Rehabilitation of Sick Industry Financed by Bangladesh Development Bank Ltd

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study:

With a view to acquiring in-depth knowledge about practical aspect of modem business I was

attached with Bangladesh Development Bank Ltd for the purpose of internship program. The

academic program of Accounting Department requires every MBA Student to undergo an

Internship Program. Keeping this view in consideration, students of MBA are advised to visit

Organizations/Institutions and discuss with management personnel for gathering practical

knowledge. After completion my study and field work. I would write up an internship report

under supervision of the Assistant Professor Rumana Ahmed, Department of Accounting &

Information Systems, University of Dhaka. I have made this report under his guidance and

supervision on the rehabilitation of sick industries financed by Bangladesh Development

Bank Ltd. Bangladesh Development Bank Ltd was setup for the purpose of industrialization

of our country after liberation. Our economic growth rate is very low. So for the economic

development, industrial growth is obligatory. More or less Bangladesh is an agricultural

country. But now a day Bangladesh is trying to shift this philosophy, and wanted to enter a

new dimension. This dimension is industrialization. To become an industrialized country,

Bangladesh Govt. set up many types of industries e.g. large-scale jute, textile, spinning and

packaging, non-metal products. etc. If these industries run well, then it will provide great

contribution to develop the country. But we can see that all these industries are not

contributing well. Even they are not profitable and became burden for the country in the form

of sick industry. Sick industry does not bring good result for the developing country like

Bangladesh.

1.2 Statement of the problem:

There are different industries in Bangladesh. Performance of the entire industrial sector is not

satisfactory. Many firms in different industries are becoming increasingly sick. Some of these

firms were liquidated or closed and some are on the verge of being closed. Why firms are

increasingly becoming sick and what action to be taken to ensure their survival and growth

are yet to be discovered. This study addresses the issues pertaining to the above-mentioned

problems.

1.3 Objectives of the study:

The main objectives of my studies are to find out how the overall operation of BSB is

performed and to examine the sick industries. To what extent it is successful to achieve its

goals and why many of its industries are become sick. The prime objectives of this report are

-

• To get an overall idea about the operation of BSB

• To examine the success status of loan recovery

• To know how they identify a sick firm.

• To identify the causes behind sickness of enterprises.

• To know what types of measurement are taken to rehabilitate the sick industries?

• To know which firms are rehabilitate and which are not.

• To observe the existing rules, regulation, theories and practices for BSB.

• To recommend some steps to overcome such problem

1.4 Rational of the study:

Industrialization is the main indicator to develop a country, so Govt. has established

Bangladesh Development Bank Ltd (BDBL) to dispense the loan and other technical facilities

among the entrepreneurs to develop industry. Since Bangladesh is a developing country, and

the present economic situation of Bangladesh is of open market in nature so in this situation

the specialized Bank like BSB can play necessary role toward the economic improvement.

The types of organizations in which BSB finance are - large-scale jute, textile spinning and

weaving, composite textile, cinema halls, water transport (both passenger and cargo),

computer software, fish processing, etc. Many of the sponsoring borrowers of BSB financed

projects have now become the most successful entrepreneurs of the country. In working with

the BSB I found that some of its financed industry is unable to operate in the market. These

industries are recognized as sick industry. So, at once I determined to find out the reasons of

sickness and how to overcome this. That's why I select this topic “Rehabilitation of Sick

Industry" financed by BSB.

1.5 Scope of the Study:

This report will mainly focus on the rehabilitation of sick industry financed by Bangladesh

Development Bank Ltd. This study covers the causes of sickness, different aspects of

sickness, habilitation policy; management of rehabilitation; rehabilitation between appraisal

practices, monitoring & sickness, sector-wise loan outstanding position, loan portfolio and

success & failure of rehabilitation. My study is mainly related with practical oriented case, I

have studied on the Faridpur Textile Mills Limited, Khulna. Flow it went into sick and how it

rehabilitated.

1 .6 Methodology of the Study:

The area of my study has been encompassed the operation area of Bangladesh Shilpa

Bank, Dilkusha, Motijheel, Dhaka. The report is based on both primary and secondary data

and interviewing the mangers and officers if the bank, employees of the related parties have

provided the primary sources of information. Further more the secondary sources of

information are the 1ifferent annual reports, guide about activities of bank and financial

institution.

The sources of primary data are:

• Official records & documents of BSB.

• Face to face interview.

• Communication with other respective personnel of BSB.

The sources of secondary data are:

• Annual report & rehabilitation manual of BSB

• Project rehabilitation documents of Faridpur Textile Mills Limited

• Journals and relevant books.

• Website of BSB

1.7 Justification of the Study:

This study will have both practical and academic value. It will help to get a clear idea about

the rehabilitation procedure of sick industry of BSB. On the other hand, the findings of this

study will help to take appropriate actions and steps for the betterment of the existing

practice, which basically help the industrial development of the country.

1.8 Limitation of the Study:

This Internship Report is my first assignment outside our course curriculum in the practical

life. I, the students of “Department of Accounting & Information Systems”, just have

completed our formal education stage. After completing the institutional experience, Practical

performance in the formal stages become difficult. So in performing this report our lack of

practical knowledge greatly influenced in this performance. Besides above, other limitations

that were faced are:

1. Lack of availability of data

2. Many personnel of BSB were reluctant to provide useful information.

3. They are in government employee so have no eagerness to supply more because of extra

hardness.

4. Up-to-date information was not available.

5. Sufficient records, publications, facts and figures are not available.

6. For the reason of confidentiality, some useful information cannot be expressed in this

report.

7. Limitation of time.

8. No hypothesis has been drawn for this report.

CHAPTER TWO

OVERVIEW OF BAGLADESH SHILPA BANK

2.1 Introduction

2.2 Vision, Mission & Prime Coal

2.3 Institutional overview of BSB

2.4 Capital structure and sources of fund

2.5 Ownership of BSB

2.6 Management

2.7 Operational Activities of BSB

2.8 Steps Taken to Gear-up the Bank’s Activities

2.9 Bangladesh Development Bank Ltd: At a glance

2.1 Introduction:

The Bangladesh economy is confronted with the stiff competitive challenge in the context of

the free market economy and present globalization. The economic crisis is further aggravated

by the persistent hike of oil price and some other necessary importable items in the

international market as well as political unrest along with many other internal shocks.

Accommodating the challenges alongside for maintaining macro economic stabilization as

well as moderate CPI inflation and for achieving desired economic growth, various measures

are undertaken by the Government and the Central Bank like, cautious and restrained

Monetary Policy, reality based Fiscal Policy, strong participation of private sector in the

manufacturing sub-sector aided by continued growth of the Ready Made Garments industry

despite phasing out of global Multi Fibre Arrangement, highest growth in the remittance flow

has made possible to achieve a sustainable economic stabilization for the country. Industries

play a pivotal role in the economic development of every country. This is why

industrialization has been adopted as a vital instrument of economic development in many

developing countries. The former Industrial development Bank of Pakistan (IDBP) and The

Equity Participation Fund (EPF) both of which were established for the industrial

development of Pakistan were converted into a single institution named Bangladesh

Development Bank Ltd (BDBL). I3SB comes into existence on October 31, 1972 by the

promulgamation of BSB order 1972 under the president Order No. 129 of 1972 with a

mission of “accelerating the process of industrialization of the country by providing financial

assistance and equity support to the enthusiastic and skilled entrepreneurs “The BSB order,

1972 was amended subsequently by the parliament to provide more operational autonomy to

its management. It has been extending long and medium term loan facilities in local and

foreign currencies to industrialize projects, both new and Balancing, Modernization,

Replacement and Expansion (BMRE), in the private and public sectors.

The main objective of BSB is to provide finance both in local and foreign currencies for

establishment of new industrial projects as well as to Balancing, Modernization, Replacement

and Expansion (BMRE) of existing industrial units in Bangladesh both in private and public

sectors. It also provides other types of financial assistances like guarantees for credit/loans,

equity-support, underwriting of shares for other parties and working capital loans to the BSB

financed projects. BSB also provide banking business of limited scales.

2.2 Vision, Mission & Prime Goal:

Vision: To broaden the country’s industrial base for enhancing the contribution of industrial

sector to Gross Domestic Product (GDP) in congruence with the national policies.

Mission: Accelerating the pace of industrialization of the country by providing financial

assistance and equity support to the enthusiastic and skilled entrepreneur.

Prime Goal: Like the glorious past, Bangladesh Development Bank Ltd is committed to fulfill

customers’ needs and satisfaction as the trusted partner in industrial financing.

2.3 Institutional overview of BSB:

Established October 31, 1972

Organization Head office Dhaka

Division 5

Department 21

Zonal Office 3

Branch Office 15

Personnel 725

2.4 Capital structure and sources of fund:

Authorized capital : Tk 2000 million

Paid up capital : Tk 2000 million

The sources of bank’s fund are the government, Bangladesh Bank, Commercial Bank,

Local/Overseas financial institution and suppliers’ credit.

2.5 Ownership of BSB:

At least 51 percent of the Authorized capital of BSB be subscribed by Bangladesh

government and remaining 49 percent be subscribed by Bangladeshi nationals or by financial

institutions local or foreign. Presently, 100 percent ownership of the Bank belongs to the

government.

2.6 Management:

The overall policy formulation and the general direction of Banks operation vest on a board

of directors appointed by the government. The board of Directors consists of nine (9)

members including the chairman and the Managing director. Non- government shareholder

subscribing to the capital of the Bank shall eventually elect four (4) Directors from amongst

themselves. The Managing Director is the chief conducting the overall Banking business.

2.7 Operational activities of BSB:

Bangladesh Development Bank Ltd being the prime development financing institutional

continued its effort to make on effective contribution towards expansion of industrialization

process of the country. It emphasized on long term lending to the viable new projects having

comparative advantages, export prospects, forward and backward linkage and local

technology as well as raw materials based projects. Fop priority has been given for realization

of its loans towards augmenting and recycling of the invertible funds and maintaining

satisfactory loan portfolio for increasing profitability. With this end in view the Bank has

undertaken some realistic steps towards replacement. Rescheduling and liquidating of loan

accounts of sick / closed / stuck-up projects with waiver facilities where deemed appropriate.

2.8 Steps taken to Gear-up the bank’s activities:

To make the bank a vibrant one, a pragmatic business Program is now under implementation.

The main features of the plan are as under: -

• Gear-up recovery through setting up of pragmatic recovery targets.

• Expansion of new area of investment.

• Cleaning of loan ledger with exit facilities.

• All out efforts for deposit mobilization.

• Undertake need-based training Program including computer training to all officers &

develop a computerized data-base system and

• Full computerization of bank’s activities.

2.9 Bangladesh Development Bank Ltd : At a glance

2003-04 2004-05 2005-06 2006-07 2007-08

No. of

Projects

Loan application

received

51 83 96 51 47

Term loan sanctioned:

New 21 34 45 37 12

BMRE 3 1 2 - -

Additional 3 3 5 2 8

Total 27 38 52 39 20

Term loan disbursed 14 23 43 53 45

Working capital loan

sanctioned

5 3 9 15 3

Start of commercial

operation

4 7 12 8 27

Inclusion in loan

portfolio

6 14 23 31 14

Rephasement /

Rescheduling

17 23 16 13 16

Liquidation of loan 22 41 20 20 21

liablilities

Loan Portfolio 308 166 164 179 177

Write-off ledger - 281 283 278 321

No. of total projects 308 447 447 457 498

Million

Taka

Term Loan Sanctioned 989 1009 1311 1006 918

Term Loan Disbursed 297 144 485 534 384

Working Capital Loan

Sanctioned

19 14 232 105 3

Working Capital Loan

Disbursed

28 21 32 196 33

Loan Recovered 1124 1391 1159 1065 981

Rephased/Rescheduled 149 259 790 280 423

CHAPTER THREE

LITERATURE REVIEW

3. 0 LITERATURE REVIEW

Bangladesh Development Bank Ltd was established to stimulate industrialization in the

country. So, it financed in various types of industries. The industries on which it financed, all

are not a successful one. Some of them are fail to gain success and identified as a sick

industry. Rehabilitation Department is mainly deals with this sick industry. They find out the

causes of sickness of a project. Some time they reschedule loan according to the capabilities

of the project. Moreover more information and advices may be given so that the entrepreneur

may run the business more effectively; sufficient return may gain and contribute to the

economy. It basically needs to be satisfied about the overall viability of a project to be

financed. For this purpose, an objective assessment of the viability of the project is required

to be examined by BSB from various points of view. Project appraisal cover five different

aspects of a project: Management and Organization, Technical, Market, Economic, and

Financial. Although, the above five steps are followed in case of implement a project or to

finance a project, hut these five steps cannot always ensure that a project should be

successful. There are many odd or uncertain situation may happen, which can make a project

sick or unsuccessful. If the project is not rehabilitable, then send it to the Law Department

and finally sued against the project.

Sick industries mean the industries, which either become stuck-up during construction or

could not operate successfully after implementation. These projects could neither pay back

the bank’s dues nor make any contribution to the national economy. These projects were

identified as sick due to their inability to generate sufficient fund for debt servicing.

The Ministry of Finance and the Ministry of Industries co-operate to provide debt relief and

other financing assistance to bail out failing firms in a specific industry that has been

identified by the government as a “Sick Industry”. Assistance may include waiver of interest,

reduction in principal, repeated rescheduling of overdue loans, of combinations of these.

There are some specific criteria’s to identify a sick industry. They are

a) On the Basis of Cost Benefit Analysis

b) On the basis of Break Even Analysis

There are various reasons of sick firm. But to discuss it easily I classify it in two classes.

They are-

a) The reasons that are beyond die control of the project owner; and

h) The reasons that arc under control of the project owner

The above causes are further divided into seven (7) causes such as financial, marketing,

technological, administrative & managerial, economic, political and other causes of sickness.

Rehabilitation of a project means to reshape the existing industries or project that is diagnosis

a weak or sick project, so that it may operate successfully in future.

All sick industry is not rehabilitated because all sick industry has not all possibilities to

rehabilitate. It’s mainly depends on the nature of the sickness. The sick industry that is

probable to rehabilitate by providing and assisting some predefined criterion. The predefined

criterion are based particularly on

a. Management Perspective

b. Technological Perspective

c. Financial Perspective.

After considering a industry as sick, then the industry are taken into rehabilitation by aiding

additional support of those the sick industry that can recovers the additional investment then

it seems to he as rehabilitated industry otherwise not. in some extraordinary case they were

bound to take some terrible decision because of sonic political pressure.

Under recommendation of Govt’s special committee for waiver of interest the bank’s Board

of Director approved liquidation of 53 Bank-financed sick, problem rider and stuck-up

projects. The BSB also puts realistic efforts to rehabilitate its sick, problem-ridden and stuck-

up projects. In this perspective BSB has taken three-dimensional measures comprising of

debt relief, injection of additional funds, and direct management

The bank for the rehabilitation of the sick project took these three steps. The compensation

amount of Tk. 29.06 crores (in the form of bond) was obtained from Government against

waiver of interest. Under this scheme 23 projects liquidated their loan, 30 projects are LD1

and remaining 3 in LD2. It is mentionable that with a view to making such projects capable

of debt servicing through profitable operation, the bank tried to solve their problems through

a combination of measures including a financial package.

The bank also made a program of taking over management of the sick projects directly where

the above measures were not considered sufficient due to inefficient management/

mismanagement. So they created a department called “Sick Project Management

Department” for ensuring efficient management of such sick projects. The responsibility of

this department is to make such projects capable of debt servicing through profitable

operation. So the bank continued sanctioning of term loans during FY 2007-2008. This year

local currency loan of TK. 918 million has been sanctioned to 20 projects and short-term loan

(C.C. loan) of TK 3 million to 3 projects. Of the total sanctioned long-term loan, TK 538

million is for 12 new projects and an additional loan of TK. 380 million for 8 existing

projects. Under rehabilitation program BSB has taken so many measures to rehabilitate the

sick industries. I have elaborately discussed these measures by chart and table in the report.

The success and failure of rehabilitation is depends on how many projects the bank are

rehabilitated and amongst the rehabilitated projects from how many it would able to recollect

its money back. According to some records BSB has already rehabilitated some of 53

projects that are identified by the Govt. of Bangladesh. The lists of these projects are given in

details by table in the report.

CHAPTER FOUR

SICK INDUSTRY

4.1 Introduction

4.2 Method used to identify a Sick Industry

4.3 Precautions about Sick Industry

4.4 The Symptoms of Sick Industry

4.5 Sick Industry Classification

4.6 Causes of Sickness

4.6.1 Financial Problems/Shortage of Working Capital

4.6.2 Marketing Problem

4.6.3 Technological Problem

4.6.4 Administrative and Managerial Problem

4.6.5 Economic Problem

4.6.6 Political Problem

4.6.7 Other reasons of sickness

4.7 Sick Situation

4.8 Sick Industries

4.9 Impact of Sick Industry in Bangladesh or BSB

4.1 Introduction:

Sick industries mean the industries, which either become stuck-up during construction or

could not operate successfully after implementation. These projects could neither pay back

the bank’s dues nor make any contribution to the national economy. These projects were

identified as sick due to their inability to generate sufficient fund for debt servicing.

4.2 Method used to identify a Sick Industry:

There are some specific criteria’s to identify a sick industry. They are —

a) On the Basis of Cost Benefit Analysis:

For identifying a sick industry the following criteria may be considered by cost benefit

analysis. If the cost of the project is more/greater than the benefit then the industry is to be

considered as a sick industry. Some time the industry can’t recover the cost (labor, material)

for this reason the industry goes into loss.

b) On the basis of Break-Even Analysis:

An industry should produce up to break-even point because to recover the fixed cost or

overhead cost. If they can’t recover fixed cost then we can consider this industry as a sick

industry.

4.3 Precautions about Sick Industry:

Sick situation arises in an industry in some abnormal period. But if the rate of sickness is

overwhelming then it becomes a matter of fact. So before providing loan importance must be

given on evaluation. If the evaluation procedure is correct, sick industry situation may avoid

quite easily. So at pre-investment stage the following things must be considered-

Examine the project is done appropriately.

The project cost is calculated in a proper way.

The proper place is selected.

Defect machineries must not be purchased.

Ensure that skilled and experienced personnel are easily found.

Proper stapes are taken to protect uneven breakdown of electricity.

Ensure that proper people arc involved in the managing committee.

Ensure the financial capability of the initiator.

Ensure the procedure of makeup the preliminary cost and the doubtful loss.

Ensure the quality of the produced product.

Ensure the proper way to marketing the produced products.

Consider the change of test of customer.

Proper plan is taken to implement the project.

Steps are taken to avoid the potential conflict

4.4 The Symptoms of Sick Industry:

The symptoms of sick industry are as follows:

The initiator is unable to pay sufficient money at the implementation stage.

The delay of implementation increases the project cost. It also creates many problems

and the burden of loan interest is increased.

Lack of full production or frequent obstruction of industry.

The initiator is unable to pay the loan installment and other liability.

The failure in payment of loan installment in time increases the burden of loan.

Inability to submit the financial statement in time.

Increase the tendency of undertaking unfair means in preparing the papers of stock

materials.

Profit from investment is decrease gradually.

The project faces loss gradually.

The production level decreases gradually.

Taking loan from various sources at a high rate.

Applied for a large amount of loan.

Non-cooperating tendency with the loan providing bankers.

Lacking of perfection in the market.

4.5 Sick Industry Classification:

The Ministry of Finance and the Ministry of Industries co-operate to provide debt relief and

other financing assistance to bail out failing firms in a specific industry that has been

identified by the government as a “Sick Industry”. Assistance may include waiver of interest,

reduction in principal, repeated rescheduling of overdue loans, of combinations of these. A

‘Sick Industry” classification may be purchased with a suitable bribe to the appropriate

ministry, Ministries, the PMO, and the Standing committee of Parliament on Finance may be

lobbied and bribed to obtain such a classification. Billions of BDT of NCB loans are written

down using this technique.

4.6 Causes of Sickness:

Bangladesh Development Bank Ltd undertakes various projects by providing finance,

machinery and other aids, some projects are implemented and successful and some projects

are failed to attain the goal and these firms are called sick firm. There are various reasons of

sick firm. But to discuss it easily I classify it in two classes. They are-

The reasons that are beyond die control of the project owner; and

The reasons that arc under control of the project owner

The above causes are further divided into seven (7) causes. The causes are discussed below

according to their importance though all of the causes are important.

4.6.1 Financial Problems/Shortage of Working Capital:

The shortage of working capital is the most acute problem for majority of the sick industries.

Working capital is required to finance purchase of required raw materials and other short

term needs of a project after it is implemented. A survey shows that 17% of the projects

suffered due to shortage of capital. The problems, which lead an industry towards sick, are as

follows-

Measurement of investment outlay and cost of the project are not appropriate.

When the means of financing is not available.

When the project is not profitable.

When the production is not reached at the break-even point.

Loan application with insufficient amount of money that would not meet fixed and

operation cost.

When they can’t calculate appropriate risk level of sick.

Cash flow of the project is not available.

If actual cost of the project is more than the budgeted cost.

Shortage of working capital, i.e. if they do not manage the sufficient working capital.

If market interest rat increase, cost of working capital increase as a result the project

may become in sick.

Lack of operating capital.

Higher fixed cost. i.e. increase fixed cost as a result of increasing of the price of

machinery, land or any other fixed items.

When variable cost increase.

Does not ensure sufficient mortgage.

Improper inspection of Bank financed project.

Insufficient insurance facility.

Economic problem comes from the social cost benefit analyses.

4.6.2 Marketing problem:

Marketing problems are the next serious problem. This problem occurs due to a large number

of similar industries and the availability of the products in the secondary market by

unauthorized import of such products. A survey reveals that 24% of the projects are suffered

due to marketing problem. The marketing problems, which lead an industry towards sick, are

as follows:

The aggregate demand of the proposed project is not possible to till up.

When the market share of project is under low appraisal

When change the consumption trends in the past and present consumption level

If the changes occurred in the import and export policies

Change of customer behavior, intention, attitude, motivation, preferences,

requirements, distribution channel and marketing policy.

Administrative problems and legal constrains.

Introduction of new brand of product

Wrong forecasting about the market. Smuggling of substitute goods

If the raw material of the product is not purchase at appropriate time

If the market is not monitor properly

Improper market justification

Lack of market expansion and product diversification

Hugh competition in the market

If income level of the people in a society is decrease then demand of the product will

be decrease

Cheap price of the foreign product

Cost of production is high.

4.6.3 Technological Problem:

Machinery imbalance causing lower capacity utilization is the major technical problem of

many projects. Some are also suffered for faulty technical design. A survey reveals that 13%

of the projects are suffered due to technological problem. The technological problems, which

lead an industry towards sick, are as follows:

Whether the preliminary lest and studies are not appropriate.

Availability of raw materials, powers and other infra-structural facilities have not

been established.

The selected scale of operation is not optimal.

The production process chosen is not suitable.

The equipment and machine chosen are not appropriate.

Lack of modem technology, like incapable to use the computer and modem

machinery.

If the selection of machinery becomes faulty, it will not ensure the achievement of

objectives.

Wrongly or inappropriate selection of the machinery.

Lower capacity of the machine resulting price will be higher, ie. Production cost

high.

Inconsistency between the origin of raw materials arid the factory location,

production of products and final consumption adversely affect the business.

Lack of communication system.

Lack of infrastructure facilities.

In availability of supply of gas, electricity and water etc.

Selection of old and backdated technologies to be used in production.

Delay of machinery procurement & rapidly change in technological environment.

4.6.4 Administrative and Managerial Problem:

There are also some internal conflict between the worker and manager. A survey reveals that

22% of the projects are suffered due to administrative and managerial problem. The

administrative problems, which lead an industry towards sick, are as follows-

Weak management of the project.

Lack of efficiency of employment as well as management.

Conflict and also death of management partner’s.

Death of main entrepreneur of the project.

Insufficient appointment of employee

Unskilled human resources

Corruption and intentional misuse of organizational assets.

Lack of proper planning, organizing, controlling, administrating and monitoring.

4.6.5 Economic Problem:

The economic problems, which lead an industry towards sick, are as follows:

Economical problem comes from the social Cost Benefit Analysis.

It does not impact of the project on the distribution of the income in the society as

well as the level of saving and investment.

4.6.6 Political Problem:

The political problems, which lead an industry towards sick, are as follows:

Political pressure

Political instability which disrupt the production

Insufficient facilities provided by govt. to industrialist like tax rebate etc.

Political problem like unrest, hartal etc.

Political pressure to loan procurement

In appropriate action taken by govt. to protect smuggling

Political terrorism

4.6.7 Other reasons of sickness:

Except the above problems there are also some problems, which lead an industry towards

sick. A survey reveals that 10% of the projects are suffered due to other problem. They are as

follows:

Selection of in appropriate industrial unit which is not financial and logically viable in

concerned country

Delay of loan application

Internal delay of industries construction after loan sanction

If a portion of loan amount used for personal use

Delay of operation start

Over estimation of mortgage value

Delay of loan procurement and sanctioning process

Delay of documentation formalities in respect of loan

Causing of rehabilitation measures

Insufficient enforcement of law for recovery of loan

Inappropriate location of industries

Insufficient infrastructure facilities

Natural disaster that hampered production

Terrorism that hampered to establish an industry

Delay of implementation

4.7 Sick Situation:

Normally, BSB meets the long-term credit needs for implementation of its projects. BSB

charter provides for extending working capital to its financed projects only to a limited scale.

While sanctioning loans by BSB, provision is made for commercial banks to provide 70% of

the working capital needs. But in most cases, it is found that the project management either

can’t al all raise the required working capital from the commercial banks, or they can’t raise

required amount in due time. As a result these projects could not go into operation on

schedule time and they were unable to pay the interest and the principal amount. At last they

are treated as sick industry. There are 53 projects which are named as sick by the BSB.

4.8 Sick Industries:

In Bangladesh there are so many sick industries. The sick industry concept is not the newest

one. It is occurring from the pre-independence of Bangladesh and Bangladesh inherent some

sick industries from its birth. After independence this is also continuing. The exact figure of

sick industry is not identified. There 53 sick industries that are financed by BSB. Some of

them are stated below:

G.M.K.Textile Ltd. United Company J.K.K. lndustiy Ltd.Meraj Fabrics Ltd Malik Auto Rice Mill Mitaly Enterprise Pvt. Ltd.Nima Corporation Ltd. Au & Sons Ltd Shardar Textile Mills Ltd.Jahan Group of Printing &Packaging

Al-Amin ice Factory Riad Products Pvt. Ltd.

Al-Amin Printing &Packaging

Helal Engineering Pvt. Ltd. Grand Dhaka Hotel Pvt. Ltd

Hossain Electric Corn. Bancharampur Textile National Cold StoragePadma Tyer Retrading Industry Pvt. Ltd.

Hotel Konic Pvt. Ltd. Quick Canier Ltd.

Khan & KhanIndustry Pvt. Ltd.

North Bengal Silicate Industry Pvt. Ltd.

Uttaran Engineering Complex

Mohadevpur Auto Rice Mill Mocca Mills Ltd. D&S Auto Rice MillLakshani flour Mills Rangpur food Company Altaf Rice MillsNoor Cold Storage Rangpur Poly corn. Noor Rice MillsAllama Nails Allied Industry Pvt. Ltd.

Coxesbazer Aqua Resources Oriental Foundry

Jahanara Moulding & Engineering Workshop

Nakko Ice Mill Ltd. South East Enterprise

Brick Linker Ltd. Shovo Auto Rice Industry Diamond Industry Pvt. LtdTas Toys Pvt. Ltd. Toronodoy Water Ways

Pvt.Companygonj Rubber Industry

Agro Producer Ltd. Tito Textile Ltd. Tempkul Ltd.Micro Aliment Manufacturing Co. Ltd.

Hasan Agro Engineering Workshop Ltd.

Pionear Iron Foundry & Engineering

Table-1

From the above statistics it is clear that there are so many projects in Bangladesh are sick.

An analytical discussion makes it clear to us that the reasons of their sickness and which

projects are sick for which causes although the general causes of sickness are stated earlier.

Causes of Sickness

SL.

No.

Sectors No. of

Projects

Technical Management Marketing Working

Capital

Others

1 Food & allied 71 15 14 13 24 17

2 Textile 61 11 9 30 6 7

3 Metal products 17 3 5 2 13 -

4 Jute 19 4 3 1 6 1

5 Engineering 14 1 5 - - 11

6 Paper &

Printing

11 5 3 - 3 -

7 Service 13 1 5 2 - 1

8 Electrical 10 3 3 1 2 -

9 Petro-chemicals 11 - 11 5 2 -

10 Non-metallic 9 2 - - 1 2

11 Chemicals 9 1 1 1 2 -

12 Pharmaceuticals 10 2 - - - 1

13 Tannery 13 - - 1 5 -

14 Transport 6 - - - - 6

Total 274 48 59 56 64 46

Percentage 18% 22% 21% 24% 17%

Table- 2

If we further analyze it we will find a clear picture of the sick projects and their relevant

causes. These things are explained below under a table.

Causes of Sickness of BSB Financial Projects

Causes of

Sickness

Tech

nica

l (Te

ch)

Man

agem

ent (

Mgt

.)

Mar

ketin

g (M

kt.)

Wor

king

Cap

ital (

W/C

)

Tech

+ M

gt

Tech

+ M

kt.

Tech

+ W

/C

Mgt

+ M

kt.

Mgt

+ W

/C

Mkt

. + W

/C

Tech

+ M

gt +

Mkt

.

Tech

+ M

kt. +

W/C

Mgt

+ M

kt. +

W/C

Oth

ers

Food & allied 3 8 9 19 3 1 6 - 3 - 3 7 - 13

Textile 9 3 33 3 - - 7 5 - - - 1 - 3

Metal products - 5 - 2 - - 2 1 1 1 - 1 - -

Jute - 3 - 7 - 2 2 - 1 - 1 - 3 1

Engineering 4 3 - - 3 - - - - 3 - - - 1

Paper &

Printing

1 1 - 4 1 - - 3 1 - 1 - - -

Service - 1 3 - 1 - - - - 3 - - - 11

Electrical 2 2 2 1 - 2 - 1 - - 2 1 - ---

Petrochemicals - 1 1 - 2 - - 2 1 1 - - - ---

Non-metallic 2 1 - 4 - 1 1 - - - - - - 1

Chemicals 1 - 2 1 - - - - 1 - - 1 - -

Pharmaceutical 3 - - 2 1 - - 1 - 1 1 - - 5

Tannery - 3 1 3 - 1 - - - - - - 1 -

Transport - - - - - - - - - - - - 1 4

Total No. of

Problems

25 31 51 46 11 7 18 13 8 7 8 11 5 33

Table- 3

4.9 Impact of Sick Industry in Bangladesh or BSB:

Increase of non-performing assets in organizational level as well as national level.

Decrease in productivity at national level.

Decrease contribution in GDP and GNP.

Adverse effect in banks profitability.

Increases the classified loan.

Increase the lending rate of interest, which adversely affect the new and regular

borrowers.

Affects adversely in the economic growth rate of the country.

Creates adverse psychological impact on the prospective entrepreneurs.

CHAPTER FIVE

REHABILITATION OF SICK INDUSTRY

5.1 Introduction

5.2 Rehabilitation Policy

5.3 Management of Rehabilitation

5.4 Rehabilitable Sick industries

5.5 Relationship between appraisal practices, monitoring and sickness

5.6 Rehabilitation Program

5.7 Measurement taken at the time of rehabilitation

5.1 Introduction:

Rehabilitation means to reshape the existing industry or projects so that it may operate

successfully in future. Keeping it in mind I tried my best to find the appropriate way to

rehabilitate a sick industry.

5.2 Rehabilitation Policy:

All sick industry is not rehabilitated because all sick industry has not all possibilities to

rehabilitate. It’s mainly depends on the nature of the sickness. The sick industry that is

probable to rehabilitate by providing and assisting some predefined criterion. The

predefined criterion are based particularly on

a) Management Perspective

b) Technological Perspective

c) Financial Perspective

In the case of rehabilitating sick industry the hank takes different policy in different situation.

They are

a) Management Perspective:

Management of the project should measure the aggregate demand of the product or the

project and maintain the market share. Consumption trend and production are to measure for

rehabilitating a sick industry. If the band thought that a little change in the managing

committee would reestablish the project then they make a change in the nmnaging committee.

b) Technological Perspective:

Whether the raw material and technology is available or not, that must be measured in the

form of price and quality. If they thought that some technological change would reestablish

the project they make some technological change.

c) Financial Perspective:

In the financial measurement the project should compute the cost of capital and maintain

capital budgeting. The present value of net cash inflow should be higher than the present

value of cash outflow. In such a case, the bank provides some financial treatment that the

amount of interest is to be waived or rephrased or providing consulting service, i.e.

• Success about the proper way

• Inspiration by providing motivation.

After considering a industry as sick, then the industry are taken into rehabilitation by aiding

above additional support of those the sick industry that can recovers the additional investment

the it seems to be as rehabilitated industry otherwise not. In some extraordinary case they

were bound to take some terrible decision because of some political pressure.

5.3 Management of Rehabilitation:

Bangladesh Development Bank Ltd was established to stimulate industrialization in the

country. So, it financed in various types of industries. The industries on which it financed, afl

are not a successful one. Some of them are fail to gain success and identified as a sick

industry. Rehabilitation Department is mainly deals with this sick industry. They find out the

causes of sickness of a project. Some time they reschedule loan according to the capabilities

of the project. Moreover more information and advices may be given so that the entrepreneur

may run the business more effectively; sufficient return may gain and contribute to the

economy. If the project is not rehabilitable, then send it to the Law Department and finally

sued against the project. The main activities of rehabilitation department are the following:

The department primarily selects a project that becomes sick. Project Implementation

Department investigates the project and find out the causes of sickness and formed a

committee to investigate the project. Then it is taken to he considering for

rehabilitation. After considering it as a rehabilitable industry, it is taken to the

implementation after the approval of rehabilitation consulting committee.

Take necessary action to rehabilitate sick project after appropriate investigation.

Take steps about rehabilitation document examination, recommendation, preparation,

and implementation schedule preparation and activation of plan.

Conformation about project profitability.

Take necessary steps about production, marketing of product and loan repayment.

Duties give up to the third party or previous management, after successful managing

of the project.

Managing and directing recommendation preparation about take over project.

Analyze and compare the production, marketing and recovery of the rehabilitated

project and take appropriate action accordingly.

When there is no scope to rehabilitate a project, documents transfer to law department

to take steps.

5.4 Rehabilitable of Sick Industries:

All sick industries are not rehabilitated because all the sick industry has not all possibilities to

rehabilitate. It’s mainly depends on the nature of the sickness. The sick industry that is

probable to rehabilitate by providing and assisting some predefined criterion.

Sick industry, which are rehabilitable-

• Providing financial aids or loan

• Assisting for replacement of machine and aiding additional machinery

• Changing of management structure

• Financial treatment that the amount of interest is to be waived or rephrased

• Providing consulting service

Success about the proper way

Inspiration by providing motivation.

Sick industry, which are not rehabilitable-

After considering a industry as sick, then the industry are taken into rehabilitation by

aiding above additional support of those the sick industry that can recovers the additional

investment then it seems to be as rehabilitated industry otherwise not.

5.5 Relationship between appraisal practices, monitoring and sickness:

These three things are very much inter-related. A project goes into sickness due to

inappropriate appraisal practice and monitoring. The linkage among them is discussed below-

a) Appraisal practice:

Appraisal practices that are done from the five aspects. Such as-

i. Managerial aspect

ii. Technical aspect

iii. Financial aspect

iv. Economic aspect

v. Market aspect

b) Monitoring:

Monitoring is to supervise and control after the implementation of during the implementation

of the project. The monitoring from the viewpoint of the bank is to proper utilization of loans

and recover the loan payment with due time.

c) Sickness:

The project fall in sickness when monitoring and appraisal practice are not accomplished in

proper way. So, project implementations that depend on appropriate monitoring and appraisal

practice.

5.6 Rehabilitation Program:

Under recommendation of Govt’s special committee for waiver of interest the bank’s Board

of Director approved liquidation of 53 Bank-financed sick, problem rider and stuck-up

projects. Tk. 29.06 crores (in the form of bond) was obtained as compensation from

Government against waiver of interest. Under this scheme 23 projects liquidated their loan,

30 projects are LD1 and remaining 3 in LD2.

The BSB also puts realistic efforts to rehabilitate its sick, problem-ridden and stuck-up

projects. In this perspective BSB has taken three-dimensional measures comprising of

• Debt relief

• Injection of additional funds, and

• Direct management

The bank for the rehabilitation of the sick project took these three steps. It is mentionable that

with a view to making such projects capable of debt servicing through profitable operation,

the bank tried to solve their problems through a combination of measures including a

financial package.

The bank has so far rehabilitated 53 such projects. The lists of these projects are already

mentioned in the sick industry chapter of this report. A summarized position of the facilities

extended under its rehabilitation program is shown below in table:

Types of Facilities Amount involved

(Million Taka)

Interest waived 880

Block account facility provided 456

Loans rephrased 258

Sanction of Loan 273

Table-4

The bank also made a program of taking over management of the sick projects directly where

the above measures were not considered sufficient due to inefficient management. So they

created a department called “Sick Project Management Department” for ensuring efficient

management of such sick projects. The responsibility of this department is to make such

projects capable of debt servicing through profitable operation. So the bank continued

sanctioning of term loans during FY 2007-2008. This year local currency loan of TK. 918

million has been sanctioned to 20 projects and short- term loan of Tk.3 million to 3 projects.

Of the total sanctioned amount TK. 538 million for 12 new projects and an additional loan of

TK. 380 million for 8 existing projects.

5.7 Measurement taken at the time of Rehabilitation:

There arc various measurements for rehabilitating a sick industry.

a) Financial Measurement:

In the financial measurement the project should compute the cost of capital and maintain

capital budgeting. The present value of net cash inflow should be higher than the present

value of cash outflow.

b) Technical Measurement:

Whether the raw material and technology is available or not that must he measured in the

form of price quality.

c) Marketing Measurement:

Management of the project should measure the aggregate demand of the product or the

project and also maintain the market share. Consumption trends and production are to

measure for rehabilitating a sick industry.

CHAPTER SIX

A CASE STUDY OF FARIDPUR TEXTILE MILLS LTD.

6.0 Case Study about Sick Industry:

6.1 Location of the Project:

Faridpur Textile Mills Ltd. Khulna

6.2 Board of Directors:

Board of director & Explanation of share of the company are given below:

SL No. Name Designation % of shares

1 Mr. M.A. Quasem Chairman 40%

2 Mr. K.M. Aminul

Akber

Managing Director 20%

3 Mr. Nawab Kabir Director 20%

4 Mrs. Nurun Nahar

Begum

Director 20%

Table – 5

6.3 Project Execution & Implementation:

Bangladesh Development Bank Ltd distributed TK 53.54 lacks from 1983 to 1986 in a cotton

weaving project having 18 looms at Kaligang of Jinaydaha districts. The project wanted to go

in production in November 1983. The loan was sanction and distributed in this project with

the objective of manufacturing cotton textile. But because of non-availability of sizing

machine in adjacent areas the entrepreneur fails to manufacture cotton textile.

According to the loan receivers this project become a sick industry because of one way

production, increase in the price of raw materials, decrease in the selling price of

manufacturing goods, etc. Therefore in 1993 the project was refinance under the

rehabilitation scheme and on 29-08-1995 in response to the application of the loan receiver

the permission was granted to shift the industry from the Jinaydaha to Khulna.

According to the terms of loan sanction a period of ten-month time from the date of opening

of LC was approved for implementation of the projects. LC was open on 29-03-1995 for

importing machinery! import of machinery under the rehabilitation scheme. Accordingly the

project was supposed to be implemented by January 1996. But the project, after installing the

newly imported and partly old machineries, wanted to go in production on 01-07-1997. The

implementation of the project was delayed because of the shifting of the project to the present

site of Khulna from Kaligang of Jinaydaha, shifting of the niachineries and reinstallation,

installation of the imported new machineries, reconstruction of the industry, failure of the

entrepreneurs to provide timely supplying of capital, and failure to supply the workings

capital, etc.

According to the information provided by the company, although being able to go for

commercial production, the company was not successful to export their goods for not being

of export quality and they failure to sales their products in local market because of limited

market opportunity.

SL No.

Nature of Loans Sanctions Payments

Date Amount Date AmountA Term Loan

Local currency 31/08/1981 5.00 08/02/1983To12/08/1986

13.49

Foreign currency 31/08/1981 32.27 14/04/1983 40.05Local currency allotted under rehabilitation scheme

19/01/1993 163.00 09/08/1995To20/12/1995

149.81

Total 210.27 203.35B Working Capital

Loan19/01/1993 26.56

Total = A+B 236.83 14 20335Table-6

6.5 Capacity of the Project:

Company produced finished cloths. But the market of finished product mainly was in Dhaka.

The existing production capacity of the project was:

Dying : 30 Lac yard (300 working days as per 16 hours per day).

Weaving: 5.40 Lac yard (300 working days as per 16 hours per day).

Printing: 15 Lac yard (300 working days as per 16 hours per day).

Merchandising: 15 Lac yard (300 working days as per 16 hours per day).

6.6 Mortgage against Loan:

a) Assets of the Protect:

SL No. Explanation Market price in Lac

(Taka)

Sales value in Lac

(Taka)

1 Land 50 49

2 Building 30 27

3 Machinery 150 145

4 Others 10 7

5 Total 240 228

b) Co-mortgage Assets:

Mortgage against Long-Term Loan:

Land 45 Lac(Taka)

6.7 Steps taken to recover the loan by BSB:

To recover the loan hank will exert continues pressure on all companies director.

The old discarded machineries of this project were sold under the bank’s approval and

the sale price amounting to Tk. 5 lacks was directly deposited by the purchase to the

hank as the company’s debt.

On the recommendation of the special committee constituted by the bank am bank’s

authority directed the loan receiving company to make a down payment Tk 12.95

which is 10% of the time expired loan. The company paid Tk 4.80 Lac on 2904-2001,

as down payment. The company also promised to pay the remaining Tk 7 lacks within

30-05-2002 by selling the land and building a Kaligang of the project. But despite

constant pressure the company fails to refund the promised amount.

Because the loan receiving company was not sincere the refunding loan a notice was

serving on the company on 21-12-2003 under Article 12 of the Artho Rin Adalot

2003. After the service of the notice the loan receiving company submitted a proposal

for compromise.

6.8 Refund of Loan:

Out of Tk 203.35 lack the loan receiving company refunded Tk 16.36 lack as term

loan. Out of the refunded amount Tk 2.86 lack has been adjusted and the remaining Tk

13.50 lacks is deposited in sundry accounts.

6.9 Down Payment:

The loan receiver’s company paid Tk 13.5() lack against Uk 21.50 lacks as down payment

that is 10% of total loan. They proposed to pay the remaining Tk 8.0() lack by selling the

discarded land and building of the project at Kaligang.

6.10 Statement of Outstanding Loan:

The loan receivable amount till 31-12-2002 is Tk 513.00 lack as in temporary accounts. The

division of which is given as follows.

Types Amount (Tk.in Lac)

Long Term Loan:

Non expired Loan 144.92

Expired Loan:

Principal

Interest

Others

168.55

199.50

0.03

Total 513.00

Table- 7

Out of the above assets and liabilities the amount of distributed loan is Tk 203.35 lack.

If the loan rescheduling is violated, then the amount of interest will stand and Tk

309.62 Lac.

6.11 Provision for Loan Account:

Types Amount (Tk. in Lac)

Postponed Interest 195.88

Provision for bad debt 181.05

Total 376.93

6.12 Appeal/Application from Loan Receiving Company:

The loan receiving company in their letter dated 12-01-2004 stated that although as per the

govt. decision a 1 8 loomed textile weaving factory was established at kaligang of Jhenaidah

district in 1 980, the project become a sick industry because of Electricity Problem, unskilled

labor and no access in the market wooing to the availability of tax free garments cloth in the

market, etc.

Under the rehabilitation scheme, the industry was shifted from kaligang to Rupgang of

Khulna. But unfortunately a robbery was committed and yarn amounting to Tk 15 Lac was

stolen immediately after implementation / inauguration of the company at Rupgang. In

addition the factory was damaged by flood water during 1998.

The project could not overcome the sickness for non-procurement of loan of working capital

despite repeated effort. Stating the above mention problems the loan receiving company

made the following proposal-

Exemption of 100% interest and penalty interest on up to date loan receipt.

Supply of working capital or supply of NOC for procurement of working capital and

to allow interest free six monthly installment for the refunded of the principal loan

amount so that the loan can he refunded with in seven years time.

To take into consideration the already deposited Tk 15 Lac in different accounts. For

loan rescheduling and to allow the company to sell the discarded land and building of

the project at kaligang at a price specific by the bank (BDBL). In order to arrange the

remaining sum.

To stop/ withdraw all legal step taken against the company.

6.13 Causes of Sickness:

According to the recommendation of special committee and to the Loan receiver company,

this project became a sick industry because of the following reasons-

Insufficiency of working capital

Delay of implementation of the project

Actual production cost is greater than the expected budgeted production cost.

Weak management f the project.

Per unit production cost is greater than per unite selling price.

Lack of electricity. gas and other power.

Unskilled labor of the project.

Available access of tax-free garments cloth in the local market.

Unfortunately a robbery was committed and yam amounting to Tk 15 Lac.

High rate of gas and electricity.

The factory was damaged by floodwater during 1998.

Producing the one-way product.

Increasing the price of raw material.

Decreasing the selling price of the manufacture goods.

6.14 Advantage Provided by BSB under Rehabilitation Program:

In addition to Tk 163.00 Lac as long-terns loan and Tk 25.56 Lac as working capital loan in

favor of the company under the rehabilitation scheme, the following benefit they also provide

to loan Receiver Company.

In addition to Tk 25.41 lack of the accumulated penalty interest of the existing

loan up to 30-06-1992 and 50%, i.e. Tk 71.94 lacks of simple interest and interest

during construction totaling Tk 97.35 lack have been exempted and remaining

50%, i.e. Tk 71.94 Lacs of the simple interest and construction period interest

have been transferred and reschedule as interest free block.

The remaining portion of expired loan up to 30-06-1992, Tk.42.67 Lac and un-

expired local currency loan of the 11096 Lac totaling Tk 54.60 Lac and the

interest on it from 01-07-1992 to 31-12-1993 amounting to Tk 11.47 Lac. The

total figure being Tk 66.10 Lac with this amount an interest hearing account is to

open which is to be refunded by 20th equal six monthly installments from six

monthly after the commencement of the commercial production till 10 years

period.

The Board of Director of BSB approved the shifting of the project from one place

to another under self-financing and initiative by the entrepreneur under the

following terms and conditions among others. “After shifting the project the

existing land and building shall remain mortgage under the hank.’

After shifting of the project from kaligang, Jhenaidah the existing land and building shall

remain mortgage under the bank. In favor on approval of the bank the said land and building

will be sold and the amount received will be adjusted against the long- term loan from the

bank.

6.15 Recommendation of the Special Committee of BSB:

The loan account may be reschedule subject to the acceptance of the following terms

by the company 50% interest of loan may be exempted according to the Govt. roles

and regulation and the remaining 50% interest may be transferred as block and the

total liability is to he refunded within 10 years.

In order to increase the income of the company, it may directly export its gods for

which it may avail hack-to-back L.C. facilities from any hank or financial institution

for which the BSB will give NOC.

The loan receiving company has to pay 10% of the total loan receipt as down

Payment

No additional charge shall create on the properties mortgage with the BSB in regards

to the NOC provided by BSB for back-to-hack L.C. facilities.

The machinery, which the entrepreneur's installed later, shall have to be mortgage

with the hank.

If the loan receivers do not agree to the above proposal than as an alternative

arrangement the loan account may he closed down alter refund of the total loan with

exemption of the total interest.

If the above mentioned proposal are not complied with by the entrepreneur,

arrangement has to he made for taking legal action against the entrepreneur’s and sell

the properties of the project in order to realized the loan.

6.16 Recommendation to Resolve Sickness from my point of view:

Profitable project should be identified and loaned.

Proper policy to e adopted and implemented.

Real entrepreneur should be given loan.

Political pressure should be ignored, if not possible, should communicate with

respective higher authority.

Encouraging the borrower to repay the loan in proper time.

Preserving documents need to be computerized instead of tiling.

National observation committee can be established to analyze, evaluate and solute

proper loan recovery.

Employees who are directly involved in loan recovery should be motivated. 5Cs must

be considered when selecting borrower, i.e. Capital, Capacity, Character, Condition

and collateral.

Proper communication should be established with the clients.

Number of trained supervisor to be revised.

CHAPTER SEVEN

FINDINGS, RECOMMENDATIONS & CONCLUSION

As a developed financial institution BSB plays a vital role for industrialization. BSB is

continuing its holstering endeavor for up-gradation of our economy. Although there are a lot

of favorable and strengthen position of BSB in respect of its activities. Nevertheless BSB has

some drawbacks that are responsible for huge amount of losses each year. BSB should

overcome such problem as early as possible to become a profitable one. One important

problem of BSB is that it is a decentralized organization and each department is responsible

for particular activities hut they have lack of coordination to achieve the central objectives.

We observed a large number of projects are sick and they are loan defaulter. For that reason, I

criticize the loan appraisal procedure because it is the vital documents for loan issue.

7.1 Findings:

During my internship program, the following findings are obtained:

Sometimes improper feasibility reports are submitted by sponsors, which do not

contain adequate and reliable information.

Lack of business experience of the entrepreneurs.

Lengthy procedure and long time (more than three months) involved in the appraisal

of project.

Lack of financial commitment on the part of the borrower, the result being the failure

of mobilization of equity by them in future means they divert their equity in other

purpose after getting the loan amount.

Manual of project appraisal should be up to date because it was designed 18 years

ago.

Dependence on imported technology and non-availability of adequate information

both primary and secondary data.

Inadequate attention is paid to analyze risk and uncertainties associated with the

projects; means only sensitivity analysis is done to analyze risk.

Lacking of co-ordination among various financial institutions in exchange of

information.

Inadequate attention to social cost and benefits.

Unstable tariff and fiscal policy, political instability of the country.

The main aim of BSI3 is to stimulate industrialization throughout the country.

Loans are given to sponsors through preparing appraisal report.

The nature of credit shows that it mainly grants term loan.

Sometimes inefficient allocations of resources have created a huge amount of bad

debt.

Political interruption in sanctioning loan.

Unstable policy of management due to political changes over time.

If bank make the procedure of keeping up-do-date information but in some case there

some case of rescheduling the total procedure is reversed so it’s high to maintain

current and updated system of accounting.

Lacking of co-ordination among the various departments.

Lacks of eagerness to devote themselves for bank because of lower benefits are given

to employees.

In spite of BSB’s problem in financial condition, it helps in various social, cultural

development of the country.

Sometimes BSB helps more by giving more additional financing to project.

Project rehabilitation is the criteria of BSB that revive the sick project.

Complex judiciary systems.

Contribution to the GDP is remarkable through industrialization process. 25) Help in

implementing the projects.

Giving advice about the projects function for their future success.

Contribution of BSI3 is highest in the industrialization of Bangladesh though there’s

some problem.

7.2 Recommendations:

In this situation I recommended some points that will help BSB to overcome some their problems.The recommendations are as follows:

Loan appraisal procedure is time consuming and to some extent project plan become

irrelevant after getting the loan. Since all the procedure is completed so he is hound to

take this loan because some expenditure already been incurred (sunk cost). As a result

loan recovery may slow and some time difficult. My suggestion is that BSB should

rearrange appraisal procedure so that the entrepreneur can take loan within short

period of time.

BSB should avoid unnecessary political interfere that becoming outside the bank.

Political problem of our country is a major problem now. If it influences the banking

activity then it must create new problem no doubt.

BSB should give more concentration on physical investigation before issuing loan.

However project appraisal should be strict so that nobody can use its loopholes.

Some time real entrepreneur does not get bank loan. BSB must have to identify

profitable project and actual entrepreneur for issuing loan. And employees who are

directly involved with loan recovery should also be motivated.

BSB should introduce modern communication system so that every department or

unit can get information in its desk. Now one department must have to go other

department for information. It is also time consuming. Preserving documents also

need to he computerized instead of tiling.

Encouraging the borrower to repay the loan in time. Special arrangement should be

introduced in this respect. Legal steps should be dynamic so that default loan recovery

is accelerated. And security against the loan should he sufficient to recovery the loan.

Project must he scrutinized and in appropriate manner as well as the sponsor taking in

to consideration on the changing environment and economic reforms and

globalization.

National observation committee can he established to analyze, evaluate and solute

proper loan recovery.

In selecting borrower, 5 Cs must be considered. They are Capital, Capacity,

Character, Condition and Collateral.

Proper communication should be established with the clients.

Number of trained supervisor to be revised.

7.3 Conclusion:

The bank from its establishment to till now financed about 2000 projects, amongst them 1289

projects are stuck up. In FY 2007-08, the total number of projects in the loan portfolio stands

at 177 with total loan liabilities of taka 5699.74 million for keeping the written-off loan in

separate as per the guidelines of Bangladesh Bank. Among these projects, 57 are export-

oriented, 79 import-substitute and 41 are service / other industries. In FY 2007-08, loan

liabilities of 21 projects are liquidated and 14 new projects have entered into the loan

portfolio with loan liabilities of Tk. 182.28 million. The bank has also write-off 321 projects.

From the above discussion it is clear that from its establishment to till today about 274

projects are became sick, which is approximately 15.41% of the total projects. It is a threat

for the organization. BSB is not able to recover according to its expectation. But in the last

year this rate was highest. BSB always tries to ensure that the projects in which they provide

loan, the loan money must recover. But in some cases they were unable to recover their loan

money though they tried their best. In this situation those industries are declared as sick. At

this stage they tried to rehabilitate those projects in which they can collect their loan money

and its profit portion.

REFERENCES

1. Bangladesh Development Bank Ltd, Annual Report, 2005

2. Bangladesh Development Bank Ltd, Annual Report. 2006

3. Bangladesh Development Bank Ltd, Annual Report, 2007

4. Bangladesh Development Bank Ltd. Annual Report, 2008

5. Bangladesh Development Bank Ltd Ordinance 1972. President’s Order No. 129 of 1972,

Government of People’s Republic of Bangladesh.

6. Official website of Bangladesh Development Bank Ltd.

7. Gupta, Narayan “Various Aspects of Rehabilitation of Sick Industry”, Bangladesh

Development Bank Ltd Guideline, Dhaka.

8. Brochures of Bangladesh Development Bank Ltd.

9. Manuals of activities of different departments of Bangladesh Development Bank Ltd

supplied by respective departments.

10. Guide Book that is related with the activities of Banks & Financial Institution.

11. Official records supplied by various sections of BSB.

12. 1-3. N. Ghosh, (2002) ‘Scientific Methods and Social Research”, Sterling Publishers Ltd.

13. Zikrnand, William G. (2002) Business Research Methodology”. Tata McGraw Hill, India.