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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