsKhan Wahab Shafique Rahman & Co.

55, Dilkusha C/A, Dhaka-1000

AdvisorMr. S.S. Nizamuddin Ahmed

BOARD OF DIRECTORS :Chairman

1. Kazi Akramuddin Ahmed

Vice Chairman2. S.A.M Hossain

Directors

3. Al-haj Mohd. Ayub 4. Harun RashidChowdhury5. Md. Monzurul Alam 6. Md. Harun Salam7. Kamal Mostafa Chowdhury 8. Mohammed Abdul Aziz9. Al-haj Md. Shamsul Alam 10. Abdul Ahad11. Al-haj Mohd. Nurul Haque Sowdagar 12. Ferdous Ali Khan13. Harun-or-Rashid 14. Mohd. Nurul Islam

15. Nani Gopal Saha 16. Ziaul HaqueKhondkar17. Mrs Monowara Begum 18. Farzana Yousuf

Managing DirectorMr. Mosharraf Hossain

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3.4. Management Hierarchy:

MANAGING DIRECTORS

SR. EXECUTIVE VICE PRESIDENT

EXECUTIVE VICE PRESIDENT

SENIOR VICE PRESIDENT

VICE PRESIDENT

SENIOR ASSISTANT VICE PRESIDENT

ASSISTANT VICE PRESIDENT

SENIOR EXECUTIVE OFFICER

EXECUTIVE OFFICER

SENIOR OFFICER

OFFICER

ASSISTANT OFFICER

TRAINEE ASSISTANT OFFICER

3.5 Strategies: Synchronized and steady growth of the bank.

Utilize all available resources to develop various plans,

policies and procedures in each of the objective and goal

areas.

Implement plans, policies and procedures.

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Utilize a team of professional employees.

Search for a total customized solution of I.T. for the

purpose of full automation step.

3.6 Goals:

Develop a realistic deposit mobilization plan.

Develop appropriate lending risk assessment system.

Develop capital plan.

Develop a system to make good advances.

Develop a recruitment, compensation, training and

orientation plan.

Develop a plan for offering better customer service. Develop appropriate mgt structure, systems, procedures

and approaches.

Develop scientific MIS to monitor banks activities.

3.7 Business objectives:

Build up a low cost fund base.

Make sound loan and investment.

Meet capital adequacy recruitment at all the time.

Ensure 100% recovery of all advances.

Ensure a satisfied work force.

Focus on fee based income.

Adopt an appropriate management technology.

Install a scientific MIS to monitor banks activities.

3.8 Current Position:

Capital:

During the year 2005 authorized capital of the bank remained

unchanged at Tk.1250.00 million and the paid up capital stood at

Tk.910.80 million. On the other hand shareholders equity and reserve

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stood at Tk.1,412.35 as against Tk.1,100.00 million in the previous

year.

Number of Branches:

SBL always places utmost importance on the client service. With that

end in view the Bank continued its personalized approach in rendering

improved and modernized services. Presently the number of branches

stands at 22 covering important places of the country. The numbers of

authorized dealer branches are 18.

Investment:

The investment has always an inverse relationship with capital

adequacy ratio although it contributes to the desired level. At the closeof 2005, total investment of the bank stood at Tk. 1,272.46 million as

against Tk. 943.08 million in 2004.

Number of share holders:

During the year 2005, total number of share holders of the bank stood

4913.

3.9 Operations:The importance of the mobilization of savings for the economic

development of our country can hardly be over emphasized. We

consider savings and deposits life blood of the bank. More the deposit,

greater is due strength of the bank. The bank intends to launch various

new savings schemes with prospect of higher return duly supported by

a well orchestrated system of customer services.

The bank is catering to the credit needs of individuals as well as

corporate clients. It is emphasizing on trade finance which would be

short-term and self-liquidating in nature, considering the importance of

foreign trade in our national life, financing and handing of export &

import business and also handling of foreign remittance business by

giving top most priority.

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3.10 Objectives:

Standard Bank Limited aims at excellence and is committed to explore

a new horizon of banking and provide a wide range of quality products

and service.

It is a bank for the common people including businessmen and

professionals. It intends to serve with quality at a price competitive to

anyone in the financial market. It would constantly keep on exploring

the needs of the clients.

So the Standard Bank Limited shall also develop a youthful and

exuberant management team-technologically sound and rich in

experience. They would work hand in hand with zeal and enthusiasm

to achieve the objectives of the bank in the new millennium.

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Chapter: 4(A) GENERAL BANKING &

(B) ACCOUNTS

DEPARTMENT:

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(A) GENERAL BANKING DEPARTMENT

4.1 ACCOUNT OPENING SECTION

4.1.2 PROCEDURE FOR OPENING OF ACCOUNTS

4.1.2. APPLICATION FORM FOR CURRENT/ SAVINGS ACCOUNT

4.1.3. DEPOSITS ACCEPTED BY SBL

4.2 BILLS AND CLEARING SECTION:

4.2.1 INWARD CHEQUES:

4.2.2. OUTWARD CHEQUES:

4.2.3. OUTWARD BILLS FOR COLLECTION (OBC).

4.2.4. CLEARING:

4.2.5. RECEIVING CHEQUES FOR COLLECTION:

4.2.6. CHEQUE AND CROSSING:

4.2.7. ISSUING CHEQUE BOOK:

4.3. REMITTANCE OF FUNDS

4.3.1. BANKS CHEQUE/ PAY ORDER

4.3.2. BANK DRAFT

4.3.3. MAIL OR TELEX TRANSFER (TT)

4.4. FIXED DEPOSIT:

4.5. CASH SECTION:

4.5.1. RECEIVING CASH:

4.5.2. DISBURSING CASH:

4.6. LOCKER SERVICE:

4.7. CLOSING OF AN ACCOUNT:

4.8. OBSERVATIONS & RECOMMENDATIONS:

(B) ACCOUNTS DEPARTMENT

4.9 GENERAL ACCOUNT

4.10 EXTRACT

4.11 DEBIT VOUCHER

4.12 STATEMENT OF AFFAIRS

4.13 AMORTIZATION AND DEPRECIATION

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4.14 FUNCTIONS PROVIDED BY ACCOUNTS DEPARTMENT

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Chapter-4: General Banking and Accounts Department ofSBL

(A)General Banking DepartmentGeneral banking is the front-side banking service department. It

provides those customers who come frequently and those customers

who come one time in banking for enjoying ancillary services. The

officers of this department have to perform several kinds of tasks.

These are as follows:

1) Account opening and close.

2) Collection of cash, cheques from customers.

3) Issuing of FDR, pay orders, cheque books and demand draft.

4) Assisting customer to open various deposit scheme.

5) Conducting clearing house activities.

6) Collection of local and outward bills.

SBL General banking is divided into five sections.1) Account opening section.2) Bills and clearing section.3) Remittance section.4) Deposit section.5) Cash section.

4.1. Account Opening SectionUnder this section, SBL Officer opens different types of accounts on the

request of clients. The procedure of opening account is given is given

below.

4.1.1 Procedure For Opening Of Accounts:

Before opening of a current or savings account, the following

formalities must be completed by the customer:

1. Application on the prescribed form

2. Furnishing photographs

3. Introduction by an account holder

4. Putting specimen signatures in the specimen card

5. Mandate if necessary

After fulfilling the above formalities, SBL provides the customer a pay-

in-slip book and a checkbook.

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4.1.2. Application Form For Current/ Savings Account:Followings are the contents of the application form for opening Savingsor Current account in SBL-

1) Type of the Account: Individual/ Joint/ Proprietorship/ Partnership/Limited Company/ Club/ Society/ Co-operatives

2) Name of the Applicant(s)3) Fathers/ husbands Name4) Present Address5) Permanent Address6) Number, Date of issue, Date of Expiry & Place of Issue of Passport

(if any)7) Date of Birth8) Nationality9) Occupation

10)Nominee (s)11)Special Instruction of Operation of the Account (if any)12)Initial Deposit13)Specimen Signature (s) of the Applicant (s)14)Introducers Information (Name, Account Number, Specimen

Signature)

In case of Join Accounta) Operation instruction of the accountb) Signature (s)

In case of Partnership Account

a) Partners Signatureb) Partners Name -------

The following formality along with the documents is to be completedbefore opening an account:a) Two copies of photograph of the Account Holder (s) duly attested by

the Introducer.b) Account to be introduced properly.c) Introducers signature on Account Opening Form to be verified by

an officer under full signature.d) Letter of thanks to Account Holder(s) and Introducer to be sent

under registered post.

e) In case of joint account, operational instructions are to be signed bythe Join Account Holders.

In case of Club/ Society-a) Up to date list of office bearers.b) Certified copy of Resolution for opening and operation of account.c) Certified copy of By-laws & Regulations/ Constitution.d) Copy of Government approval (if registered.)

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In case of Co-operative Society/ societies Limited,-a) Copy of By-laws duly certified by the Co-operative officer.b) Up to date list of office bearers.c) Resolution of the Executive Committee as regards of the account.d) Certified copy of Certificate of Registration issued by Registrar, Co-

operative Societies.e) In case of Non- Government College/School/ Madrasha/Muktab -a) Up to date list of the Governing Body/ Managing committee.b) Copy of resolution of the Governing Body/ Managing Committee.

In case of Trustee Board -Prior approval of Head Office of the Bank.

a) Certified copy of Deed of Trust, up to date list of members of theTrustee Board and Certified copy of the Resolution of TrusteeBoard to open & operate the account.

In case of Minors Account -Putting the word MINOR after the title of the account.

a) Recording special instruction of operation of the account.b) The account opening form is to be filled in and signed by either

of the parents or the legal guardian appointed by the Court ofLaw & not by the Minor.

In case of Limited Company -a) Certified true copy of the Memorandum & Articles of Association of

the company.b) Certificate of Incorporation of the company for inspection and return

with a duly certified photocopy for banks records.c) Certificate from the Registrar of the Joint Stock Companies that the

company is entitled to commence business (in case of Public limitedCo. for inspection and return) along with a duly certified photocopyfor Banks records.

d) Latest copy of Balance Sheet.e) Extract of Resolution of the Board. General Meeting of the company

for opening the account and authorization for its operation dulycertified by the Chairman/ Managing Director of the company.

f) List of Directors with address (a latest photocopy of the form-xii).g) Authorized signature.h) Name.

General conditions of governing Current / Savings Account-(a) Minimum Balance to be maintained in current account

Tk.10,000 /- and in Savings account Tk. 5.000/- .(b) A suitable instruction by an introducer acceptable to the Bank is

required prior to opening an account.(c) Recent photographs of the Account openers duly attested by the

Introducer must be produced.

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(d) When cheques deposited are payable by other banks oroutstation they are available after clearing or collection only,Service charge will be charged @ Tk.100 /- in Current accountand Tk.50 /- in Savings account yearly or as charged by the Bankfrom time to time as and when required.

Interest rate for Savings Account (SB) @ 9.00% (Half yearscompounding).

4.1.3. Deposits Accepted By SBL (Imamgonj Br.):Deposits that are taken by SBL are:(a) Current Deposit(b) Saving Deposit.(c) Fixed deposit Receipts.(d) Short Term Deposit (STD)(e) Bearer Certificate Deposit (BCD).(f) Deposit pension scheme.

SBL usually customers give an instruction the Bank that their currentaccount will be debited whenever its deposited amount crosses acertain limit and this amount will be transferred to the STD account. Sobank follows this instruction by giving following entries.

Customers Current A/C Debit.Customers STD A/C Credit.

Bearer Certificate of Deposit (BCD):The objective of BCD is to convert black money into white and toreduce Hundi business. Bearer Certificate of Deposit account is almost

same as Fixed Deposit account. But in case of BCD account no nameand address are mentioned, The customer opens this type of accountas a bearer, Any person who bears the BCD receipt can encash it.Another difference of BCD with FDR is that the customer deposits themoney deducting the interest. At the maturity he withdraws the totalmoney for which he opened the BCD account.

Interest rate on BCD account is same as Fixed deposit account,-For 3 months @ 9.25%For 6 months @ 9.50%For 1 Year or above @ 9.75%

Accounting treatmentin case of issuing of BCD,-Cash A/c Debit.BCD A/c Credit.Accounting treatment in case of encashment of BCD,-BCD A/c ......................Dr.Excise Duty on Deposit ........Cr.Tax on Interest ...................Cr.Cash A/C .....................Cr.

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In a very recent circular of the central Bank i.e. Bangladesh Bankdirected all commercial bank's not to open any BCD Account due topreventive measures and protection of Money Laundering.

4.2. Bills and Clearing Section:There are two types of cheque which are-

1. Inward clearing cheque2. Outward clearing cheque.

4.2.1 Inward Cheques:Inward cheques are those ones drawn the respective branch whichhave been presented on other banks and will be cleared / honoredthrough the clearing house of Bangladesh Bank. For example thecheque drawn on SBL Imkamgonj Br. then the cheque is called inwardcheque of SBL Imamgonj Br. Accounting treatment:

Customers A/C Debit.SBL General A/C Credit.

4.2.2. Outward Cheques:Outward cheques are those ones drawn on other bank branches whichare presented on the concerned branch for collection through clearinghouse of Bangladesh Bank. These cheques are called outward cheques.

For example, the cheque drawn on Mercantile Bank Ltd, Kawran BazarBranch has been presented on SBL Imamgonj Br. This cheque is calledthe outward cheque of SBL Imamgonj Br. Hence it is said that the

cheque which is the inward cheque of one bank is the outward chequeof another bank.

Whenever a cheque is brought to the collection the concerned Officerdoes two functions:-i. Giving the special crossing with Standard Bank. Imamgonj Br.Dhakaii. Endorsed by the collecting bank.The following table is showing endorsement of instrument in SBL.

ENDORSEMENTPayees A/C credited pay to Mr. XXXXX

Received paymentPayees A/C credited Pay to SBL. Mr., XXXXXXPayees A/C credited pay Mr. XXXX of SBLPayees A/C will be credited on realization Bills for Collection

4.2.3. Outward Bills for Collection (OBC).By OBC, we mean that those cheques drawn on other banks which arenot within the same clearing house. Officer gives OBC seal on this type

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of cheques and later sends a letter to the manager of the branch of thesame bank located in the branch on which cheque has been drawn.After collection of that bill branch advises the concerned branch inwhich cheques has been presented to credit the customer accountthrough Inter Branch Credit Advice (IBCA).

In absence of the branch of the same bank, officer sends letter tomanager of the bank on which the cheques is drawn. That bank willsend pay order in the name of the branch. This is the procedure of OBCmechanism.

4.2.4. Clearing:The scheduled banks clear the cheques drawn upon one anotherthrough the clearinghouse of Bangladesh Bank. SBL is a scheduledBank. According to the Article 37 (2) of Bangladesh Bank Order, 1972,the banks which are the member of the clearinghouse are called asScheduled Banks. This is an arrangement by the central bank where

everyday the representative of the member banks gathers to clear thecheques. The place where the banks meet and settle their dues iscalled the clearinghouse. The clearinghouse sits for two times aworking day.

The SBL Imamgonj Br. sends the instruments through Inter BranchDebit Advice (I.B.D.A). SBL Imamgonj Br. acts as an agent in this case.For this, Imamgonj Br. gives the following entries,

SBL General A/C (Imamgonj Br.) ---------------Dr.Customers A/C---------------------------------Cr.

If the instrument is dishonored, the instrument is returned to the

Imamgonj Br. through I.B.D.A. along with the following entries,Customers A/C---------------Dr.SBL General A/C------------------Cr.

4.2.5. Receiving Cheques For CollectionIn SBL, cheques of its customers are received for collection from otherbanks. In case of receiving cheques, following points should bechecked very carefully-

a) The cheques should not carry a date older than the receiving datefor more than 6 months. In that case it will be a stale cheque and it

will not be allowed for collection. Again the date of the chequeshould not be more than 1 days forward than the receiving date.

b) The amount in figures and words in both sides of the pay-in-slipshould be same and it should also be same with the amountmentioned in figures and words in the cheque.

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c) The name mentioned in the cheque should be same in both sides ofthe pay-in-slip and it should be the same with the name mentionedin the cheque.

d) The cheque must be crossed.

4.2.6. Cheque And Crossing:A Cheque is a bill of exchange drawn on a specified banker and not

expressed to be payable otherwise than on demand. [According to

section-6, negotiable Instrument Act, 1881.]

A cheque may be classified into:a) An open cheque which can be presented for payment by the holder

at the counter of the drawers bank.b) A crossed cheque which can be paid only through a collecting

banker.

Crossing cheque: A cheque is said to be crossed when twotransverse parallel lines with or without any words are drawn acrossthe face. Crossing may be general, special or restrictive.

4.2.7 Issuing cheque book:Following procedures are maintained by SBL, Topkhana Br. for issuingCheque Book.(a) Firstly the customer will fill up the cheque requisition form.

(b) The leaves of the Cheque Book under issue are counted to ensurethat all the leaves and the blank requisition slip are in tact.

(c) The officer writes A/C number and Branch name on all the leaves ofthe checkbook.

(d) The name and the A/C number of the customer are than entered inthe checkbook register against the particular checkbook series.

(e) Then the officer sightseer, checkbook, and requisition slip.

(f) Lastly the checkbook is handed over to the customer after takingacknowledgement on requisition slip.

A cover file containing the requisition slip is effectively preserved as

vouchers. If any defect is noticed by the ledger keeper, he makes aremark to that effect on the requisition slip and forward it to thecancellation officer to decide whether a new checkbook to be issued tothe customer or not.

4.3. Remittance of Funds:Remittance of funds means transfer of money from one place toanother through the banking channel.

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Remittance of funds is ancillary services of SBL like other commercialbanks. It aids to remit fund from one place to another place on behalfof its customers as well as non- customers of bank. SBL has itsbranches in the major cities of the country and therefore, it serves asone of the best mediums for remittance of funds from one place to

another.The main instruments used by SBL, Imamgonj Br. for remittance offunds.

-Pay Order/ Bankers check.-Demand Draft.-Telegraphic Transfer.

4.3.1. Banks cheque/ Pay order:The Pay-Order is an instrument issued by bank, instructing itself a

certain amount of money mentioned in the instrument taking amount

of money and commission when it is presented in bank. Only thebranch of the bank that has issued it will make the payment of pay

order. The bankers cheque must come the branch for payment

wherever it is presented.

Issuing of Pay Order:The procedures for issuing a Pay Order are as follows:1. Deposit money by the customer along with application form.2. Give necessary entry in the bills payable (Pay Order) register where

payees name, date, PO no, etc is mentioned.

3. Prepared the instrument.4. After scrutinizing and approval of the instrument by the authority, itis delivered to customer. Signature of customer is taken on thecounterpart.

A customer can purchase PO in different modes:1. By cash: Currently it is not permitted by the SBL,

Head Office.2. By account:3. By transfer:

PO A/C is the current liabilities of bank, which is acquired to bedischarged by beneficiaries against cash or through an account.

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

4.3.2. Bank Draft/Demand DraftA DD is an order to pay money drawn by one office/branch of the bankupon other office/branch to the same bank for a sum of money payableto order on demand.

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Issuance of demand draft

Application in prescribed form (Cr. Voucher)

Cash deposit/ account debit (with comm./ VAT/ Tel charges

Draft preparation

Entry into DD issuing register

Insert the serial number beside printed number in the DD block Write printed and serial number of DD on the application form

Punched the amount on DD with protectograph

Apply test no. if applicable

Check and sign by two authorized (PA holder) officer

Crossed/ open as per desire of the customer

Handover to customer after due acknowledgement

Issue a cost memo (if customer desire)

Send telegram (if applicable)

Prepare credit advice favoring paying branch (drawee) and sendit in time.

Accounting procedures for DD(a) During issuance of DD

Dr. Customer A/C or CashCr. HO A/C paying Br.Cr. Income A/C DD commissionCr. Suspense A/C VAT

(a) During payment of DDDr. HO (IBTA), A/C; Issuing Br. (Responding entry)Dr. B/P DD Payable A/C

S/D A/C DD paid W/ACr. Customer A/C or Cash

4.3.3 Mail Transfer (MT) or Telegraphic Transfer (TT):Mail transfer system is an arrangement by the banks to remit fundsof the customers from one place to another through ordinary postalchannel. Banks instruct their concerned branch to pay a certainamount to a specified person or to his order.

Telegraphic/Telex Transfer (TT): Sometimes people are in urgentneed of remitting money from one place to another. In such cases,they prefer to remit money through Telegraphic/Telex Transfer (TT). It

is an internal arrangement by the banks to remit funds through telexmessages instead of postal message. The TT application form has to beduly filled in and signed by the applicant. After receipt of cash or afterpassing necessary transfer entries usual acknowledgement onstandard cost memo is issued to the applicant and actions are takenfor issuance of TT.

Issuing of TT:SBL follows the following procedures:

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i) The customer deposits money with SBL to be sent.ii) The customer obtains a cash memo containing TT serial

number.iii) TT serial number, notifying part name is mentioned in the

telex message.

iv) The Telex Department confirms transmission of the telex.

Accounting entries for TT:Cash A/C/ Clients A/C -----------------------Dr.SBL General A/C (Topkhana Br.)---------------Cr.

Procedures for the incoming TT:After receiving the telex, it is authenticated by test. TT Serial numberis verified by the TT in-Concern branch register. The following entriesare given in the vouchers,-SBL General A/C (Topkhana Br.)-----------------------Dr.

Clients A/C------------------------------------------Cr.Tk. 50/= is taken as postal charge. The minimum commission is Tk.50/= or o.15% of the amount whichever is higher.

4.4. Fixed Deposit:Fixed deposit is one, which is repayable after the expiry of apredetermined period fixed by him. The period varies form 3 months to1 year. These deposits are not repayable on demand but they arewithdrawable subject to a period of notice. Hence, it is a popularlyknown as Time Deposit or Time Liabilities. Normally the money on a

fixed deposit is not repayable before the expiry of a fixed period.Before opening a Fixed Deposit Account a customer has to fill up anapplication form which contains the followings:

a) Amount in figuresb) Beneficiarys name and addressc) Periodd) Rate of intereste) Date of issuef) Date of maturityg) Instructions:

- To be renewed automatically with interest for the nextperiod.- Not to be renewed for next period.- Pay interest to account no. (-------) on maturity

h) Special instructioni) How the account will be operated (singly or jointly)j) Signature (s)k) F.D.R. no.

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Then a FDR account is opened and it is recorded in the FDR Registerwhich contains the following information,-

a) FDR A/C no.b) FDR (Fixed Deposit Receipt) no.c) Name of the FDR Holder with address

d) Maturity periode) Maturity datef) Interest rate

In case of Fixed Deposit Account the Bank needs to maintain a cashreserve. So SBL offers a high interest rate in Fixed Deposit accounts.The Interest rates followed by SBL in Fixed Deposit accounts are,-

For 1 Month @ 12.00%For 3 Months @ 12.25%For 6 Months @ 12.50%For 1 year or above @ 12.50%

But in a very exception case this rate of interest is flexible case to casebasis. This rate is the Bank's internal policy not controlled by theCentral Bank.

The FDR becomes renewed automatically in SBL if the customer doesnot encash it within 7 days of maturity. In case of encashment of F.D.Rin maturity, following accounting treatments are given:

Excise Duty on FDR--------------------Dr.Income Tax on interest ----------------Dr.FDR A/C----------------------------------Dr.

Cash A/C---------------------------------Cr.Interest on FDR A/C--------------------Cr.

If the customer wants to draw the interest only, then following entriesare given-

Interest on FDR A/C-----------------Dr.Cash A/C-----------------------------Cr.

In case of before maturity enactment interest is calculated for thedays from the date of opening the FDR account in a Saving A/C. rate ofinterest.

4.5 Cash Section:The cash section of any branch plays very significant role in general

banking department because, it deals with most liquid assets. The SBL

Topkhana Br. has a equipped cash section with modern electronic

machinery with fully computerized environment and gives one stop

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counter service. This section receives cash from depositors and pay

cash against cheques, draft, PO, and pay in slip over the counter.

4.5.1 Receiving Cash:Any people who want to deposit money will fill up the deposit slip and

give the form along with the money to the cash officer over the

counter. The cash officer counts the cash and compares with the figure

written in the deposit slip. Then he put his signature on the slip along

with the cash received seal and records in the cash receive register in

the computer against A/C number.

At the end of the procedure, the cash officer passes the deposit slip tothe counter section for posting purpose and delivers duplicate slip tothe clients.

Account treatment:

Particulars Dr./Cr.Cash A/C Dr.Customers A/C Cr.

4.5.2 Disbursing Cash:The customer who wants to receive money against cheque comes tothe payment counter and presents his cheque to the officer. He verifiesthe following information-

a) Date of the chequeb) Signature of the A/C holderc) Material alterationd) Whether the cheque is crossed or note) Whether the cheque is endorsed or notf) Whether there is any difference between the amount in figure

and in word.

Then he checks the cheque from computer for further verification.Here the following information is checked:

1) Whether there is sufficient balance or not

2) Whether there is stop payment instruction or not3) Whether there is any legal obstruction (Garnishee Order) or notAfter checking everything, if all are in order the cash officer givesamount to the hold and records in the paid register.

Account treatment:Particulars Dr./Cr.Customers A/C Dr.Cash A/C Cr.

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The cash section of SBL deals with all types of negotiable instruments,cash and other instruments and treated as a sensitive section of thebank. It includes the vault which is used as the store of cashinstruments. The vault is insured up to Tk.01 (one) Crore. If the cashstock goes beyond this limit, the excess cash is then transferred to

Bangladesh Bank. When the excess cash is transferred to SBLBangladesh Bank, the cash officer issues IBDA.

Account treatment:SBL General A/C Dr.Cash A/C Cr.

When cash is brought from SBL Head Office.

Account treatment:Cash A/C Dr.SBL General A/C Cr.

4.6. Locker Service:SBL Topkhana Br. is providing facility of locker service for the purposeof safeguarding the valuable property of customers. The person ororganization that has any account in bank branch can enjoy thisservice. They keep their valuable assets in bankers custody.Customers have right to look after with a key of their individual lockerprovided by bank. SBL maintains the following types of lockers:

------ Large locker.------ Medium locker.------ Small locker.

For enjoying this service, clients have to give charge yearly Tk. 1500,Tk. 1250 and Tk. 700 for large, medium and small locker respectively.

4.7. Closing of an Account:For two reasons, one can be closed. One is by banker and other is bythe customer.

By banker: If any customer doesnt maintain any transaction withinsix years and the A/C balance becomes lower than the minimumbalance, banker has the right to close an A/C.

By customer: If the customer wants to close his A/C, he writes anapplication to the manager urging him to close his A/C.

Different procedures are followed in cash of different types of A/C toclose. Fixed deposit A/C is closed after the termination of the period.BCD A/C is closed when the certificate is surrendered.

Closing process for current & savings A/C:

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i. After receiving customers application the officer verifies thebalance of the A/C.

ii. He then calculates interest and other charges accumulated onthe A/C.

iii. If it bears a credit balance, the officer writes advice voucher. He

gives necessary accounting entries post to accounts section.iv. The balance is returned to the customer. And lastly the A/C isclosed.

But in practice, normally the customers dont close A/C willingly. Attimes, customers dont maintain any transaction for long time. Is thissituation at first, the A/C becomes dormant and ultimately it is closedby the bank.

4.8. Observations & Recommendations:1) Theoretically any person can purchase pay order, demand draft and

telex transfer by depositing money and commission. But then

person who want to purchase these should have account in thebank branch. These will discourage customers to transact withbank.

2) In opening A/C some additional documents are needed as comparedwith theoretical record. Like trade license, member of Dhakachamber of commerce and industry (DCCL) in Dhaka city. Againsome documents are not essential practically as referred in theory.For example, the photo of the person who will open A/C, andsometime introducer.

3) There is a rule to deposit at least an amount of money in case of

opening an account. But it is not strictly followed. Sometimes moremoney is asked from a new customer who discourages him to openan account in the bank. I think the amount should be fixed at a levelthat is not altered from customer to customer.

4) Theoretically any person can purchase pay order, demand draft andtelex transfer by depositing money and commission. But the personwho wants to purchase these should have account in the bankbranch. These will discourage customers to transact with bank.

5) In opening A/C some additional documents are needed as compared

with theoretical record. Like trade license, member of Dhakachamber of commerce and industry (DCCI) in Dhaka city. Againsome documents are not essential practically as referred in theory.for example, the photo of the person who will open A/C, andsometime introducer.

6) There is a rule to deposit at least an amount of money in case ofopening an account. But it is not strictly followed. Sometimes moremoney is asked from a new customer who discourages him to open

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an account in the bank. I think the amount should be fixed at a levelthat is not altered from customer to customer.

7) In case of crossing cheque I did not observe any crossing with Notnegotiable as much as I stayed in bank orientation. Though theoryhave been given emphasis on the effect of A/C pay only and not

negotiable. The role of Not negotiable is not so much. There is noprovision in law regarding A/C payee crossing. But it has beendeveloped in practice. If the words, A/C payee are added to acrossing, it becomes an A/C pay crossing.

8) The degree of relationship between banker and customer

determines how much theory is deviated from practical work.

(B)Accounts DepartmentAccounts department is a department with which each and every

department is related. It records the profit & loss A/C and statement ofassets and liabilities by applying Golden Rules of book-keeping i.e.

GAAP. The functions of it are theoretical based. SBL Topkhana Br.

records its accounts daily, weekly, and monthly every record.

4.9 General AccountThe account that is to be maintained with H/O of SBL for the purpose ofsettlement of inter-branch transactions. General A/C is an importantone which has to be maintained by each branch of SBL.

Indeed general A/C is a record of originating and responding

transactions among inter-branches of the same bank. All types of

assets and liabilities of one branch with another one are settled

through this account. Branch can know how much liable with H/O the

branch is. The debit and credit balance shows assets and liabilities of

the respective branch.

Followings are the journal entries under SBL general account:1) OBC paid by original branch (SBL Topkhana Br.) to responding

branch (say, SBL Dhanmondi) through Inter-Branch Credit Advice.

a) For original branch (Topkhana Branch)Partys A/C ----------------------Dr.SBL General A/C--------------Cr.

b) For responding branch (Dhanmondi)SBL General A/C--------------Dr.Partys A/C--------------Cr.

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2) O/W (outward) clearing cheques lodged through IBDA (Inter-branchdebit advice).

a) For original branch (Topkhana Branch)SBL General A/C--------------Dr.Partys A/C ----------------------Cr.

b) For responding branch (Dhanmondi)Other Bank A/C--------------Dr.SBL General A/C--------------Cr.

3) Inward clearing cheques paid by original branch (SBL Topkhana Br.)to responding branch (say, SBL Dhanmondi) through IBCA (Inter-branch credit advice).

4) TT (Telegraphic Transfer)a) For original branch (Topkhana Br.)

Partys A/C--------------Dr.

SBL General A/C--------------Cr.

b) For responding branch (Dhanmondi)SBL General A/C--------------Dr.Partys A/C ----------------------Cr.

5) TT (Telex transfer) originated by SBL (Topkhana Br.) to other branchof SBL when party is not A/C holder (through IBCA).

a) For original branch (Topkhana Br.)Partys A/C--------------Dr.

SBL General A/C--------------Cr.b) For responding branch (Dhanmondi)

SBL General A/C--------------Dr.Partys A/C ----------------------Cr.

6) Cash received from SBL Topkhana Br. (through IBCA).

a) For original branch (Topkhana Br.)Cash A/C--------------Dr.SBL General A/C--------------Cr.

b) For responding branch (Topkhana Br.)SBL General A/C--------------Dr.Partys A/C(Topkhana Br.) -----Cr.

4.10 ExtractExtract is a statement of all originating and responding transactions

among inter branches through inter branches debit and credit

advice .At the end of the day, all the debit and credit advices of

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different department come to accounts department. It makes extract

in light of all advices. Actually extract shows the balance of SBL

Topkhana Br. general A/C. The objective of preparing it is to know how

many transactions have been originated and responded by the

respective branch per day. Branch has to send it its Head Officekeeping one photocopy.

4.11 Debit Voucher:For making cash payment like entertainment, conveyance, account

department writes a debit voucher. Amount is withdrawn through cash

section by presenting debit voucher.

4.12 Statement of Affairs:Accounts section prepares the statement of affairs for finding the profit

/loss as well as amount of assets and liabilities of concerned branchper day. Theoretically, it is called financial statement and has two

parts:

Income and Expenditure A/C.Statement of assets & liabilities.

4.13 Amortization and Depreciation:Amortization is the allocation of the cost of an intangible asset toexpense. For example; prepaid expenditure, prepaid insurance andgoodwill etc. Amortization schedule is determined by the decision of

management.Depreciation is a process of cost allocation of assets not a processassets valuation.

a) Fixed Assets have been show at cost less accumulatedDepreciation.

b) Depreciation has been charged on straight-line methodat the following rate on cost of assets for the full yearirrespective of their date of purchase.

Particulars ofassets

%

Furniture & fixture 10Office Appliance 20Office Decoration 10Electric Equipment 20Computer 20Vehicle 20

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4.14 Functions Provided By AccountsDepartmentLike all other Banks, in SBL Accounts Department is regarded as the

nerve Center of the bank. In banking business, transactions are done

every day and these transactions are to be recorded properly andsystematically as the banks deal with the depositors money. Any

deviation in proper recording may hamper public confidence and the

bank has to suffer a lot otherwise. Improper recording of transactions

will lead to the mismatch in the debit side and in the credit side. To

avoid these mishaps, the bank provides a separate department whose

function is to check the mistakes in passing vouchers or wrong entries

or fraud or forgery. This department is called as Accounts Department.

Besides the above, the Bank has to prepare some internal statements

as well as some statutory statements which are to be submitted to the

central bank. Accounts Department prepares these statements also.

The department has to submit some statements to the Head Office,

which is also consolidated by the Head Office later on.

The tasks of the Accounts Department of SBL Topkhana Br. may beseen in two different angles:A. Daily Tasks.B. Periodical Tasks.

DAILY TASKS:The routine daily tasks of the Accounts Departments are as follows :i. Recording the daily transactions in the Cash Book.ii. Recording the daily transactions in general and subsidiary ledgers.iii. Preparing the daily position of the branch comprising of deposit &

cash.iv. Preparing the daily Statement of Affairs showing all the assets and

liability of the branch as per General Ledger and Subsidiary Ledgerseparately.

v. Making payment of all the expenses of the Branch.vi. Recording inter branch fund transfer and providing accounting

treatment in this regard.vii. Checking whether all the vouchers are correctly passed to ensure

the conformity with the Activity Report ; if otherwise making itcorrect by calling the respective official to rectify the voucher.

viii. Recording of the vouchers in the Voucher Register.ix. Packing of the correct vouchers according to the debit voucher

and the credit voucher.

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PERIODICAL TASKS:The routine periodical tasks performed by the department are asfollows:i. Preparing the monthly salary statements for the employees.ii. Publishing the basic data of the branch.

iii. Preparing the weekly position for the branch which is sent to theHead Office to maintain Cash Reserve Requirement (C.R.R).iv. Preparing the monthly position for the branch which is sent to

the Head Office to maintain Statutory Liquidity Requirement(C.R.R).

v. Preparing the weekly position for the branch comprising of thebreak up of sector-wise deposit, credit etc.

vi. Preparing the weekly position for the branch comprising of thedenomination wise statement of cash in tills.

vii. Preparing the quarterly statements (SBS-2 and SBS-3) whereSBS-2 shows classification of deposits excluding inter bank

deposits, deposits under wage earners scheme and withdrawalsfrom deposits accounts and SBS-3 shows classification ofadvances (excluding inter bank) and classification of billspurchased and discounted during the quarter.

viii. Preparing the budget for the branch by fixing the targetregarding profit and deposit so as to take necessary steps togenerate and mobilize deposit.

ix. Preparing an Extract which is a summary of all the transactionsof the Head Office account with the branch to reconcile all thetransaction held among the accounts of all the branches.

4.15 Observations1. Under this department, practice strictly supports theories. There is

not too much discrepancy between them. All the functions ofAccount Department provided by SBL Imamgonj Br. are based onaccounting theories and procedures.

2. In case of amortization there is no pre-determined rate on which itwill be charged. It fully depends on the decisions of the executivesof Accounts Department or the instruction of H/O.

3. In case of depreciation only the straight-line is to be followed, butthere are other methods of charging depreciation, such as-doubledecline, sum year-digit methods etc are used as method ofdepreciation. These are not followed by SBL except the straight linemethod.

4. This department plays a vital role in the management informationsystem. Management collects different types of information fromthis department.

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Chapter: 5Credit department of SBL

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Credit department of SBL

5.1 Bank Credit

5.1.1 Importance of bank credit: {macro aspect}

5.1.2 IMPORTANCE OF CREDIT: MICRO ASPECTS5.2 VARIOUS FORMS OF STANDARD BANK CREDIT

5.2.1 FUNDED CREDIT

5.2.2 OTHER IMPORTANT FUND ADVANCES/FACILITIES ARE

5.3 ADVANCES OF SBL

5.4 DIFFERENT TYPES OF ADVANCES OFFERED BY SBL

5.5 PROCEDURE FOR GIVING ADVANCE:

5.6 FEASIBILITY REPORT5.7 CREDIT LINE PROPOSAL

5.8 PROJECT APPRAISAL

5.9 TECHNIQUES OF PROJECT APPRAISAL

5.10 SECURITIES:

5.11 MODES OF CHARGING SECURITIES

5.12 DOCUMENT AND DOCUMENTATION

5.13 NATURE OF CHARGE DOCUMENTS BASED ON VARIOUS

SECURITIES

5.14 DOCUMENT AND SECURITIES TO BE OBTAINED FOR

DISBURSEMENT OF LOANS

5.15 CREDIT MONITORING, FOLLOW-UP AND SUPERVISION

5.16 LOAN CLASSIFICATION

5.17 PROVISION

5.18 CLASSIFICATION CRITERIA

5.19 GUARANTEE:

5.20 ISSUANCE PROCEDURE OF GUARANTEE

5.21 SANCHAYPAT

5.22 STATEMENTS PREPARED BY THE CREDIT DEPARTMENT

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5.23 DEVIATIONS BETWEEN THEORIES AND PRACTICES

Chapter-5: Credit Department

Credit may be defined broadly or narrowly. Broadly, credit is finance

made available by one party (lender, shareholder/owner) to another

(borrower buyer, corporate or non-corporate firm). Narrowly, credit is

simply the opposite of debt. Debt is the obligation to make future

payments. Credit is the claim to receive those payments.

The word credit derives from the Latin word Credere- to trust. The

fundamental nature of credit is that an element of trust exists between

buyer & seller-whether of goods or of money.

Simply credit is a promise of future payment in kind or in money given

in exchange for present money, goods, or services. In other way- In

general, credit means the granting of a period of time by a creditor to

a debtor at the expiration of which the later must pay the debt due.

In a credit economy, that is economy with borrowings & lending each

spending unit can be placed in any of the three categories:

Deficit spenders,

Surplus spenders,

Balanced spendersThe chief function of credit is to relax balanced budget constraint that allows promoting

savings, investment, and better allocation of resources and growth of economy.

5.1 Bank Credit

Bank is financial intermediary that provides finance from surplus units

to deficit spenders of an economy. Bank accepts deposits from

individuals & institutions and makes loans.

5.1.1 Importance of bank credit: {macro aspect}

Credit influences & is influenced by quantity of money, level ofeconomic activity (GNP) imports and net foreign assets.

Credit provides vital linkage among Govt. sector, Private sector,financial sector and foreign sector. Credit is an important determinate of money creation and hence of

production, consumption and national income. Credit influences imports and capital movements, and hence the

outcome of balance of payment. The macro aspect of credit planning has to take into acc

Documents

Recruitment & Selection Practices of SBL