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Thursday 14 April 2016

POHELA_BOISHAKH

Wednesday 12 February 2014

Practical Orientation in Bank

The report on

Practical Orientation in Bank

Table of Contents


                                                                   Contents                        
Part                                                                                                                    Page  

Letter of transmittal


Acknowledgments


List of Tables and List of figures


Executive Summary

1
Introduction


1.1   Authorization of the report


1.2   Objectives of the Study


1.3   Coverage of the study


1.4    Methodology of the Study         


1.5    Work schedule


2
Overview of the Bank and Branch


2.1   History of ABBL


2.2   Management & Organizational structure of ABBL


2.3        Capital Structure of ABBL
2.4        AB Bank Branches
2.5        Introducing the Branch
2.6        Organogram of Karwan Bazar Branch





3
Credit section


3.1   Credit service department             


3.2   Loan administration department 


3.3      Loan recovery cell 








4
Foreign exchange section


4.1    L/C Import (Cash) Department


4.2    L/C Back to Back Department


4.3   EXPORT Department


4.4   Foreign Remittance Department







5
General Banking Section


5.1  Account opening department


5.2  Local Remittance department


5.3  Cash


5.4  Collection 


5.5  FCD-Clearing


5.6  Financial Control


5.7  Sanchaypatra & Wage Earner’s Bond


6
Performance Evaluation of ABBL


6.1  Growth in Deposit


6.2   Profit for the ABBL


6.3   Reserve and Revenues


6.4   Total Credit facilities
6.5      Total Assets
6.6   Growth in Import
6.7   Growth in Guarantee
6.8   Growth in Export




















List of Tables

Table No.                                             Title                                                      Page No.
1.
Table Showing Work Schedule of Practical Orientation.

2.
Table Showing Interest for Credit

3.
Table Showing Interest rate for BCD

4.
Table Showing Growth in Deposit

5.
Table Showing Profit Trend of the ABBL

6.
Table Showing Reserve and Revenue

7.
8.
9.
10.
11.
Table Showing Total Credit Facilities
Table Showing Growth in Assets
Table Showing Growth in Import
Table Showing Growth in Guarantee
Table Showing Growth in Export



LIST OF FIGURES


Figure No.                                                 Title                                                           Page No.

1.                   Organogram of ABBL
2.                   Management Hierarchy 
3.                   Import Mechanism
4.                 Advising L/C
5.                  Issuance of Fresh Check Books 
6.
OBC Mechanism

7.
Growth in Deposit

8.
Profit Trend of ABBL

9
Volume of Credit

10
Total Assets

11.
Growth in Import

12.
13.   
Growth in Guarantee
Growth in Export


PART 1

INTRODUCTION



1.1 Authorization of study:
Banking system occupies an important place in a nation’s economy. A banking institution is indispensable in a modern society. It plays a pivotal role in the economic development of a country and forms the core of the money market in an advanced country. In recent times the banking sector over the world has been undergoing a lot of changes due to deregulation, technological innovation, globalization etc. Bangladesh banking sector is lagging for behind in adopting these changes. To thrive well in this changing environment, not only development of appropriate infrastructure is necessary but also infusion of professionalism in to banking service is essential. Out of this necessity ‘BANGLADESH INSTITUTE OF BANK MANAGEMENT’ (BIBM) started a two years ‘MASTERS IN BANK MANAGEMENT’ (MBM) program from January 1997. The program, the first of its kind in Bangladesh is designed to focus on theoretical and professional development of people open to take up banking as a career. The course is designed with an excellent combination of theoretical and practical aspects. The whole course is divided in to eight (8th) terms of three months each. After the completion of first three terms consisting of theoretical ex-poser  the students are sent to different banks at the commencement of fourth term for having some practical ex-poser to banking which would help them in taking up more professional courses in final year. As a student of MBM, I have assigned to a branch of bank for my practical orientation.

As our program director directed us to present the report in different way that will be based on the personal observations from every department. I have described every department by following way:
(1) Understanding:
       In this part I have tried to make acquainted with every department of this branch.
(2) Things are done here
       In this part I have tried to see the things which are being done in each department of the branch.
(3) Personal observations:
In this part I have tried to present my personal observations from each department of this branch.
I had an opportunity to be acquainted with the practical banking prevail in a bank. The knowledge, which has been acquired in my practical orientation
Period, I have tried my level best to show in this report.                                 

 1.2 Objective of the study:

The main objective of the study is to gather practical knowledge regarding banking system and operation. This practical orientation gives us a chance to Co-ordinate out theoretical knowledge with the practical experience. The following are of objective for this practical orientation in bank:
(a)                To apply theoretical knowledge in the practical field.
(b)               To help the students in taking up professional courses in the second year.
(c)                To have exposure to the functions of general banking section.
(d)               To have exposure to the functions of credit section.
(e)                 To have exposure to the functions of foreign exchange section.
(f)                To observe the working environment in commercial banks.
(g)                To study existing banker customer relationship.
1.3 Coverage of the study:
In this report, three major areas in commercial banks have been covered which are:
(a)                General banking section.
(b)               Credit section.
(c)                Foreign exchange section
(d)               Ancillary services rendered.
  
 1.4 Methodology of the study:
For smooth and accurate study every one have to follow some rules & regulation. The study impute were collected from two sources:
(a)      Primary sources
(i)                 Practical desk work
(ii)               Face to face conversation with the officer
(iii)             Direct observations
(iv)             Face to face conversation with the client
(b)      Secondary sources
(i)                 Annual report of ABBL
(ii)               Files & Folders
(iii)             Memos & Circulars

1.5 Work schedule
Department Rotation:

Name of the Department
From
To
Total Days
  • Credit & Loan Department
04.10.2000
24.10.2000
22 days
  • L/C Import Department
25.10.2000
30.10.2000
6 days
  • L/C Back to Back Department
31.10.2000
06.11.2000
7 days
  • Export Department
07.11.2000
13.11.2000
7 days
  • Financial Control Department
14.11.2000
20.11.2000
7 days
  • FCD (Clearing)
21.11.2000
27.11.2000
7 days
  • Cash Department
28.11.2000
04.12.2000
7 days
  • Foreign Remittance Department
05.12.2000
11.12.2000
7 days
  • Local Remittance Department
12.12.2000
18.12.2000
8 days
  • Account Opening Department
19.12.2000
21.12.2000
3 days

Table-1:Work Schedule
Source: Suggested by Branch Manager ,ABBL, Karwan Bazar

   PART 2

OVER VIEW OF THE BANK AND BRANCH


2.1 History of ABBL
Government permitted private banks to enter in to banking because of sustained poor performance by the banks of nationalized sector. Arab Bangladesh bank limited (ABBL) is sailed as the leading private commercial bank in the baking suture from its journey on April 12, 1982 with opening of its first branch at Karwan Bazar in Dhaka. It was the brainchild of group dynamic entrepreneurs of Bangladesh.

2.2 Management & Organization of ABBL
The bank was incorporated on 31st December 1981, under the Companies Act (Act VII) of 1913 as a limited company having its Head Office in Dhaka. The Bank started functioning from 12th April 1982 with the approval of Bangladesh Bank under the guidelines, rules and regulations given for scheduled commercial banks operating in Bangladesh. It was initially a Joint Venture Commercial Bank between Bangladeshi sponsors and Dubai Bank Limited, Dubai (U.A.E) having respective share holdings as under:

Bangladesh sponsors               -           20%
Bangladeshi General Public     -           15%
Bangladesh Government          -           05%
Dubai Bank Limited, U.A.E.    -           60%

2.3 Capital Structure of ABBL
The authorized share capital of Arab Bangladesh Bank Ltd. was Tk. 282.34 million, divided into 2 million ordinary shares of Tk. 100 each. The paid-up capital of the bank was Tk. 85 million, out of which, Tk. 80 million was provided by the sponsor directors. The government of the Peoples Republic of Bangladesh subscribed Tk. 5 million (5%) in the share capital of the Bank and has since nominated one director in the board as per Article 95 of the Memorandum and Article of Association in 1983. During 1984, issuing Public shares of Tk. 15 million raised the paid-up capital. At present, the authorized capital has been raised to Tk. 100 crore and paid up capital 37.26 crore.
            In the paid up capital A.B Bank, Dubai Bank Limited had the major share comprising 60% of total share holdings. Dubai Bank Ltd. was the joint sponsor with the local four entrepreneurs. In 1986, Dubai Bank Ltd. merged with the Union Bank of Middle East (UBME) and subsequently Union Bank of Middle East (UBME) inherited the shares. They continued as shareholders till early part of 1987 when they decided to off-load their investment in Bangladesh. In terms of Article 23 (a) and 23 (b) of the Articles of association of the company and with necessary approvals of the relevant authorities including the Bangladesh Bank, the shares held by them in the company have been transferred to Group "A" shareholders
2.4 AB Bank Branches                                                          
DHAKA

·         Karwan Bazar
·         Motijheel
·         Bhairab Bazar
·         Narayanganj
·         North-South Road
·         Jinjira
·         Joypara
·         Bandura
·         Gulshan
·         Dhanmondi
·         Imamganj
·         New Elephant Road
·         Principal
·         Kakrail
·         Mohakhali
·         Nawabpur
·         Mirpur
·         BoardBazar
·         Uttara
·         Pagla

Total 20 Branches
CHITTAGONG

·         Agrabad
·         Station Road
·         EPZ Branch
·         Chawk Bazar
·         Comilla
·         CDA avenue
·         Anderkilla
·         Jubilee Road
·         Boalkhali
·         Chaumuhani
·         Khatunganj
·         Nazu Meah Hat
·         Lohagara
·         Cox’s Bazar
·         Sitakunda
·         Hathazari
·         Teknaf
·         Brahmanbaria
·         Bahadderhat
Total 19 Branches


SYLHET
·         Dargah Gate
·         Modhuban
·         Tajpur
·         Moulvibazar
·         Boroikandi
·         Sreemongal, 
 Total  6 Branches


KHULNA
·         Khulna
·         Jhikargachha
·         Noapara
·         Benapole
·         Satkhira
·         Jessore
·         Kushtia
Total 7 Branches





RAJSHAHI
·         Bogra
·         Rajshai
·         Chapai Nawabganj
·         Saidpur
·         Naogaon
·         Rangpur


BARISAL
·         Barisal
·         Jhalokathi
Total 2 Branches

Total 6 Branches

The foreign correspondent relationship now stands with 289 offices of 134 foreign banks in 55 countries as on 31st December 1998. Furthermore, AB Bank has opened an overseas branch in Mumbai, India, Representative office in UK and Myanmar and a wholly owned subsidiary company "AB International Finance Ltd." in Hong Kong.

2.5 Introducing the branch:
Arab Bangladesh Bank Karwan Bazar Branch is one of the largest branches of ABBL is located in BSEC Bhaban, Karwan Bazar C/A. It started its function in the year 1986.
Presently there are 52 employees in this branch as of 20.09.1999 which includes
One SVP, 2 AVPs, 5 Chief officers, 7 Senior Officers, 18 Officers,9 Assistant Officers, One Trainee Officer, One  assistant and others are messengers, tellers, typist and  security guards.

2.6 Organogram of Karwan Bazar Branch:

.
                    KARWAN BAZAR BRANCH

                                    


   ----------------------------------------------------------------                                                                        


     G.B      CREDIT          FOREIGN EXCHANGE       ACCOUNTS
                                               




   ----------------------------------------------------------------                                                                          

                                        
        IMPORT                 EXPORT          FOREIGN REMITTANCE


Figure-1
Source: Department Information, ABBl, Karwan Bazar Branch, 2000






Management hierarchy:







MANAGING DIRECTOR

 





























Figure-2
Source: Department Information, ABBl, Karwan Bazar Branch, 2000


PART 3


CREDIT SECTION

Lending of funds to the constituents mainly traders, buying and industrial entrepreneurs, constitutes the main buying of a banking company. The major portion of bank funds is employed by way of loans and advances, which is the most profitable employment of its funds. The major part of bank’s income is earned from interest and discount on the funds so lent.
The buying of lending nevertheless is not without certain inherent risk largely depending on the borrowed funds a banker cannot afford to take under risk in lending. While lending his funds, a banker, therefore, follows a very cautious policy and conducts his business on the basis of the well-known principles of sound lending in order to minimize the risk.

PRINCIPLES OF LENDING
The Principle of lending is a collection of certain accepted time tested standards, which ensure the proper use of loan fund in a profitable way and its timely recovery.
Different authors describe different principles for sound lending.     
ABBL follows the following five principles in its lending activity.
1.         Safety
2.         Security
3.         Liquidity
4.         Adequate yield
5.         Diversity

1.         Safety
Safety should get the prior importance in the time of sanctioning the loan. At the time of maturity the borrower may not will or may unable to pay the loan amount. So in the time of sanctioning the loan adequate securities should be taken from the borrowers to recover the loan. Banker should not sacrifice safety for profitability.


2.         Liquidity
Banker should consider the liquidity of the loan in time of sanctioning it. Liquidity is necessary to meet the consumer need.
3.         Security
Banker should be careful in the selection of security to maintain the safety of the loan banker should properly evaluate the proper value of the security. If the estimated value is less than or equal to loan amount, the loan should be given against such securities. The more the cash near item the good the security. In the time of valuing the security the Banker should be more conservative.
4.       Adequate Yield
As a commercial origination Banker should consider the profitability. So banker should consider the interest rate when go for lending. Always Banker should fix such an interest rate for it’s lending which should be higher than its savings deposits interest rate. To ensure this profitability Banker should consider the prospect of the project.
5.         Diversity
Banker should minimize the fort polio risk by putting its fund in the different fields. If Bank put its entire loan able fund in one sector it will increase the risk. Banker should distribute its loan able fund in different sectors. So if it faces any problem in any sector it can be covered by the profit of another sector.
The following three departments are under Karwan Bazar branch, Arab Bangladesh bank ltd.:
(i)                 Credit service
(ii)               Loan administration
(iii)             Credit recovery cell

3.1 CREDIT SERVICE

3.1.1 UNDERSTANDING:
The job in this department starts from the application made by the client, approve the same, which is disbursed to customers. There are three employees one is chief officer, one is senior officer and one is officer currently
Working over desks in this department
3.1.2 THINGS ARE DONE HERE
The following things are done in this department:
a.          Preparation of sanction letter as per Ho approval.
b.         Monitoring & follow-up of credit facilities extended from this Br.
c.          Compliance of review of MSOCF, Client-wise Position, LIM/TR.
d.         Reporting of daily task force & daily LDOs position to H.O.
e.          Export L/C checking & preparation of credits Memos relating to back-to-back l/ CS, monitoring Project loans of Garments Projects.
f.          Preparation of Statement and maintaining all records of the credit extended under ADB Project.
g.          Preparation of Statements relating to NRIT A/C and maintaining record of the Foreign Investments.
h.         Preparation for proposal of Project loan for boards Approval.
i.           Monitoring of the Credit Facility Extended to garments projects.
j.           Statement of Monthly Garments position, Interest Subsidy, Forced loan etc.
k.         Monitoring of Foreign investments in capital market through the branch.
l.           All works related to custodial service.
m.        All type of correspondence related to credit Service Dept.
n.          Preparation of Credit Memos for approval/renewal of the Credit facilities.
o.         Preparation of Credit Memos for the Credit facilities under Cash L/C and IBP.
p.         Processing of Consumer Credit Loans & preparation of all statements of the Consumer Credit Loans.

3.1.3 PERSONAL OBSERVATIONS:
I have observed the following things:
3.1.3.1 Credit Facilities:
The credit section of ARAB BANGLADESH BANK LTD. Karwan Bazar Branch provides two kinds of credit facilities

i)                    Funded Credit Facilities.
ii)                  Non-Funded Credit Facilities.

(i) Funded Facilities: 
These are facilities that are associated with direct fund involvement.
These include:
a . Overdraft (OD)
b . Advance against work order
c . Advance against FDR/ Sanchay patra.
d.  Loan against Trust Receipt. (LTR)
e .  Staff Loan
f . House Building loan
g . Time loan
h . Term Loan
i. Consumer credit Scheme.

(ii) Non-Funded Facilities:
There is no direct monetary involvement.
These include:
(a) Bank Guarantee.
(b) Letters of Credit.

(i) Funded Facilities:
a .Overdraft (OD)
Overdraft is an arrangement where a borrower is allowed to withdraw over and above his credit balance in current account up to an agreed limit. The borrower is permitted to draw and repay any number o times, provided the total amount overdrawn does not excel the agreed limit. Overdraft facility is sanctioned against the primary security of hypothecation of raw materials and or finished goods. The borrower by signing a letter of hypothecation, duly stamped, creates a charge for an amount of debt but neither the possession nor the ownership is passed on the bank. The borrower binds him to give possession of the goods to the bank when called upon to do so. Practically the bank has no security in this case except the charge documents. Hence the bank insists on the borrower on furnishing some collateral securities.

b . Advance against work order:- Advance is granted to a client against the work order of Government Department, Corporation, Autonomous bodies and reputed multinational/ private organization. The client’s managerial capability, equity strength, nature of the scheduled work is judged to arrive at a logical decision. Disbursement is made after completion of documentation formalities. Besides usual charge documents a notarized irrevocable power of attorney to collect the bills from the concerned authority and a letter from the concerned authority confirming direct payment to the bank is also obtained. The work is strictly monitored to review the progress at each interval.

c .  Advance against DR/ Sanchay patra:- Advance is granted to a client against the security of Fixed Deposit Receipt and Sanchaypatra. Advance is granted to the person to whom the instrument belongs. The instrument is to be discharged duly the
holder (or all of them if they are more than  one) on appropriate revenue. The signature must tally with that on the bank’s recover. The discharged instrument is surrendered to the bank along with a letter signed by holder/ holders authorizing the bank to appropriate the proceeds of the instrument on due date towards the repayment of the advance. The Bank’s lien is prominently noted on the face of the instrument under the signature of an authorized bank official the instrument is issued by another branch of AB Bank or any branch of some other bank, then the concerned branch is intimated to lien mark the instrument. The rate of interest is 12% (against FDR) and 14% (against Sanchay Patra). Margin kept is 20% (for instruments issued by other bank) and 15% (instruments issued by AB Bank)

d. Loan against Trust Receipt (LTR):
Advance against a TR obtained from the customer is allowed when the documents covering an import shipment are given without payment. The customer holds the goods or their sale proceeds in Trust for the bank until the LTR is fully paid off. TR is a document, which creates the banker’s lien on the goods. The period of TR may be 30,45,60/90 days. The sale proceeds of goods held in trust must be deposited to the bank by the borrower irrespective of period of TR.

e.  Staff Loan:
Bank official from senior officer and above is eligible for this loan. The maximum amount disbursed is Taka.50,000/-  for a period of 2 years. The rate of interest is 8% per annum.

f. House Building Loan:
This loan is provided against 100% cash collateral. Besides, the land & building are also mortgaged with the bank. Rate of interest is 16.5%.

g. Time Loan: This loan matures with in one year.

h. Term loan: These are loans with maturity period of 2 years or above. These loans are repayable in installments.

i.  Consumer Credit Scheme: This scheme is aimed to attract consumers from the middle & upper middle class population with limited income. The borrower should have an account (SB or CD) with the bank. The bank finances maximum Taka. 5 lacs (for cars & Taka. 2 lacs (for other items). Minimum 25% of the purchase cost of the product is to be deposited by the borrower with the bank as equity before the disbursement of the loan. The rest 75% is to be kept as cash collateral (FDR, sanchay patra etc.) with the bank. The purchased items are hypothecated with the bank. The disbursement of the loan is effected by debiting time loan / term loan account to be opened in the name of the borrower. Loan amount is disbursed through A/C payee pay order / Demand Draft Directly to the seller after submission of  indent, deposit of client equity & completion of documentation formalities, Interest is 14% per quarter, 2% of loan amount is taken as processing fees. The bank obtains post dated A/C payee checks drawn in favor of the bank for the monthly installments covering the lending period from the borrower & the loan amount is adjusted on the due date of installments.

(ii) Non-Funded Facilities:

a .Letters of credit:
 Credit department sends proposal for L/C (cash as well as back to back) to head office for approval. L/C is discussed in detail under import section.
b . Letter of guarantee:
According to the Section 126 of Contract Act, 1872, guarantee can be defined as a contract to perform the promise or discharge of liability of a third person in case of his default. The person who gives the guarantee is called the ‘surety’, the person in respect of whose default the guarantee is given is called ‘the principal debtor’ and the person to whom the guarantee is given is called the ‘creditor’. It is an irrevocable undertaking to pay in case of a certain eventuality. The details about guarantee are discussed later.

3.1.3.2 SELECTION OF THE BORROWER

In lending, the most important step is the selection of the borrower. Due to the asymmetric information and moral hazard, banks have to suffer a lot due to the classified loans and advances, which weakens the financial soundness of the bank. If the selection of borrower is correct, that is, the borrower is of good character, capital and capacity or of reliability, resourceful and responsible; the bank can easily get the return from the lending. Consequently, monitoring is made much easier for the banker. From this point of view, ABBL follows the following procedures,-
A.          Studying past track record: After getting an application for a loan, an ABBL Official studies the past track record of the applicant. Generally the study includes,-
1.           Account balances and the past transactions.
2.           Credit report from other banks.
3.           Information of the Industry by studying market feasibility.
4.           Financial statements (balance sheet, cash flow statement, and income statement). If the borrower is a sole- proprietor, then the single entry accounting treatment is converted to double entry system.
B.          Report from Credit Information Bureau of Bangladesh Bank if the amount is more than TK.10 lac.
C.          Borrower analysis: Borrower analysis is done from the angle of 3-C (character, capital, capacity) or 3-R (reliability, resourcefulness, responsibility). It follows that the bank forms a rational judgment about the integrity of the borrower, which should be undoubted. The human skill, conceptual skill, operational skill is qualitatively analyzed.
D.          Business analysis: Business analysis is done from two angles-terms and conditions and collateral securities.

3.1.3.3 General Procedures of Loans and Advance
 The total process of proposal and sanction of loan is a continuous process. In a particular stage the described loan is sanctioned or rejected by the authority. The total process is given below.
Step -1: The client applies for accretion amount of loan in prescribed form, which is available in the branch office.
Step –2: Scrutiny by an officer of loan proposal whether party has submitted the documents as per circular.
Documents required with loan application form:
1.         Quotation /Indent letter (For import goods)
2.         No-objection certificate by the Chairman of Union Council,
3.         Trade license,
4.         Trade Mark Registration
5.         Income tax certificate
6.         Import/Export Registration Certificate
7.         License of Chief Inspector of Factories.
8.         Certificate of Lease Financing Company
9.         Life description of M.D and Directors
10.       Memorandum of meeting of Board of Directors about taking loan from the branch
11.       Utility cost certificate approved by the M.D
12.       Building lay -out plan
13.       Forecasted productions sales and profit limit
14.       3 years projected balance sheet,
15.       Cash flow at the end of the year
Step-3: Communicate with the party if there is any shortage of documents and collect the required papers
Step -4: The branch manager or an officer then takes the responsibility to visit and evaluate the concern
Step-5: A Credit report is prepared on the borrower
Step-6: The concerning officer then wants '' non-incumbent certificate'' from the bank lawyer.
Step-7: ends letters to different banks and financial institutions for recommendations.
Step-8: Forwards the documents to Head Office with proper recommendations.
Step -9: Functions of Head Office.

1.         They receive the application and give an entry in the register
2.         If the loan amount is greater than one crore it is placed before Board of Director.
3.         If the committee accepts the loan then they sends letters to CIB and different banks.
4.         Head Office's engineers and High Officials visit the area
5.         If they satisfied then it is placed for

a.         Technical Report to engineer
Technical report covers
            Location of the project
            Description about land with value
            Detail estimation of building /civil worth
            Cost of selected Machinery
            Other fixed assets
            Requirement of raw materials
            Availability of Gas, electricity, Water
            Requirement of manpower

b.         Financial appraisals
            Assessment of loan amount Estimation of fixed cost of project
            Working capital assessment
            Sales and revenue estimation
            Income statement examination
            Break-even analysis
            Replacement schedule
            IRR calculation
            Fund flow statements
            Balance sheet preparation       
            Financial Analyst's report whether the loans is viable or not.

c.         Market Analysis
            Prevail market rate of product with similar kind of products
            Market competitions
            Consumer of the product
6.         Then the proposal is sent to MCC and afterwards is placed in Board of Directors
7.         Board of Directors finally sanctions the loan
8          And is sent to branch office,
Step -10: The branch then informs the party by letter,
Step -11: If the party accepts the terms and conditions of the loan, then they are requested to complete documentation as per sanction letter.

Step -12: After completion of documentation, the Bank disburses the loan amount.

REVISED INTEREST ON LENDING EFFECTIVE FROM 1ST JANUARY, 1999

CATEGORY
 NEW RATES EFFECTIVE FROM 1ST APRIL 1998 UNTIL FURTHER INSTRUCTION.
1.      agriculture :
a.       Loan to primary producer
b.      Loan to Agricultural  Input Traders/Fertilizer Dealers/Distributors.

10% - 12%
13% - 14%
2.      Large & Medium Scale Industry
(Term Loan)
14.50% - 16.00%

3.      Working Capital :
a.       Jute
b.      Other than Jute
i.  Large (40 crore & above)
ii.  Medium & Small


12%
13% - 15%
14.50% - 16.50%
4.      Exports :
  1. Jute & Jute Goods Exports
  2. Others Exports

10%
10%
5.      Commercial Lending :
  1. Jute Trading
  2. Commercial Lending (Other)
  3. Comm. Lending (Specific)

14%
15% - 16%
13% - 15%
6.      Small & Cottage Industry
(Term Loan)
12%
7.      Others :
  1. Urban Housing
  2. Special Program
  3. Other Loan
  4. Other (Cash Collateral)

15% - 16%
14% - 16%
14% - 16%
12% - 14%


Table-2: Interest rate for credit
Source: Credit Department, ABBl, Karwan Bazar Branch


3.2 LOAN ADMINISTRATION

3.2.1 UNDERSTANDINGS
The job of loan Administration Department starts from the disbursement of credit facilities to the customers, as they desired. There are 4 employees one is Senior Officer, two Officers and one Asst. Officer in this department performs various jobs to disburse the credit, to keeping the recovery records of credit extended to different types of borrowers.

3.2.2 THINGS ARE DONE HERE
The following things are done in this department:
a.       Bank Guarantee related all works.
b.      Preparation of MSOCF of the Branch.
c.       Preparation of Offering Sheet & Memo against Cash Collateral Loans and advances.
d.      Preparation of statement of 1 crore and 10 crore & above.
e.       Balancing of non-judicial & adhesive stamps.
f.       Loan documentation Scrutinizing and preparation of related papers.
g.       Maintaining records and safety of all Loan Documents/related papers along with the records of the Loan port Folio.
h.      Follow-up with Legal Advisor regarding legal matters and other related works.
i.        Preparation of Tickets related to Loans and Advances.
j.        Execution of Registered Mortgage formalities with the Sub-Registrar.
k.      Creation of first charge with the Registrar of jt. Stock Co.
l.        Assist in Loan Administration Dept.
m.    Preparation of CL Returns.
n.      Preparation of CIB, SBS-3 and other monthly, quarterly & yearly statements elating to Loans & Advances.
o.      Preparation of checklist and Offering Sheet.
p.      Maintaining records, Calculation and Treatment of Interest Suspense for the past due accounts.


3.2.3 Personal observations:
I have observed the following things:
3.2.3.1 DOCUMENTATION:
Documentation can be described as the process or technique of obtaining the relevant documents. In spite of the fact that banker lends credit to a borrower after inquiring about the character, capacity and capital of the borrower, he must obtain proper documents executed from the borrower to protect him against willful defaults. Moreover, when money is lent against some security of some assets, the document must be executed in order to give the banker a legal and binding charge against those assets. Documents contain the precise terms of granting loans and they serve as important evidence in the law courts if the circumstances so desire. That’s why all approval procedure and proper documentation shall be completed prior to the disbursement of the facilities.
Charge documents as required by the different types of advances are mentioned bellow:
A.                 LOAN:
1.                  D. P NOTE signed on revenue stamp  (Annexure-4).
2.                  Letter of arrangement. (Annexure-5).
3.                  Letter of disbursement.
4.                  Letter of partnership (partnership farm) or Board of resolution (limited companies).
5.                  Letter of pledge.
6.                  Letter of hypothecation.
7.                  Letter of lien and ownership / share transfer form (in case of advance against share).
8.                  Letter of lien for packing credit.
9.                  Letter of lien (in case of advance against F D R)
10.              Letter of lien and transfer authority.(in case of advance against P S P, B S P)
11.              Legal documents for mortgage of property (As draft by legal adviser)
12.              Copy of sanction letter mentioning details of terms and condition duly acknowledge by the borrower
13.              Trust receipt.


B.                 OVERDRAFTS:
1.                  D P Note.
2.                  Letter of partnership.
3.                   Letter of arrangement.
4.                  Letter of continuity. (Annexure-6).
5.                  Letter of lien. (Annexure-7).
6.                  Letter of lien and ownership /share transfer form (in case of advance against share).
7.                  Letter of lien and transfer authority.
8.                  Legal documents for mortgage of property.

C.                 CASH CREDIT:
1.                  D P Note.
2.                  Letter of partnership.(in case of partnership farm) or Board of resolution                (in case of limited company)
3.                  Letter of arrangement.
4.                  Letter of continuity
5.                  Letter of hypothecation [In case of cash credit (Hypothecation)]
6.                  Legal documents for mortgage of property
7.                  Letter of pledge or Agreement of pledge.[In case of cash credit (pledge)]

D.                 BILLS PURCHASED:
1.                  D P Note.
2.                  Letter of partnership.(in case of partnership farm) or Board of resolution
                 ( in case of limited company)
3.                  Letter of arrangement.
4.                  Letter of acceptance, where it calls for acceptance by the drawee.
5.                  Letter of hypothecation of bill.


3.2.3.2 CREDIT DISBURSEMENT:
Having completely and accurately prepare the necessary loan documents, the loan officer ready to disburse the loan to the borrower’s loan account. After disbursement, the loan needs to be monitored to ensure whether the terms and conditions of the loan fulfilled by both bank and client or not.
                  
3.2.3.3 CREDIT MONITORING, FOLLOW-UP AND SUPERVISION:
Credit monitoring implies that the checking of the pattern of use of the disbursed fund to ensure whether it is used for the right purpose or not. It includes a reporting system and communication arrangement between the borrower and the lending institution and within department, appraisal, disbursement, recoveries, follow-up etc.
ABBL Officer checks on the following points,
1.      The borrower’s behavior of turnover
2.      The information regarding the profitability, liquidity, cashflow situation and trend in sales in maintaining various ratios.
The review and classification of credit facilities starts at Credit Department of the Branch with the Branch Manager and finally with Head office credit division


3.2.3.4 SECURITIES:
To make the loan secured, charging sufficient security on the credit facilities is very important. The banker cannot afford to take the risk of non-recovery of the money lent. ABBL charges the following two types of security, -
1.           Primary security: These are the security taken by the ownership of the items for which bank provides the facility.
2.           Collateral security: Collateral securities refer to the securities deposited by the third party to secure the advance for the borrower in narrow sense. In wider sense, it denotes any type of security on which the bank has a personal right of action on the debtor in respect of the advance.




3.2.3.5 Modes Of Charging Security:
 There are different modes of charging security are exercised by the bank:
1.           PLEDGE: Pledge is the bailment of the goods as security for payment of a debt or performance of a promise. A pledge may be in respect of goods including stocks and share as well as documents of title to goods such as railway receipt, bills of lading, dock warrants etc. duly endorsed in bank’s favor.
2.           HYPOTHECATION: In case of hypothecation the possession and the ownership of the goods both rest the borrower. The borrower to the banker creates an equitable charge on the security. The borrower does this by executing a document known as Agreement of Hypothecation in favor of the lending bank.
3.           LIEN: Lien is the right of the banker to retain the goods of the borrower until the loan is repaid. The bankers’ lien is general lien. A banker can retain all securities in his possession till all claims against the concern person are satisfied.
4.           MORTGAGE: According to section (58) of the Transfer of Property Act, 1882 mortgage is the ‘’transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, existing or future debt or the performance of an engagement which may give rise to a pecuniary liability”. In this case the mortgagor dose not transfer the ownership of the specific immovable property to the mortgagee, only transfers some of his rights as an owner. The banker exercises the equitable mortgage.


3.2.3.6 BANK GUARANTEE

As service to their customers, bankers sometimes issue guarantees of various types on customer’s behalf to third parties. By issuing guarantee Bank undertakes to pay the beneficiary (named in the guarantee) the sum stated in the bank guarantee upon the beneficiary’s first written demand without argument, without the beneficiary needing to prove or to show grounds or reasons for his demand. When a customer approaches for bank guarantee he has to fill up an application form. The Branch sends guarantee proposal to Head Office proposing a margin. Head office after careful study of proposal & up-to-date credit report of borrower sanctions the issue of guarantee. Head office may increase the margin of guarantee. Sometimes in case of credit worthy borrowers who need the bank guarantee urgently the branch issues guarantee first & then sought the permission of Head office. The branch also issues counter guarantee i.e. an additional guarantee supporting a guarantee first & then sought the permission of Head Office. The branch also issues counter guarantee i.e. an additional guarantee supporting a guarantee issued by a foreign correspondent bank. Guarantee should relate to the normal business of the customer.

At the time of issue of Bank guarantee
(i) Customers liability A/C ------------------------------------------------------------ debit
      Credit – Banks liability A/C ------------------------------------------------------------ credit
(ii) Customer A/C (Savings / Current)  ----------------------------------------- debit
Credit – Margin A/C  --------------------------------------------------------------------- credit
Credit- Commission A/C  ------------------------------------------------------------- credit
Credit – Stamp A/C ------------------------------------------------------------------- credit
Credit – Other fees and charges A/C  ------------------------------------------------  credit
When the guarantee is returned duly discharged by concerned authority, then:
(i) Banks liability A/C  -------------------------------------------------------------- debit
   Customers liability A/C -------------------------------------------------- credit
(ii) Margin A/C ----------------------------------------------------------------------------- debit
Credit – Customers A/C (Saving / current)  ---------------------------------------------- credit

3.2.3.7 CIB
Bangladesh Bank has established within itself a Credit Information Bureau (CIB), which collects credit information from the banks. Banks are required to furnish such information in respect of credit limit of Tk. 50000 and over. They mention the Name of facility, security and charge along with outstanding balance. After consolidating such information in respect of each customer, the central bank supplies to the total limits sanctioned to and the number of banks dealing with a party. Thus the banks can find out if any of their customers is having excessive borrowings from the banking system at any particular time.
3.2.3.8 Loan classification
(A)  classification scale

(i)unclassified :           Repayment is regular
(ii) Substandard           :           Repayment is irregular or stopped but has                                                                               reasonable prospect of improvement.
(iii) Bad/ Loss :           Very little chance of recovery.



(B) Classification Procedure:

Classification procedure for all types of bank loans including industrial loans is governed by the guidelines contained in BCD Circular No. 34 issued by Bangladesh Bank in 1989 and subsequently revised partially through BCD Circular No. 12 issued in 1995. According to the revised guidelines the loans are classified on the basis of following objective and subjective criteria:
(C) Classification Criteria:

Overdue (OV): Term loans become overdue wherever an installment is not received within 3 months of the normal date of repayment for private sector loans and 6 months in case of public sector loans. Continuous type of loans, if not renewed, becomes overdue on the date of expiration of the loan. Classification status of a loan account is determined on the basis of the length of overdue period as under:

(D) Length of Overdue:
(I) Length of Overdue                          Classification Status
(II) Less then 6 month                                     Unclassified
(III) 6 months or more but less than                 Substandard
       12 months                                                            
(IV) 12 months or more but less than  Doubtful
        24 months
(V) 24 months and above                                Loss


Required Payment: If a loan is renewed or rescheduled for at least 2 ties but is not overdue it can be classified if specified turnover repayment has not been made.

Excess Drawing: A continuous loan will be classified “Substandard” if its limit remains
overdrawn for more than 50% for 45 days even if it is not classified on overdue basis.

Loans being classified “substandard” on the basis of lack of turnover or excess drawing will shift to “Doubtful” category after two years and to “Loss” after expiry of another two years. 

Legal Action: Loans in respect of which legal action has been initiated will be classified as “ Doubtful” and on expiry of 5 years from the date of initiation of legal action will be classified as “ Loss”

Qualitative Judgment: In addition to the above mentioned objective criteria loans can also be classified on the basis of qualitative judgment taking into consideration the factors such as borrowers performance, available securities etc.
Provision:
Provision Base: balance outstanding on the ledge minus interest suspense minus value of eligible securities including 50% of the value of real estate, if any.

Rate of Provision: Provision to be applied on the provision base as under-
(I) Unclassified           1%
(ii) Substandard           15%
(iii) Doubtful               50%
(iv) Bad Loss               100%

3.3 CREDIT RECOVERY CELL

3.3.1 UNDERSTANDING:
Loan recovery cell is very important part in this credit section. Loan recovery refers recovery from past dues made by the clients. This cell performs several functions to recover the loan.
3.3.2 THINGS ARE DONE HERE
The following things are done in this department:
a.       All correspondents related to past due papers.
b.      Preparation of the memos for rescheduling and settlement of the past due accounts of the branch.
c.       Follow-up with the defaulter clients for early recovery of the past due and no performing loans.
d.      Follow-up with legal adviser regarding legal matter and other related works.
e.       Preparation of past due statements and follow-up of the account.   





3.3.3.1 legal framework for loan recovery:
After being classified, if the borrower is disable to adjust the loan then the bank can take the following legal actions by filing suit, -
1.                  Filing certificate cases under Public Demand Recovery Act-1913.
2.                  Filing money suitcases under Artha Rin Adalat-1990.
3.                  Filing Bankruptcy cases under Bankruptcy Act-1997.
4.                  Filing cases under Negotiable Instrument Act-1881 section 138 to 141 for                      insufficient fund.( In case of term loan)

3.3.3.2Some special techniques to recover the loan:
 1. Moral persuasion    
 2. Social persuasion
 3.Political persuasion
 4. Persuasion through guarantors

3.3.3.3Some problems of recovery:
1. Exemption of interest by govt./ bank.
2.  Exemption of loan including interest by govt.
3. Political pressure and misunderstanding
             
   
  

PART 4

FOREIGN EXCHANGE

Modern banks facilitate trade and commerce by rendering valuable services to the business community. Apart from providing appropriate mechanism for making payments arising out of trade transactions, the banks gear the machinery of commerce, specially in case of international commerce, by acting as a useful link between the buyer and the seller, who are often too far away from and too unfamiliar with each other. According to foreign exchange regulation act 1947 “ Any thing that conveys the right to wealth in another country is foreign exchange”.
Foreign exchange department plays significant roles through providing different services for the customers. Opening or issuing letters of credit is one of the important services provided by the banks.
Letter of credit:
A letter of credit is a letter issued by a bank (known as the opening or the issuing bank) at the instance of its customer (known as the opener) addressed to a person (beneficiary) undertaking that the bills drawn by the beneficiary will be duly honored by it (opening bank) provided certain conditions mentioned in the letter have been complied with.

The customary clauses contained in a L/C are the following, -
(i) A clause authorizes the beneficiary to draw bills of exchange up to a certain on the opener.
(ii) List of shipping documents, which are to accompany the bills.
iii) Description of the goods to be shipped.
(iv) An undertaking by the opening bank that bills drawn in accordance with the conditions will be duly honored.
(v) Instructions to the negotiating bank for obtaining reimbursement of payments under the credit.

Parties to a letter of credit: The parties to a L/C are, -
1.      Importer/buyer
2.      Opening bank/Issuing bank
3.      Exporter/Seller/Beneficiary
4.      Advising bank/Notifying bank
5.      Negotiating bank
6.      Confirming bank
7.      Paying/Reimbursing bank
           
The Advising Bank: It is the bank in the exporter’s country (normally the exporter’s bank), which is usually the foreign correspondent of importer’s bank through which the L/C is advised to the supplier. If the intermediary bank simply advises/notifies the L/C to the exporter without any obligation on its part, it is called “Advising Bank”.

The Confirming Bank: If the Advising Bank also adds its own undertaking to honor the credit while advising the same to the beneficiary, he becomes the Confirming Bank, in addition, becomes liable to pay for documents in conformity with the L/C's terms and conditions.

The Negotiating Bank: The bank that negotiates the bill of exporter drawn under the credit is known as Negotiating Bank. If the advising bank is also authorized to negotiate the bill drawn by the exporter, he becomes the Negotiating Bank.

The Accepting Bank: A Bank that accepts time or unasked drafts on behalf of the importer is called an Accepting Bank. The Issuing Bank can also be the Accepting Bank.

The Paying Bank & The Reimbursing Bank:  If the Issuing Bank does not maintain any account with a bank that will be negotiating documents under a L/C, then arrangement is made to reimburse the negotiating Bank for the amount to be paid under from some other bank with whom the Issuing Bank maintains his account. The latter bank is known as Reimbursing bank. A letter of credit may be either.

In the Arab Bangladesh Bank Ltd. Karwan Bazar Branch foreign exchange section performs various functions under three departments:
(i) Import department
(ii) Export department
(iii) Foreign Remittance.


4.1 L/C IMPORT DEPARTMENT

4.1.1UNDERSTADING

              IMPORT: Imports are foreign goods and services purchased by consumers, firms & Governments in Bangladesh.

 IMPORT PROCEDURE: To import through BL, a customer requires-
(I)Bank account
(ii) Import Registration Certificate
(iii) Tax Paying Identification Number
(iv) Proforma Invoice Indent
(v) Membership Certificate
(vi) LC Application form duly attested
(vii) One set of IMP Form
(viii) Insurance Cover note with money receipt
(ix) Others The import procedure can be shown by the following flow chart,-
    

















IMPORT PROCEDURE:


Receipt of import documents from negotiating/collecting bank
 














Inform opener about discrepancies
 
                                                                               Yes          


Request negotiating bank for disposal instruction
 

Do they accept documents with discrepencies?
 

Request the opener to take delivery of import documents for release of goods.
 

Lodgment of import bills
 
                                     No                                                                                                                                                                  Yes                                                                                                                                                                                                                                                                                                                                                      No                                                                                          


Whether they want post import finance?
 

retire the import bill and documents to the opener for release of goods
 

Have they responded?
 

retire the bill through creation of forced LIM & clear the goods through c&f agent and store the same under effective control relevant expenses in connection with clearing of goods by debiting forced LIM a/c
 

send back the documents
 

Deliver the documents to the importer for release of goods
 

do they accept documents on collection basis?
 
                                                                                                                                                                                                                                                                                    No                                                                                                       Yes                              Yes                                                                                                                                                                                                                              No                                                                               No                                                                                                                                                                                                                                                                                                                                                                   

                                                           
 


if you agree recover further margin from the opener & retire the documents by creation of lim & clear the goods through c&f &store the same under bank’s effective control relevant expenses of clearing of goods by debited lim a/c.
 
                                                                                                                                               

 



Figure-3: Import Mechanism
Source: L/C Import Department ,ABBL ,Karwan Bazar Branch

Import mechanism:
To import, a person should be competent to be an ‘importer’. According to Import and Export Control Act, 1950, the Office Of Chief Controller Of Import and Export provides the registration (IRC) to the importer. After obtaining this person has to secure a letter of credit authorization (LCA) from Bangladesh Bank. And then a person becomes a qualified importer. He is the person who requests or instructs the opening bank to open an L/C. He is also called opener or applicant of the credit.
There are one chief officer, one senior officer, two officers, one probationary officer and trainee asst. Officer in this department.

4.1.2THINGS ARE DONE HERE
The following things are done in this department:
a.       Total supervision of Import Department (Back to Back/Cash).
b.      Foreign Correspondence related to above.
c.       Payment of Back-to-Back L/C and endorsement of Export L/C against payment.
d.      Follow-up of Back-to-Back overdue bill.
e.       Correspondence Regarding, Back-to-Back L/C and Cash L/C.
f.       Maintenance of Due Date Diary.
g.       Maintenance & record of related L/C Documents.
h.      Audit Compliances.
i.        Matching of Bill of Entry with IMP, Follow-up of pending Bill of Entry Quarterly Statement.
j.        Batch Checking.
k.      L/C opening/ Amendment (Back to Back L/C).
l.        Endorsement of Export L/C when opening.
m.    Batch checking.
n.      Balancing of L/C Contingent Liability 9Back to Back L/C).
o.      Follow-up of Sub-Judaic bills and maintaining liaison with Head Office and Foreign Correspondent.
p.      All correspondence related to Back-to-Back L/C both with Head Office and Foreign Correspondent.
q.      Supervision of checking, Lodgment and retirement of Import documents under Back-to-Back L/C.
r.        Issuance of Certificate and attestation of papers/documents of garments clients as required by BGME, EPB & other regulatory bodies.
s.       Checking, lodgment, retirement of Import documents under Back-to-Back L/C.
t.        Issuance of Shipping Guarantee (Back to Back L/C).
u.      IMP Form Fill-up (Cash L/C).
v.      Inform negotiating Bank about maturity date of Back-to-Back L/C.
w.     Quarterly statement for Bonded ware House.
x.      Balancing of Accepted Liability.
y.      Statement of outstanding accepted import bills under Back-to-Back L/C.
z.       L/C opening and Amendment of Cash/ Inland L/C.
aa.   Maintenance and record of Pass Book and IRC.
bb.  Maintenance & Record of related L/C (s) & Documents.
cc.   Credit Report.
dd.  Statement of IRC Renewal fees to CCI&E.
ee.   Preparation of monthly foreign exchange business position.
ff.    L/C Lodgment (Cash).
gg.   Checking of Cash L/C documents.
hh.  L/C Retirement.
ii.      LCA Issue.
jj.      BLC Statement.
kk.  Differed Payment (Cash).
ll.      Follow-up of outstanding BLC.
mm.          Correspondent (Cash L/C).
nn.  Proof Sheet of LC Margin and Contingent Liability (Cash L/C ).
oo.  Issuance of shipping guarantee (cash) IMP forms fill-up (cash).

4.1.3 Personal observations:
I have observed the following things:
4.1.3.1 L.C Opening
If an importer wants to import some goods from outside the country, at first he has to apply to a bank for opening a L/C. Letter of Credit (L/C) is a written undertaking of a bank written to the seller and issued at the request of the buyer to pay at site or a determinable future date. According to Import Policy unless otherwise specified, all import is to be made by opening irrevocable letter of credit (amendment or cancellation with the agreement of the opening bank, advising bank, beneficiary and importer). L/c can be opened against Proforma invoice if the exporter has no agent and L/C can be opened against Indent if the foreign supplier has indenting agent.

(a)               Documents  Require  for Open a L/C :
For opening letter of credit an importer is required to have some documents, which are to be submitted to the L/C issuing or popularly known as opening bank.

·         A valid Import Register Certificate
·         Membership Certificate from the registered local Chamber of Commerce and Industry or valid trade license.
·         Tax Identification Number.
·         Letter of Credit Authorization form.
·         Insurance cover note for L/C amount.
·         Indents for goods issued by indenter or Proforma Invoice issue by foreign supplier.
·         Charge Documents duly signed.
·         IMP form duly signed.
·         The opener has to have a current account with the bank.

(b)               Procedure involved in L/C opening:
There are few steps involved in L/C opening process.
i.                    At first the L/C opener is required to fill up the prescribed application form for requesting to open a L/C for him.
ii.                  After receiving the application form with other required documents submitted by the opener they are to be thoroughly scrutinized. The points, which shall be scrutinized, are described bellow.

·         The amount and description of goods in the application relevant with the indent or Proforma invoice or import contract.
·         The amount is covered by the insurance amount.
·         The item is not a banned one.
·         The indent produced has the Import Registration Certificate number and the indenter’s  registration number. The indent has indenting agent’s signature and importer’s signature.
·         Whether transshipment and partial shipment is allowed.

iii.                If all the documents along with the application are in order, the financial position and credit worthiness of the importer, market demand of the good will is assessed. Margin for letter of credit will also be determined. The rate of margin depends on the financial condition of the banker, Importers previous performance, status of relationship with the importer, nature of goods etc. This margin is to be retained from the importer either in cash or debiting the importers current account with the bank. The importer is also required to pay the other concerning charge like foreign corresponding charge, telex charge if any, handling charge, and commission etc.
iv.                After all these steps letter of credit is opened and forwarded to the advising bank.
(c)                Accounting Procedure Involved in L/C opening
There are two, one is L/C opening and another is liability register, which includes liability amount, Margin, Foreign correspondent etc. While opening L/C there are few accounting entries.
·         For Margin importer account with bank is debited and Margin A/C is credited.
·         For contingent liability (L/C amount) Customer’s liability on L/C cash is debited and Banker’s liability on cash is credited.
·         For other charges customer’s current account is debited and commission/C, income A/C, Foreign correspondent charge A/C and other related A/C is credited.


4.1.3.2Advising a letter of credit:

The advising or notifying bank is the bank through which the L/C is advised to the exporter. It is a bank situated in the exporting country and it may be a branch of the opening bank. It becomes customary to advise a credit to the beneficiary through an advising bank. Advising depicts the proof of authenticity of the credit to the seller. The opening bank has a
corresponding relationship or arrangement throughout the world by which the L/C is advised. Actually the advising bank does not take any liability if otherwise not requested.

IMPORTER (L/C APPLICANT)
 

L/C OPENING BANK
 
                                                                                                                                                                                                                                                                                                                                                            APPLICATION                                                                                                                       


L/C BENEFICIARY
 

L/C ADVISING BANK/CONFIRMING BANK
 
                                                                                                   ISSUE L/C                                                                                   ADVISE  &CONFIRM                                                                        Figure-4: Advising L/C                                                                                                                       

Figere-4: Advising L/C
Source: Key Note Papers of Seminar on Banking Techniques ,organized by ICC                                                                            



4.1.3.3Adding confirmation:
 The confirming bank does adding confirmation. Confirming bank is a bank, which adds its confirmation to the credit, and it is done at the request of the issuing bank. The confirming bank may or may not be the advising bank. The advising usually does not it if there is not a prior arrangement with the issuing bank. By being involved as a confirming agent the advising bank undertakes to negotiate beneficiary’s bill without recourse to him.                                    
4.1.3.4L/C Transmitting
Letter of credit can be transmitted to the advising bank through three methods. They are in Telex, Courier or SWIFT (Society for Worldwide Interbank Financial Transaction). L/C is send to advising bank in three copies. The advising bank authenticates the original copy of L/C and delivers it to the exporter. The duplicate copy is kept with the advising bank.
4.1.3.5Negotiating
The beneficiary (exporter) receives the letter of credit from advising bank. After proper shipment of goods as per terms and conditions of the L/C, required documents like Commercial Invoice, Bill of Lading, and Bill of Exchange are presented to the negotiating bank by the beneficiary for negotiation. If the documents are in order as per L/C then the negotiating bank negotiates the drafts making payment to the beneficiary. Then the negotiating bank forwards the drafts along with the shipping documents to the L/C opening bank. The negotiating bank reimburses the amount paid against the draft from reimbursement bank (authorized by opening bank) by debiting Nostro A/C of the opening bank. Negotiating banks have the option the to send the drafts and documents to the opening bank for collection.
4.1.3.6Amendment
After opening of L/C sometime alteration to the original terms and conditions become necessary. These amendments involve changes in (i) unit price (ii) extension of validity o the L/C (iii) documentary requirements etc. such amendments can be affected only if all the concerned parties agree i.e. the beneficiary, the importer, the issuing bank and the advising bank.

For any amendment the importer must request the issuing bank in writing duly supported by revised indent/ Proforma invoice. The issuing bank then advises the required amendment to the advising bank. L/C amendment commission including postage is charged to the clients A/C.



4.1.3.7Lodgment
The opening bank receives import bills, which have been negotiated. After receiving the documents, they are to be thoroughly scrutinized before lodgment.
(a)               Scrutiny of the documents
First of all it must be ensured that
·         Full set of documents as mentioned in the L/C has been received.
·         Documents have been negotiated within the negotiation period.
·         The Bill of Lading/Air-Way Bill/ Railway receipt is not dated later than the last date of shipment mentioned in the L/C.
The L/C has not been amended or subjected to any special instructions, which might alter the value of L/C.

Import bills include following documents, which are to be scrutinized.
i.                    Bill of Exchange
ii.                  Commercial Invoice
iii.                Bill of Lading
iv.                Certificate of Origin
v.                  Others
(i)Bill of Exchange.
·         It has to be verified that the bill of exchange has been properly drawn and signed by the beneficiary according to the terms and conditions of L/C.
·         The amount in the Bill is identical with that mentioned in the invoice.
·         The amount drawn does not exceed the amount mentioned in the L/C.
·         The amount in words and figures should be same.
·         The bill of exchange should be properly endorsed.

ii.                  Commercial Invoice
·         It has to be verified that the commercial invoice has been properly drawn and signed by the beneficiary according to the terms and conditions of L/C.
·         The beneficiary should properly invoice the merchandise.
·         The merchandise is invoiced to the importer on whose account the L/C is opened.
·         The description of merchandise and the unit price correspond with that given in the L/C.
·         The import license or IRC number of the importer, indenters registration number and number of Letter of Credit Authorization number are incorporated in the Invoice.

iii.        Bill of Lading
First of all it has to be cleared that the Bill of Lading is showing “Shipped on Board” and it has to be properly endorsed to the bank.
·         The B/L should include the description of the merchandise according to invoice.
·         The port of shipment and destination, date of shipment and the name of the consignee are in agreement with those mentioned in the L/C.
·         The shipping company or their authorized agents properly sign the B/L.
·         The date on the B/L is not ‘stale’ which means it is not dated in unreasonably long time prior to negotiation.

iv         Certificate of Origin
·         The Merchandise described in the Certificate is in accordance with the L/C.

v.                  Others
There are some other documents, which are also attached, with the shipping documents like packing list, pre-shipment inspection certificate etc. These documents are also verified carefully before lodgment.

(b)               Steps involved in Lodgment
When the scrutiny of import bills is over the steps should be taken for lodgment.
·         At first all the particulars of the documents are entered in the PAD (Payment Against Document) register and PAD No. Seal is given on all the copies of the received documents.
·         Convert the foreign currency into Bangladeshi currency.
·         Reverse the contingent liability and entry in the liability register.
·         Prepare lodgment voucher.
·         Prepare other voucher.
·         Send IBCA to the head office.
·         Make intimation to the importer.

(c)                Accounting effect
i.                    For reversing contingent liability contra voucher is debited by Banker’s Liability A/C and credited with Customer’s Liability A/C.
ii.                  For PAD, income on exchange there are few credit vouchers and one debit voucher. In the debit voucher the debit head is PAD and income and head office is credited. In the credit vouchers the opposite of these entry is made.
iii.                4.1.3.8 Retirement
The importer receives the intimation and gives necessary instruction to the bank for retirement of the import bills or for the disposal of the shipping document to clear the imported goods from the customs authority. The importer may instruct the bank to retire the documents by debiting his account with the bank or may ask for LTR *(Loan Against Trust Receipt). Following steps are to be taken for retirement of documents.

(a)    Steps involved in retirement
·         Calculation of interest if any.
·         Calculation of other charges.
·         Passing vouchers.
·         Entry in the register.
·         Endorsement in the Bill of Lading or other transport document and in the Bill of Exchange.

(b)         Accounting effect
The Customer’s account and Margin on L/C is debited and PAD and Head office and other income A/C are credited. In case of LTR the LTR A/C is Debited instead of the PAD A/C.

4.2 L/C BACK TO BACK DEPARTMENT
4.2.1Back-to-Back L/C
Back to Back letter of credit may be fined as a credit which is opened at the instruction and request of the beneficiary of the original Export L/C on the basis of strength of that L/C. Ready-made garment industries and specialized textile units are allowed the facility of importing fabrics and other materials needed for manufacture of garments/ specialized textiles against back to back L/C arrangement. Back-to-Back L/C is of two types.
(i)Foreign back letter of credit.
(ii)Inland back-to-back letter of credit.

A back-to-back L/C is opened against an irrevocable L/C opened bank having reasonable period of validity to cover shipment of merchandise after completion of validity to cover shipment of merchandise after completion of the manufacturing process. The export L/C is lien marked with the back-to-back L/C issuing branch. import L/C is opened on usance basis covering usance of not more than 180 days. The import L/C is opened for 75% of the value of Export L/C. The payment is normally made form the proceeds of export bills negotiated after shipment.




4.2.2Procedure for opening back-to-back L/C:

The following papers / documents are required to be submitted by the exporter to the bank for opening foreign back-to-back L/C.

i)                    L/C Authorization forms duly filled and signed.
ii)                  Indent/ pro forma invoice
iii)                Imp-form.


Along with the above papers / documents, original export L/C is to be submitted by the exporter. On receipt of these documents the bank scrutinizes the terms and conditions of the export L/C. After getting approval from head office through Credit Section, The particulars of the L/C are entered in the L/C opening register.


4.3 EXPORT DEPARTMENT

4.3.1 UNDERSTANDING
The goods and services sold by Bangladesh to foreign households, businessmen and Government are called export. The export trade of the country is regulated by the Imports and Exports (control) Act, 1950. There are a number of formalities, which an exporter has to fulfill before and after shipment of goods. The exports from Bangladesh are subject to export trade control exercised by the Ministry Of Commerce through Chief Controller of Imports and Exports (CCI & E). No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCI & E and holds valid Export Registration Certificate (ERC). The ERC is required to be renewed every year. The ERC number is to be incorporated on EXP forms and other documents connected with exports.
There are one chief officer, one senior officer, one officer and one probationary officer working in this department.
4.3.2 THINGS ARE DONE HERE
The following things are done in this department:
a.       Scrutiny of Export Shipping Documents.
b.      Follow-up for realization of Export Proceeds.
c.       All Correspondence relating to Export Department.
d.      Compliance of Audit & Inspection.
e.       Advising of Export L/Cs to the beneficiary.
f.       Authentication of L/C and Amendments from other Correspondent Bank.
g.       Transfer of Export L/C to the 2nd Beneficiary & issuance of notice of transfer to L/C issuing Bank.
h.      Recording of Export L/C particulars in Export L/C Transfer Register.
i.        Realization of transfer changes.
j.        Issuance of precedes realization certificates.
k.      And other works as & when directed by the manager and Sub-Manager.
l.        Certificate of EXP Forms.
m.    Posting of Tickets.
n.      Lodgment of Export Bills (FBP, FDBC, IBP & IBC).
o.      Preparation of tickets elating to negotiation of documents.
p.      Negotiation of Inland Bills.
q.      Maintenance of all records related to FBP, FDBC and Inland Bills.
r.        Balancing of FBP, FDBC, and IPB & A/R Export A/Cs.
s.       Preparation of statement and all returns to Bangladesh Bank and Head Office (Weekly/ Monthly/ quarterly).

4.3.3 Personal observations:
I have observed the following things:
4.3.3.1EXPORT BILL SCRUTINY: scrutinizes the export bill on the following points, -
A.         General:
1. Late shipment
2. late presentation
3. L/C expired
4. L/C overdrawn
5. Partial shipment or transshipment beyond L/C terms.
B.Bill Of Exchange:
1. Amount of bill differs with Invoice
2. Not drawn on L/C issuing bank
3. not signed
4. Tenor of B/E not identical with L/C
5. Full set not submitted
6. Invoice:
7. Not issued by the beneficiary
8. Not signed by the beneficiary
9. Not made out in the name of the Applicant
10.         Description, Price, quantity, sales terms of the goods not correspond to     the credit
11.         Not marked one fold as original
12.         Shipping marks differs with B/L & packing list
C.Packing List:
1. Gross weight, net weight & measurement, number of cartoons/ packages differs with B/L.
2. Not marked one fold as original
3. Not signed by the beneficiary
4. Shipping marks differs with B/L

D.            Bill of Lading/Air Way Bill :
1. Full set of bill not submitted
2. B/L is not drawn or endorsed to the Order Of Eastern Bank Ltd.
3. “Shipping on Board”, “Freight Prepaid” or “Freight Collect” etc. notations are not marked on the B/L
4. B/L not indicate the name and capacity of the party i.e. carrier or master, on whose behalf the agent is signing the B/L.
5. Shipped on Board Notation not showing name of pre-carriage vessel/ intended vessel.
6. Shipped on Board Notation not showing port of loading and vessel name (In case B/L  indicates a place of receipt or taking in charge different from the port of lading)
7. Short Form  B/L
8. Charter party B/L
9. Description of goods in B/L not agree with that of Invoice, B/E & P/L
10.         Alterations in B/L not authenticated.
11.         Loaded on deck
12.         B/L bearing clauses or notations expressly declaring defective condition of the goods and / or the packages.

E. Others:
1. Non-Negotiable documents not forwarded to buyers or forwarded beyond L/C terms.
2. Inadequate number of Invoice, Packing List & Others  submitted.
3. Short shipment certificate not submitted.

EXPORT FINANCE

(I) Pre-shipment credit:
Pre-shipment credit usually takes the following forms
i)                    Overdraft against hypothecation of exportable commodities.
ii)                  Overdraft against Trust Receipt (T.R)
iii)                Packing Credit. (P.C)
(i) O/D (Hypothecation):
Under this arrangement, limit is sanctioned against hypothecation of raw materials / finished goods meant for export. The exporter creating a charge in favor of the bank on the goods hypothecated signs a letter of hypothecation. Possessions ownership and control of goods remain with borrower. Bank sometimes takes collateral security in the form of land and building.
(ii) O/D against (T.R)
Under this arrangement the exporter is required to execute a Trust Receipt in favor of the bank undertaking hold the goods or rate proceeds there of in trust on behalf of the bank till the loan is liquidated. This type of credit facility is granted to very trustworthy customer whose integrity is beyond doubt.

(iii) Packing Credit: -

Packing credit limit is sanctioned to the exporter against the security of Railway Receipt, Truck, and Receipt etc. in addition to the usual charge documents and the original export letter of credit. This type of credit is given for transit period staring from dispatch of the goods to the port till the negotiation / purchase of export bills, to enable the exporter to finance purchase of further goods for export.




(ii) Post shipment Credit: -

Post shipment credit refers to credit facilities extended to export after actual shipment of goods against shipping documents. It is usually provided in the following ways.

i)                    Bill negotiation / purchase.
ii)                  Bill for collection

 (i) Bill negotiation / purchase

The most usual method of financing exporters at the post-shipment stage is negotiation of documents under L/C. Here the bank acts as negotiating bank. After the shipment of the goods, the exporter submits the relative documents to the branch for negotiation. The documents generally include a) Bill of Exchange b) Bill of lading c) Insurance policy d) Invoice e) Certificate of origin. f) Inspection Certificate g) packing lit h) Any other documents specially mentioned in the letter of credit. The documents are to submit within the period mentioned in the l/C. After approval of negotiation of the bill the full particulars of the documents are entered into the Foreign bill Purchased (F.B.P) register. The documents are sent to the L/C opening branch with a forwarding letter and the branch claim reimbursement from the issuing bank or from the reimbursing bank, giving clear instructions to credit the proceeds of the bill to the ABLE head office Nostro A/C maintained with the named correspondent bank abroad under telex intimation tot he Principal branch and Head Office (International Division).

On negotiation/ Purchase of the export bills, the exporter is paid the value of the bill (converted into Bangladesh Taka at the ruling bill buying rates). The branch completes the duplicate copy of EXP form and forwards the same to Exchange Control Department (E.C.D) of Bangladesh Bank.

(ii)        Documents on collection basis:
The documents, which are not negotiable by the branch due to some discrepancies, are sent to L/C opening bank on collection basis. The bank mentions the discrepancies on their forwarding schedule. On receiving the documents, the L/C opening bank will further scrutinize the document with the L/C and inform the importer regarding discrepancies found in the documents. If these are acceptable to the importer and or permissible with the exiting Exchange control regulation, the documents will be lodged and L/C opening bank will send the payment instruction to the collection bank.

4.4 FOREIGN REMITTANCE DEPARTMENT

4.4.1 UNDERSTANDING:
ARAB BANGLADESH LTD. Karwan Bazar Branch is an authorized dealer of foreign exchange. There dealing in foreign exchange involves buying and selling of foreign exchange covering inward remittances received from abroad and outward remittances sent abroad.
4.4.2 THINGS ARE DONE HERE
The following things are done in this department:
a.       Overall supervision of Foreign Remtt. Deptt.
b.      Correspondence to Nostro Account.
c.       Foreign TT payment & Purchase of F. Drafts, Chouse & preparations of F.B.P.
d.      Checking of all Batches.
e.       Assist in preparation of IBCA/IBDA etc.
f.       Trading Blotter.
g.       Compliance of Audit & Inspection.
h.      Issuance of outward TT & FDD.
i.        Issuance of PRC
j.        Statement & all related works regarding deposit of Bangladesh Bank.
k.      Foreign Collection, Bangladesh Bank Clearing Cheque Collection, which comes from all branch of ABBL.
l.        Withdrawal from F.C.A/C.
m.    Encashment of TCs & Cash Dollar and Sterling Pound.
n.      Deduction of Tax and VAT.
o.      Preparation of related statements including convertible Taka Accounts.
p.      Preparation of IBCA & IBDA and Balancing of Collection and other special assignment as desired by Department In charge.
q.      Issuance of TC & Cash Dollar, Correspondence with different Bank/Institution related to TC/Dollar.
r.        Student Case handling & preparation of related statements (Head Office and Bangladesh Bank).
s.       Balancing of Account Statements.
t.        Batch posting and all related statements.
4.4.3 Personal observations:
I have observed the following things:

Inward Foreign Remittance: Inward remittance covers purchase of foreign currency in the form of foreign T.T, D.D, and bills, T.C.s etc. sent from abroad favoring a beneficiary in Bangladesh. Purchase of foreign exchange is to be reported to Exchange control Department of Bangladesh bank on Form-C.

Outward Foreign Remittance: outward remittance covers sales of foreign currency through issuing foreign T.T. Drafts, Travelers Check etc. as well as sell of foreign exchange under L/C and against import bills retired. Sale of foreign exchange is reported to Exchange control Department of Bangladesh Bank on form T/M.
Foreign exchange means foreign currency and includes all deposits, credits and balances payable in foreign currency s well as foreign currency instruments such a Drafts, T.C.s Bills of Exchange and Letters of Credit Payable in any Foreign Currency. All foreign Exchange transactions in Bangladesh are subject to exchange control regulation of Bangladesh Bank.

4.4.3.1Foreign Remittance Department deals with the following instruments.
 (A) Travelers Check (TC)
 (B) Foreign demand draft (FDD)
(C) Telegraphic Transfer (T.T)
(A) Travelers  Cheque.
Traveler’s cheque is a very popular method of foreign remittance. It is usually used by the travelers who are willing to remit fund to the place where they are going to visit and encash it from there. Traveler’s cheque is a substitute for cash and it is the safest method of transferring fund.

(a)               Issue of Travelers cheque
i.                    Requirements
There are some requirements, which are to be fulfilled by the Travelers cheque purchaser.
·         Passport holder himself has to be present to issue Travelers cheque.
·         The passport must be a valid one.
·         Air ticket has to be confirmed.

ii.                  Steps involved in issue of Travelers cheque
·         After verifying all these documents the customer is asked to fill up prescribed application form.
·         In the application the customer states the amount he is willing to endorse and it is be verified that his required amount is within the stipulated amount.
·         Then the customer pays cash or by debiting his account the Travelers cheque is issued.
·         Endorsement is given on the passport and on the ticket. Customer fill up the Travel & Miscellaneous form.
·         Purchase Application Form is prepared and handed over to the purchaser along with the Travelers cheque.
·         Entry given in three registers, Foreign Currency issue register, Travelers cheque on hand register and Foreign Currency in hand register


(b)               Payment of Travelers cheque
When a customer wants to encase his Travelers cheque he has to show his passport and it is to be verified from the passport that he has traveled outside the country.

·         Then the Travelers cheque will have to be scrutinized very strictly.
·         If every thing in the Travelers cheque is in order then the customer will be asked to give his signature on the place of “Counter signature”.
·         If the signature agrees with the one in the place of “The signature of the holder” then the payment will be made through giving cash to the customer or crediting his account.
·         Travelers cheque will be crossed and endorsement given on the back of the received travelers cheque.



(B) Foreign Demand Draft
Foreign Demand Draft (FDD) is popularly used for educational purpose in our country. It is used for other commercial purposes also.

(a)               Issue of FDD
The relevant papers which establish that the issuing bank requires the purpose of issuing the FDD. The procedure concerning issue of FDD is same as issue of Travelers cheque except that the customer is not required to submit his passport.

(b)               Payment of FDD
After receiving the FDD for payment there are few steps, which are to be followed.
·         At first the FDD is to be crossed.
·         Serial number is given.
·         Forwarding letter to the bank with which the bank has agreement.
·         Party is given the cash or his account is credited.

4.4.3.2Endorsement of Cash: Cash foreign currency can also be remitted through endorsement in the passport. In case of endorsing cash on passport the requirements are same as in case of issue of Travelers check.





























PART 5

GENERAL BANKING SECTION

All business concerns earn a profit through selling either a product or a service. A bank does not produce any tangible product to sell but does offer a variety of financial services to its customers. In ABBL Karwan Bazar branch, the following departments are under general banking section:
(a)      Account opening department
(b)      Local remittance department.
(c)      Cash department.
(d)      Clearing department.
(e)      Collection department.
(f)       Financial Control department.
(g)      Sanchay patras and wage earners bonds department.

5.1Account opening department:

5.1.1Understanding:
The relationship between a banker and his customer begins with the opening of an account by the former in the name of the latter. Initially all the accounts are opened with a deposit of money by the customer and hence these accounts are called deposits accounts. Banker solicits deposits from the members of the public belonging to different walks of life, engaged in numerous economic activities and having different financial status. There is one officer performing various functions in this department.

5.1.2 Things Are Done Here
The following things done in this department:
 (i) Accepting of deposit
(ii) Opening of account
(iii) Check book issue
(iv) Transfer of account
(v) Closing of account
5.1.3 PERSONAL OBSERVATIONS
Personal observations from this department:

5.1.3.1Accepting of deposits:
In this branch the various types of accounts are offered to various customers, which are grouped in to:
A.     Demand deposit account.
B.      Time deposit account. 

A. Demand deposit account:
The amount in accounts are payable on demand so it is called demand deposit account. The following accounts are under demand deposit accounts:
(a)                Current account.
(b)               Savings account.
(c)                Special Notice time deposit (STD).
(d)               Resident foreign currency deposit account (RFCD).
(e)                (i) Foreign currency account in dollar (FCAD).  
(ii) Foreign currency account in pound sterling (FCAP).

(a)               Current account.
This type of account is opened by both individuals and business concerns. Frequent transactions (deposits as well as withdrawal) are allowed in this type of account. A current a/c holder can draw checks on his account for any amount for any numbers of times in a day as the balance in his account permits. This account provides no interest. The minimum balance to be maintained is Tk. 5000. No new account can be opened with a check.
(b)               Savings account:
Individuals for savings purposes open this type of account. Current Interest rate of these accounts is 8% per annum. A minimum balance of Tk. 200 is required to be maintained in a SB account interest on SB account is calculated and accrued monthly and credited to the account half yearly. Interest calculation is made for each month on the basis of the lowest balance at credit of an account in that month. A depositor can withdraw from his SB account not more than twice a week up to an amount not exceeding 25% of the balance in the account.
(c)                Special Notice time deposit (STD):
The deposits in this account are withdrawal on prior notice varying from 7 to 29 days and 30 days or more. The interest is paid on the balance of the account. Current interest rate is 6.50% per annum.



(d) Resident foreign currency deposit account (RFCD):
A Bangladeshi National can deposit foreign currency (dollar and pound sterling) within 6 month of returning from abroad provided the foreign exchange- (i) Is not a receipt against export of goods or services from Bangladesh, (ii) Is not a commission due from abroad arising from business deal in Bangladesh.
The balance in the account is withdrawal only when the account holder goes abroad. He can endorse the amount in his passport. Normally bank does not give any interest on this a/c.
(d)               (i) Foreign currency a/c in dollar (FCAD).
(ii) Foreign currency a/c in pound sterling (FCAP).
Bangladeshi nationals working and earning abroad other than from Bangladesh sources can open a foreign currency a/c under this scheme after giving declaration regarding his claim. The a/c holder selects a nominee who will operate the a/c on his behalf and fills in a nomination form. The a/c holder is also required to submit photocopies of passport, work permit /contract. As this is a current a/c no interest is paid.

B. Time deposit account:
The amount in this a/c is payable only after stipulated time. The following a/cs are under time deposit a/c:
(a)                Fixed deposit account.
(b)               Bearer certificate of deposits (BCD).
(c)                Non-resident foreign currency deposit.

(a)               Fixed deposit account:
These are deposit, which are made with the bank for a fixed period specified in advance. The band need not maintain each reserve against these deposits and therefore, bank gives high rate of interest on such deposits. A FDR is issued to the depositor acknowledging receipt of the sum of money mentioned therein. It also contains the rate of interest and the date on which the deposit will fall due for payment.







REVISED INTEREST RATES ON DEPOSITS W.E.F. 01.01.1999:

Type of deposit

Old Rates Effective from 1st April,1998
New Rate effective from 1st January 1999 until further instruction.

A. Savings Deposit

8.004
8.004

B. Special Notice Deposit (STD)

6.504
6.504

C. Fixed Deposit :


a.       3(three)  Month
b.      6(Six)     Month
c. 1(One)     Year
d.2(Tow)  &
    3(Three)   Year


8.754
9.004
9.504
9.754


9.004
9.254
10.004
10.254

Table-3: Interest Rate on Deposit
Source: FCD Manual, ABBl, Karwan Bazar Branch

Accounting Entries;
On issue of FDR
(i) Clients Account -------------------------------------- Debit
 Time Deposit- F.D.R.------------------------------------ Credit     

On payment at maturity
(i) Time deposit-FDR ----------------------------------------- Debit
     Clients Account -------------------------------------------- Credit

For Interest

Monthly Accrual
(i) Interest Expense- F.D.R.----------------------------------- Debit
 Accrued interest Payable – FDR ------------------------- Credit



On maturity
(i) Accrued Interest payable- F.D.R. ------------------------ Debit
 Clients Account. ------------------------------------------ Credit

(ii) Tellers each ------------------------------------------------- Debit
 Bearer Certificate of Deposit---------------------------------- Credit
(iii) Other Asset- prepaid Interest – BCD ------------------- Debit other liability- Interest payable –BCD ------------------------ Credit

Monthly Amortization.
(i) Interest Expense – BCD ---------------------------------- Debit
   Other Asset- Prepaid Interest – BCD.---------------------- Credit

On payment at maturity
(i) Other liability- Interest payable- BCD ------------------ Debit
     BCD -------------------------------------------------------- Debit
 Tellers cash--------------------------------------------------- Credit.

(b)               Bearer certificate of deposit (BCD):
Bank also receives fund from the general public against BCD, Which are issued for a fixed maturity tern of 3 months, 6 months and 1 year for a face value of Tk. 25,000, Tk. 50,000, Tk. 75,000, and Tk. 1,00000. For deposit of amount exceeding Tk. 1 lac, the face value will be increased in multiples of Tk. 25,000 each. Rate of interest on BCD is determined on the date of issue of BCD based on demand and supply of funds in the money market, but in no case interest should be allowed exceeding the prescribed rate applicable for fixed deposit of different tenor.

(c)                Non resident foreign currency deposit (NFCD):
Non-resident foreign currency deposits are term deposits maturing after 1 month, 3 months, 6 months, and one year. This a/c’s can be opened either in US dollar or pound sterling. No interest is paid in case of premature encashment. The interest rate is fixed as per London inter bank offer rate (LIBOR), Provided by head office. The a/c is closed within one year from the date of return of the a/c holder to Bangladesh for taking up permanent resident.




BCD RATES EFFECTIVE FROM JANUARRY, 1999.


Year

Months

3 Month

Face Value

Rate

Amount to be received

Rate
Amount to be received

Rate

Amount to be received
Taka

%

Taka

%
Taka

%

Taka
1.00.000

10.000110

90.909/-

9.250986
95.579/-

8.997955

97.800/-
75.000

9.999707

68.182/-

9.248797
71.685/-

8.997955

73.350
50.000

9.998900

45.455/-

9.248797
47.790/-

8.997955

48.900/-
25.000

10.001320

22.727/-

9.248797
23.895/-

8.997955

24.450/-

Table 3-Interest on BCD
Source: Local Remittance Department, ABBL, Karwan Bazar Branch


5.1.3.2Opening of account
A.  Account opening procedure   
a.  Any one of the following should properly introduce the account:
     i.          An existing Current Account holder of the Bank,
            ii.         Officials of the Bank not below the rank of an Assistant officer.
iii.      A respectable person of the locality well known to the Manager/Sub-Manager of the Branch concerned.
       b.              The type of account, the prospective Customer wishes to open should be ascertain. Highlight the main features of the account obtained necessary papers prescribed for opening of the particular type of account including two copies passport size photo of the account holder duly attested by the Introducer and verified by the Authorized officer of the Bank.
       c.              Supply a set of printed forms required for opening the account, which will normally include.
       i.        Advise of new Account
ii.                  Specimen Signature Cards    
             iii.        Account Agreement
                   v.          Deposit slip Book
      vi.         Check Book Requisition slips.

d.              Request the customer to carefully read and fill up the printed             
             Forms supplied to him.
e.                         Signature of the customer on the reverse of the signature card. Any special instructions with regard to operation of the account should be noted on the relevant signature card boldly duly authenticated by the a/c holder should be obtained.
f.             The required Account Number for the new Account from the Account Opening Register should be obtained.
g.             Obtain the signature and a/c number of the Introducer on the advice of new accountant the place meant for the purpose and gets the signature properly verified by an Authorized official of the Bank.
h.                     The Deposit slip properly filled in and signed by the customer in duplicate should be collected.  Then the new a/c number should be written at the appropriate place of the Deposit slip and mark new Account on both the copies of the deposit slip and request the customer to deposit the money at the Teller's counter.
                                                      i.      Place the signature cards, Advice of new account, a copy of Deposit slip, photographs and other necessary papers/documents etc. in a file and obtain approval of the Authorized officer for opening the new account on all relevant papers while giving approval for opening an account the Authorized official should be satisfied about the bonafide of the Introducer, keeping in view the operations of his account.

j.          Get each signature of the Customer/Introducer on the Advice of New A/c and on the signature cards admitted by the authorized official of the Bank using a small rubber stamp. The Authorized officer on the advice of new A/c and on the specimen signature cards should also attest the signature of the new a/c holder.
k.         After approval of the opening of the a/c, get the Checkbook requisition slip signed by the customer. Debit the customer's Account for the amount of Exercise duty payable for the checkbook.
l.          Deliver the checkbook to the customer after properly  marking the Account number name and place of the branch on each leaf of the checkbook.
m.        On completion of account opening open a file for the new a/c holder and file all relevant papers forms etc. Signature cards, copies of Advice, Deposit slip Debit ticket etc. is distributed to concerned departments.

B. Classification of customers
            a)         Individual (personal) 
            b)         Proprietorship (Sole traders)
            c)         Partnership firms (Registered or Unregistered)
            d)         Joint stock Companies (Private Limited companies/Public ltd.)           f)         Public Sector Corporations
            g)         Municipalities/Municipal Corporations /Local Bodies etc.
            h)         Clubs/Societies/Associations/Schools/Colleges/ Universities etc.
            i)          Executors/Administrators
            j)          Trustees
            k)         Illiterate persons
            l)          Constituted Attorney
            m)        Wage Earners.

C.        Document required for opening new accounts

 A.       Documents Common for all types of Accounts & Customers:
            1.         Advise of New Account (in duplicate)
            2.         Specimen signature cards (in duplicate)
            3.         Account Opening Agreement Form.
            4.         Photographs of Account Holders (in duplicate)
            5.         Deposit Slips Book.
            6.         ChequeBook Requisition slips.
     7.         Letter of mandate authorizing another person/s to operate the A/c on behalf of the Account holder, where necessary.
B.         Additional document / forms are to be obtained for opening some special accounts.
     1. Joint Accounts of two or more persons:
(I)        Mandate for Operation of Accounts:
A clear authority signed by all the joint A/C holders containing instructions as to who will operate the account and how the account is to be operated should be obtained. The mandate should mention the name of the persons authorized to draw check. In case of death /insanity/insolvency of one or more of the joint a/c holders, the authority will cease to operate.



2.         Executor:
i.          Probate:  From a court of law along with a certified copy of the will duly attested by a notary public.
ii.                  A mandate in case there is more than one Executor, signed by all the executors, as to how the a/c will be operated.

3.         Administrator:
i.                    Letter of Administration from a court of Law along with a certified copy duly attested by a Notary Public appointing him as an Administrator of the Estate of the deceased. The operation of the a/c is to be allowed as per instructions of the letter of administration.

4.         Proprietorship Firm.
            i.          Declaration of Proprietorship
            ii.         Trade License from Municipality.
                  iii.        Account Agreement Form
             iv. Mandate if operation by third party is to be allowed.

5.         Partnership Firm:
i.          Photocopy of partnership deed registered with Registrar of Firm duly attested by Notary Public.
ii          Photocopy of Registration Certificate duly attested by Notary Public in case of a Registered Firm.
iii.        Letter of Partnership duly signed by all the partners, in case of non-Registered Firm.
                 iv.   Resolution signed by all the partners to open the a/c.
                 v.    Mandate as to operation of the a/c.
                 vi.   Account Agreement Form
vii.              Trade License from Municipality.


6.         Private limited Joint Stock Company.
i.          Memorandum of Association and Articles of Association duly certified by chairman or secretary.
ii.         Resolution of the Board duly certified by chairman /Secretary authorizing to open the a/c with the Bank and naming the persons who will operate the a/c, as per provisions of Articles of Association.
   iii.          Corporate Agreement Form.
                iv.    Certificate of Incorporation duly certified by Chairman/Secretary.
                 v.    List of Directors duly certified by Chairman/Secretary.
7.         Public limited joint Stock company.
 i.         Memorandum and Articles of Association duly certified by chairman /secretary.
                 ii.     Certificate of Incorporation duly certified by chairman /Secretary.
iii.       Resolution of the Board duly certified by Chairman/Secretary authorizing to open the a/c with the Bank and naming the persons who will operate the a/c as per provisions of Articles of Association.
                iv.    Corporate Agreement Forms
                 v.    Certificate of commencement of business
                vi .   List of Directors duly certified by Chairman /Secretary.

8.         Clubs/Societies/Trustee/Associations/Non-trading Institutions etc.

                                                    ii.      Resolution-who will operate the a/c. must be noted-for club
                                                  iii.      In case of death, a/c. should be stopped until the club nominates an other person.
                                                  iv.      Trust deed is needed-for trustee

9.         Municipal Corporation /Local Bodies:
i.          Copy of the Municipal Act/charter duly certified by the chairman /Administrator.
ii.         Resolution of Municipal committee authorizing the opening of the a/c in the Bank and naming the persons who will operate the a/c duly certified by the chairman/Administrator.
iii.                Accounts of constituted Attorney: Certified copy power of Attorney duly verified with the original by the concerned Bank official under seal and signature.


5.1.3.3 Issue Of Check Book

(A) Issue of fresh checkbook

Fresh checkbook is issued to the account holder only against requisition on the prescribed requisition slip attached with the checkbook issued earlier, after proper verification of the signature of the account holder personally or to his duly authorized representative against proper acknowledgment.

Issuance of Fresh checkbook


REQUISITION SLIP FILLED UP PROPERLY ALONG WITH THE CHECKBOOK NUMBER.
 

BANKER ISSUANCE NEW CHECK BOOK IF EVERY THINK IN THE RIGHT FROM
 



BANKER VERIFIES THE SLIP
 
                                           

                                            

                                              



                                               



ENTER THE NEW CHEQUEBOOK NUMBER IN THE REGISTER BOOK AGAINST THE SPECIFIC CUSTOMER’S NAME
 


 

 

 



Figure-5: Issuance of fresh Check Book
Source: Account Opening Department, ABBL, Karwan Bazar Branch




B.   Issue of Duplicate checkbook:
Duplicate checkbook in lieu of lost one should be issued only when an A/C holder personally approaches the Bank with an application Letter of Indemnity in the prescribed Proforma agreeing to indemnify the Bank for the lost checkbook. Fresh check Book in lieu of lost one should be issued after verification of the signature of the Account holder from the  Specimen signature card and on realization of required Excise duty only with prior approval of manager of the branch. Check series number of the new checkbook should be recorded in ledger card signature card as usual. Series number of lost checkbook should be recorded in the stop payment register and caution should be exercised to guard against fraudulent payment.







5.1.3.4 Account Transfer:

The customer submits an application mentioning the name of the branch to which he wants the account to be transferred. His signature cards, advice of new account and all relevant documents are sent to that branch through registered post with acknowledgment the balance standing at credit in customers account is sent to the other branch through Inter Branch Credit Advice (IBCA).

5.1.3.5Closing of account   
 Upon the request of a customer an account can be closed. After receiving an application from the customer to close an Account, the following procedure is followed by a banker. The customer should be asked to draw the final cheque for the amount standing to the credit of his a/c less the amount of closing and other incidental charges and surrender the unused cheque leaves. The a/c should be debited for the account closing charges etc. and an authorized officer of the Bank should destroy unused cheque leaves.
In case of joint a/c the application for closing the a/c should be signed by all the joint holders.



5.2 LOCAL REMITTANCE  DEPARTMENT

5.2.1 UNDERSTANDING:
ABBL has its branches spread throughout the country and therefore, it serves as best mediums for remittance of funds from one place to another. This service is available to both customers and non-customers of the bank. There are four employees including one officer, three assistant officers in this department.

 5.2.2 THINGS ARE DONE HERE
The Following things are done in this department:

(a)                Issuing & Payment of Demand Draft.
(b)               All related correspondence with  other Branches & Banks
(c)                Compliance of Audit & Inspection
(d)               Balance of L.D. payable & L.D. Paid with advice
(e)                Attached to Sanchaya Patra and Wage Earners Development Bonds.
(f)                Payment of Incoming TT.
(g)                Issuing, encashment of Pay Order and maintenance of record and proof sheet.
(h)               Issuing and encashment of all kinds of Sanchaya Patras and wage Earners Development Bond.
(i)                 All related statements & correspondences with Bangladesh Bank & other Branches.
(j)                 Issuance of Local Drafts
(k)               Issuing and encashment of BCD.
(l)                 All related correspondences.
(m)             Issuing of Outgoing TT.
(n)               Issuance of Local Drafts.
(o)               Issuance of T.T. ICA. IBCA & IBDA.


5.2.3 PERSONAL OBSERVATIONS
Personal observations from this department:

5.2.3.1 Remittance of funds:
Any one of the following methods may make remittance of funds from one place to another.
1.         Telegraphic Transfer (T.T)
2.         Local Draft (L.D)
3.         Pay order (p/o)

(1) Telegraphic Transfer (T.T)
It is an order from the Issuing branch to the Drawee Bank /Branch for payment of a certain sum of money to the beneficiary. Telex/ Telegram sends the payment instruction and funds are paid to the beneficiary through  his account maintained with the Drawee branch or through a pay order if no a/c is maintained with the drawee branch.

a.         T.T issue process:
1.         The Applicant fill up the relevant part of the prescribed Application form in triplicate duly signs the same and gives it to the Remittance Department.
2.         Remittance Department will fill up the commission part meant for Bank's use and request the Applicant to deposit necessary cash or check at the Teller's Counter.
3.         The Teller after processing the Application form, Cash or check will validate the Application form .The first copy is treated as Debit Ticket while the second copy is treated as Credit Ticket and sent to Remittance Department for further processing. The third copy is handed over to the applicant as customer’s copy.
4.         Remittance Department will prepare the Telex/Telegram in appropriate form, sign it and send it to the telex Operator/Dispatch Department for transmission of the message.
5.         Remittance Department will prepare the necessary advice
6.         Debit Advice is sent to the client if client’s a/c is debited for the amount of T.T
7.         Debit ticket is used to debit the client's account if necessary.
8.         T.T Confirmation Advice is sent to the Drawee Branch.
9.         Credit Ticket (2nd copy of the Application Form) is used to credit the ABBL General Accounts.

b.         Accounting entry:
Dr. Cash /client's A/C
Cr. ABBL General A/C
Cr. Communication.
Cr. Commission.
c.         Payment of T. T’s:
1.         On receipt of T.T payment Instructions the following entries are passed by the Drawee branch if the T.T is found to be correct on verification of Test Number.
            i.          Dr. ABBL General A/c
                        Cr. Remittance Awaiting Disposal- T.T Payable A/c
            ii.         Dr. Remittances Awaiting Disposal -T.T Payable A/c
                        Cr. client's Account /P.O. A/C.
In case the beneficiary does not maintain any a/c with the Drawee branch a P.O is issued in favor of the payee and sent to his banker/local address as the case may be.
2.         Every branch maintains a prescribed T.T. Payable Register. All the particulars of T.Ts are to be properly recorded in this Register duly authenticated. A separate type of T.T confirmatory advice is sent to the Drawee branch on the same day. On receipt of the T.T Confirmatory advice/ confirmation copy of Telegram from the Issuing branch, the particulars of the T.T are verified with reference to particulars already recorded in the T.T payable Register.

The Confirmatory advises are kept attached with the relative Ticket No further responding entry is required to be passed on receipt of such confirmation copy.
On payment of T.T the particulars are to be incorporated in the Extracts of Responding Debit entries as usual and sent to HORC.
(2) Local Draft (D.D)
Local Draft is an instrument containing an order of the Issuing branch upon another branch known as Drawee branch, for payment of a certain sum of money to the payee or to his order on demand by the beneficiary presenting the draft itself.


a.         Process of Issuing a Local Draft.
1.         Get the Application form properly filled up and signed by the applicant.
2.         Complete the lower portion of the Application Form meant for Bank's use.
3.         Calculate the total Taka amount payable including Bank's commission /charges etc.
4.         If a cheque is presented for the payment of the L.D officer should get the check duly passed for payment by the competent authority and record the particulars of L.D on the back of the cheque.
5.         If the purchaser desires his account with the branch to be debited for the amount of L.D the officer should get the A/C. holder’s signature verified properly, from signature card on record of the branch and debit client's a/c for the total amount including commission/ charges etc.
6.         If cash deposit is desired, request the purchaser to deposit the money at the Teller’s Counter.
7.         The Teller, after processing the Application Form, Cash or Cheque, will validate the Application form.
8.                  The first copy of the Application form is treated as Debit Ticket while the second copy is treated as Credit Ticket and sent to Remittance Department for further processing. The third copy is handed over to the Applicant as customer's copy.
9.                  Each branch maintains a running control serial number of their own for issuance of L. D. on each Drawee branch. This control serial number should be introduced at the beginning of each year, which will continue till the end of the year.


b.         L.D Issue Register:
The Remittance Department maintains prescribed L.D Issue Register. All the required particulars of all L. Ds issued should be entered in that Register duly authenticated.  Separate folios are opened for each Drawee Branch. While issuing local Drafts of
TK.50, 000/- and above, branches shall put a test number in RED INK on the upper portion of the drafts so that the Drawee branch can immediately make payment of the L.D on presentation after getting the Test agreed, if otherwise found in order.


c.         Issue of Duplicate Draft
Duplicate L.D should not normally be issued unless thoroughly satisfactory evidence is produced regarding loss of a draft. If the L.D is reported lost/stolen, a duplicate draft may be issued by the Issuing branch on receipt of a written request from the purchase.

Before issuing a duplicate L.D the branch should observe the following:
1.         Verify the Purchase’s signature on the request letter from the signature appearing on the original application form.
2.         Immediately issue a stop payment instruction to the Drawee branch under advice to Head Office and obtain confirmation of non-payment of the L.D in acquisition.
3.         After the Drawee branch has acknowledged the stop payment order and confirmed that the local draft in acquisition remains unpaid at their end, the Issuing branch should obtain an Indemnity Bond on stamped paper /letter of indemnity as per prescribed format from the purchase duly signed by him. The branch will thereafter write to head office, for their approval to issue a Duplicate draft.
4.         The Head Office on receipt of request from the issuing branch will immediately issue a caution circular to all the branches regarding the loss of the local draft asking them to record stop payment.
5.         The Head Office will thereafter issue clearance to the Issuing branch for issuing a Duplicate draft in lieu of original reported lost.
6.         On receipt of clearance from Head Office, the issuing branch will issue a completely fresh draft marking clearly the words duplicate issued in lieu of original draft no............................................ Dated ... ... ... .. , in bold letters on the top of the front page of the draft. The printed serial number on the Draft should not however be struck off. Intimation should be given to the drawee branch furnishing full particulars of the Duplicate draft. In case of issue of duplicate foreign draft (F.D.D) the Reconciliation Department, Head Office (HORC) should also be informed.
7.         The particulars of the duplicate draft must resemble those of the original draft in all respects that is all the particulars to the duplicate draft must be identical with those in the original draft. No further IBCA is to be issued for the duplicate draft.
8.                  Prescribed duplicate issuance charge is to be recovered for issuing the duplicate draft and credited to Income A/c.

d.         Cancellation of Local draft
The following procedure should be followed for cancellation of a L.D:
1.         The purchase should submit a written request for cancellation of the L.D attaching therewith the original L.D.
2.         The signature of the purchase will have to be verified from the original application form on record.
3.         Manager /Sub -Manager's prior permission is to be obtained before refunding the amount on cancellation.
4.         Prescribed cancellation charge is to be recovered from the applicant and only the amount of the draft less cancellation charge should be refunded. Commission/Postage etc. charge recovered for issuing the L.D should not be refunded.
5.         The L.D should be affixed with a stamp Cancelled under proper authentication and the authorized officer's signature on the L.D should also be cancelled with Red in but in no case should be torn. The cancelled L.D should then be kept with the relevant Ticket.
6.         The original entries are to be reversed giving proper narration. An IBDA for the cancelled L.D should be issued on the Drawee branch.
7.                  Cancellation of the L.D should also be recorded in the L.D Issue Register.


e.         Payment of L.D
1.         On receipt of Credit Advice (IBCA) from the Issuing branch the following responding entries are then be passed by the Drawee branch.
Dr. ABBL General A/c Branch
Cr. Remittance Awaiting Disposal L.D payable A/c
Extracts of Responding entries are to be sent to HORC on the same day.
2.         When a L.D is presented for payment at the paying branch its details are to be carefully examined with references to the following points
a.         Whether the draft is drawn on their branch.
b.         Whether the draft is crossed or not Amount of a crossed draft is not paid in cash to the payee but to be paid to his account with a bank.
c.         Two authorized officials of the Issuing branch must have signed draft. Their signatures are to be verified from specimen signature book let to be sure that the draft is genuine. The verifier should put his initials in red ink against the authorized signatures in the draft.
d.         Endorsement on the back of the draft must be regular in case the draft is presented through clearing.
e.         The amount of the draft should not exceed the amount protect graphed /written in red ink on the top of the draft.
f.          The payee is to be properly identified in case of cash payment.
g.                   The particulars of the draft i.e. the draft number date amount and the name of payee, should be verified from the L.D payable Register.

3.         On payment the L.D is affixed with the branches Paid stamp and signatures there on are cancelled with red ink. The date of payment is recorded in the L.D payable
Register necessary accounting entries are also passed and recorded in the books of Accounts.

Accounting entries
With IBCA:  
Dr. Remittance Awaiting Disposal L.D payable a/c
Cr. client's Account/Teller's Cash.
Without IBCA
A.        Dr. L.D paid without Advice a/c
            Cr. Client's a/c/Teller's Cash.
B.         After receiving the IBCA
            i.          Dr. ABBL General A/c
                        Cr.  Remittances Awaiting Disposal - L.D payable A/c
            ii.         Dr. Remittances Awaiting Disposal - L.D payable A/c
                Cr. L.D Paid without Advice A/c.

g.         Stop payment of L.D
As the Issuing branch issues the draft, the payee or purchaser of the draft cannot give stop payment instructions to the Drawee branch. If a paying branch receives a y request from the payee/endorsee or the purchaser of a draft for stopping payment of the draft, it will ask them to approach the issuing branch for the purpose. The paying branch should however exercise necessary precaution in this regard. Only the Issuing branch can issue instructions for stop payment of draft under special circumstances. However, if a stop payment order is received from a court of law the same should be carried out. If a draft on which stop payment order has been issued buy account is presented for payment the same should be returned unpaid with the answer court prohibited payment quoting court order number and date.

h.         Cancellation of L.D
                               Only the purchaser can request the Issuing branch for cancellation of a L.D. The drawee branch cannot cancel a L.D. The Drawee branch can accept cancellation instructions only from the Issuing branch, when the Issuing branch the relative entry in the ABBL general a/c is reversed cancels a draft and IBDA is issued on the Drawee branch. On receipt of the advice of cancellation through IBDA from the Issuing branch , the Drawee branch should reverse the original liability entries on the strength of the IBDA and record suitable remarks in the L.D payable Register/ related IBCA of the draft.

(3) Pay order

a.         Pay order issue process
For issuing a pay order the client is to submit an Application to the Remittance Department in the prescribed form (in triplicate) properly filled up and duly signed by applicant. The processing of the pay order Application form, deposit of cash/cheque at the Teller's counter and finally issuing an order etc, are similar to those of processing of L.D. Application.

As in case of L.D each branch should use a running control serial number of their own for issuance of a pay order. This control serial number should be introduced at the beginning of each year, which will continue till the end of the year. A fresh number should be introduced at the beginning of the next calendar year and so on.

b.         Charges
For issuing each pay Order commission at the rate prescribed by Head Office is realized from the client and credited to Income A/c as usual.
c.         Entries
Dr. Teller's Cash /Client's a/c ------------------------------------------------------------ debit
Cr. pay Order a/c. ---------------------------------------------------------------------- credit
Cr. commission a/c. --------------------------------------------------------------------- credit
d.         Refund of pay Order 
 The following procedure should be followed for refund of pay order by cancellation
1.         The purchase should submit a written request for refund of pay order by cancellation attaching therewith the original pay order.
2.         The signature of the purchaser will have to be verified from the original application form on record.
3.         Manager/ Sub-manager's prior permission is to be obtained before refunding the amount of pay order cancellation.
4.         Prescribed cancellation charge is to be recovered from the applicant and only the amount of the pay order less cancellation charge should be refunded. Commission recorded for issuing the pay order should not be refunded.
5.         The pay order should be affixed with a stamp ''cancelled'' under proper authentication and the authorized officer's signature of the pay order should also be cancelled with RED ink but in no case should be torn. The cancelled pay order should be kept with the relevant Ticket.
6.         The original entries are to be reversed with proper narrations
8.      Cancellation of the pay Order should also be recorded in the pay order Issue Register.


5.3 CASH DEPARTMENT


5.3.1 UNDERSTANDING:
The cash department deals with all types of negotiable instruments, cash, and other instruments and treated as a sensitive section of the bank. There are one senior officer, three officers and Teller in this department.

5.3.2 THINGS ARE DONE HERE
The following things are done in this department:

(a) Shall be responsible for all Cash & Cash Items related matters including record keeping of the information’s received regarding cash remittances
(b) Shall supervise the Cash Remittance under direct guidance of Sub-Manager
(c) Shall be responsible for any receipts and payments as per circular issued from time to time.
(d) Keeping liaison with the Bangladesh Bank, Cash department.

5.3.3 PERSONAL OBSERVATIONS
I have observed the following things:
A.        Cash Payment
Cash payment of different instruments is made in the cash section. Procedure of cash payment against cheque is discussed under elaborately.


 Cash payment of cheque
Cash payment of cheque includes few steps.
l         First of all the client comes to the counter with the check and give it to the officer in charge there. The officer checks whether there are two signatures on the back of the cheque and checks his balance in the computer. After that the officer will give it to the cash in charge.
l         Then the cash in charge verifies the signature from the signature card and permits the officer in computer to debit the client’s account by giving posting. A posted seal with teller number is given.
l         Then the cheque is given to the teller person and he after checking everything asks the drawer to give another signature on the back of the cheque.
l         If the signature matches with the one given previously then the teller will make payment keeping the paying cheque with him while writing the denomination on the back of the cheque.
l         Cash paid seal is given on the cheque and make entry in the payment register.
There are few things that shall be scrutinized and checked before making payments.
            i.          Name of the drawer
            ii.         Account number
            iii.        Specimen signature
       iv.    The validity of the cheque and make it sure that it is not post dated or undated.
v.  The amount in words and figures are same.
  B.       Cash Balance calculation
The officer in charge of cash section does this calculation and then manager or authorized officer will check the balance and sign in the cash balance book.   The balance is maintained in the balance book. Opening balance of current day is the closing balance of the previous day. Total receive of the current day is added with the opening balance and total payment is deducted for calculating the closing Balance or cash balance.




C.   Receipt of check, draft, pay order for clearing and collection:

If an instrument (check, draft, pay-order) drawn on a bank located with in the clearing house is deposited then the Teller uses the seal “ Received for clearing “ and provides special endorsement so that no bank other than ABBL, Principal branch can en cash the instrument.

If an instrument (Check, draft, pay-order) drawn one bank located outside the learning house is deposited, the Teller uses the seal “ Received for collection”.

5.4 CLEARING DEPARTMENT


5.4.1 UNDERSTANDING
 According to the Article 37(2) of Bangladesh Bank Order, 1972,the banks, which are the member of the clearinghouse, are called as Scheduled Banks. The scheduled banks clear the chouse drawn upon one another through the clearinghouse. This is an arrangement by the central bank where everyday the representative of the member banks gathers to clear the chouse. Banks for credit of the proceeds to the customers’ accounts accept Chouse and other similar instruments. The bank receives many such instruments during the day from account holders. Many of these instruments are drawn payable at other banks. If they were to be presented at the drawee banks to collect the proceeds, it would be necessary to employ many messengers for the purpose. Similarly, there would be many chouse drawn on this the messengers of other banks would present bank and them at the counter. The whole process of collection and payment would involve considerable labor, delay, risk and expenditure.
All the labor. Risk, delay and expenditure are substantially reduced, by the representatives of all the banks meeting at a specified time, for exchanging the instruments and arriving at the net position regarding receipt or payment. The place where the banks meet and settle their dues is called the Clearinghouse.

5.4.2 THINGS ARE DONE HERE
The following things are done in this department

(a) Preparation of Clearing Outward and Inward Lodgment and record maintenance of the same.
(b) Batch posting as and when required.


5.4.3 PERSONAL OBSERVATIONS

Following thins are observed in the period of Practical Orientation in this department:
The clearinghouse sits for twice in a working day. The members submit the climbable checks in the respective desk of the banks and vice versa. So, instruments are exchanged over there.

On receipt of instruments, the same is endorsed here. Then clearing section will sent IBDA to head Office for clearing purpose and on receipt of IBCA from Head Office amount is credited to customers account and vice versa. If the instrument is return then the same is given back to the customer.
Accounting Entries:
For inward instruments:
Customer A/C ----------------------------------Debit
ABBL General A/C ----------------------------Credit
Incase of return:
ABBL General A/C ----------------------------- Debit
Customers A/C -----------------------------------Credit
For Outward instruments:
ABBL General A/C ------------------------------ Debit
Customers A/C ------------------------------------ Credit.
In case of return:
Customer A/C ---------------------------------------Debit
ABBL General A/C------------------------------ Credit.












5.5 COLLECTION DEPARTMENT

5.5.1 UNDERSTANDING

Checks, drafts etc. are drown on bank located outside clearing house are sent for collection. Principal Branch collects its client’s above-mentioned instruments from other branches of ABBL and branches other than ABBL. In case of out ward bills for collection customers account is credited after finishing the collection processor. And in case of in ward bills customers account is debited for this purpose. So it place dual role as follows:
i)                    Collecting Banker
ii)                  Paying Banker.
There is one Officer working over desk in this department.


5.5.2 THINGS ARE DONE HERE
(a)             Preparing of Outward and Inward Collection Item.
(b)             Inter-Branch Transfer.
(c)              Batch posting and checking as and when required.
(d)             Other works as and when require.

5.5.3 Personal Observations:
Observations over the desk are given below:
Collection is done when
 (i) Paying Bank is located out side Dhaka City.
(ii) Paying Bank is other branches of ABBL situated inside Dhaka City.

(i)                 Paying Bank is  outside Dhaka City :
 Collection department of Principal Branch, ABBL sends outward bills for collection (OBC) to the concerned paying bank to get inter Bank Credit Advice (IBCA) from paying Bank. If the paying bank dishonors the instrument, the same is returned to principal Branch.


(ii)               The Paying Bank of their own branches inside Dhaka City:
 Collection Department sends transfer delivery item to other branches of same bank situated inside Dhaka City. Upon receiving IBCA customer’s a/c is credited.


Procedures for outward bills for collection:






Entries are given in the Outward Clearing Register
 

Endorsement “Payee’s A/C will be Credited on realization” is given

 
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            Figure-6: OBC  Mechanism

           Source: Clearing Department, ABBL, Karwan Bazar Branch

Commission for collection:
Up to 1 lac --------------------------------------------- 0.15%
Above 1 lac--------------------------------------------- 0.10%
Above 5lac ----------------------------------------------0.05%
Maximum charge is Tk. 1200 and minimum charge is Tk.10.
Accounting Entries:
As collecting Bank:
Customers A/C-------------------------------------------Debit
ABBL General A/C ------------------------------------Credit
As Paying Bank:
ABBL General A/C --------------------------------------- Credit
Customers A/C ---------------------------------------------- Debit
Collection with other Banks situated outside Dhaka City.
As collecting Bank:
Deposit awaiting disposal (DAD) -------------------------Debit.
ABBL General A/C ----------------------------------------- Credit
As Paying Bank:
ABBL General A/C ----------------------------------------- Debit
Customers A/C ------------------------------------------ Credit.
5.6 FINANCIAL CONTROL DEPARTMENT

5.6.1 Understanding:
Financial control department is called as the above center of the bank. In banking business, transaction are done every day is their transaction are to be recorded properly and systematically as the banks deal with the depositors money. Any deviation in proper recording many hamper public confidence and bank has to suffer a lot otherwise. Improper recording of transaction will lead to the mismatch in the debit side and the credit side. To avoid these mishaps, the bank provides a separate department, whose function is to check the mistake in passing voucher on wrong entries or fraud or forgery. This department is called Financial Control Department. In this branch there are one Chief Officer, two Assistant Officers in this department.
5.6.2 THINGS ARE DONE HERE.
a.       Overall supervision of FCD.
b.      Passing all Expenses Vouchers.
c.       Maintenance of client’s account statements including Balance Confirmation Certificate.
d.      Branch’s PD&US.
e.       Dealing with the public issue of Shares including Lottery Tickets.
f.       Other works as & when required.
g.       Compliance of Audit & Inspection and consolidation of Audit report & timely Submission.
h.      Preparation of AD-1, AW-1.
i.        Maintenance of Personnel Files, up dating of leaves records.
j.        Maintenance of Salary Cards.
k.      Staff Training Record and Cards.
l.        Monthly Progress Report of Prob. Officer and Trainee Asstt. Officer.
m.    Maintenance of ABBL, Dividend warrants Record.
n.      Preparation of deals Extract.
o.      Checking of Transaction List.
p.      Checking of Vouchers & maintenance of related Registrar.
q.      Filling and distribution of daily Computer Reports.
r.        Preparation of months, quarterly, half-yearly Account Statements.
s.       Monthly amortization voucher preparing/posting/checking and responding Inter-Branch Entries.
t.        Preparation of Salary.
u.      Depreciation Record in Assets Cards.
v.      Petty Cash.
w.     Transfer Items.

5.6.3 PERSONAL OBSERVATIONS
The bank has to prepare some internal statements as well as some statutory statements which 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 department may be seen in two different angles:
A. Daily Task: The routine daily tasks of the Accounts Department are as follows, -
1.                  Recording the transactions in the cashbook.
2.                  Recording the transactions in general and subsidiary ledger.
3.                  Preparing the daily position of the branch comprising of deposit and cash.
4.                  Preparing the daily Statement of Affairs showing all the assets and liability of the branch as per General Ledger and Subsidiary Ledger separately.
5.                  Making payment of all the expenses of the branch.
6.                  Recording inters branch fund transfer and providing accounting treatment in this regard.
7.                  Checking whether all the vouchers are correctly passed to ensure the conformity with the ‘Activity Report’; if otherwise making it correct by calling the respective official to rectify the voucher.
8.                  Recording of the vouchers in the Voucher Register.
9.                  Packing of the correct vouchers according to the debit voucher and the credit voucher.

B . Periodical Task: The routine periodical tasks performed by the department are as follows,-
1.Preparing the monthly salary statements for the employees.
2.Publishing the basic data of the branch.
3.Preparing the weekly position for the branch which is sent to the Head Office to maintain Cash Reserve Requirement (C.R.R)
4 . Preparing the monthly position for the branch which is sent to the Head Office to maintain Statutory Liquidity Requirement (S.L.R)
5. Preparing the weekly position for the branch comprising of the break up of sector wise deposit, credit etc.
6.Preparing the weekly position for the branch comprising of denomination wise statement of cash in tills.
Preparing the budget for the branch by fixing the target regarding profit and deposit so as to take necessary steps to generate and mobilize deposit.
7. Preparing an ‘Extract’ which is a summary of all the transactions of the Head Office account with the branch to reconcile all the transactions held among the accounts of all the branches.
Extract:
The following things are done in this part of FCD:
(i)                 Preparation of extract,
(ii)               Checking of transaction list,
(iii)             Checking of voucher and Maintenance of related register.
Preparing an ‘Extract’ which is summary of all the transaction of the Head Office  A/C with the branch to  reconcile all the transactions held among the accounts of all the branches through inter-branch and  credit advise (IBCA) and inter-branch debit advise (IBDA).

Extract is done by following :
(iv)             Originating (Influence of IBCA/IBDA)
(v)               Responding (Receiving of IBCA/IBDA)

Following entries are made:
IBDA
While Originating
ABBL General Account ----------------------------- Debit
Branch A/C --------------------------------------------Credit.
While responding:
Branch A/C ---------------------------------------------Debit
ABBL A/C ------------------------------------- credit
IBCA
While Originating
Branch A/C ------------------------------------------------Debit
ABBL General A/C ---------------------------------------Credit.
While responding
ABBL General A/C------------------------------------------Debit.
Branch A/C --------------------------------------------------- Credit.



5.7 SHANCHAY PATRA AND WAGE EARNERS BONDS

5.7.1 Understanding:
ABBL Principal branch sales shanchay patra and wage earners bonds as its ancillary services rendered to customers on behalf of govt. Through Bangladesh bank. Shanchay patra is issued by Jatio Shanchay Bureau guided by Bangladesh bank and Ministry of finance of People’s Republic of Bangladesh issues wage earners bonds (WEB). WEB’s are only for the welfare of wage earners that are Bangladeshi national working out side Bangladesh. This branch gets 1 % commission on this. There are two persons one is senior officer dealing with WEB’s and other person is officer dealing with shanchay patra.

5.7.2 Things are done here:
The following things are done in this department:
(iv)             Selling of shanchay patra and wage earners bonds.
(v)               Making payment on maturity.
(vi)             Responding to Bangladesh bank.
(vii)           Calculation of interest.
(viii)         Accounting.

5.7.3 Personal observations:
Personal observations from two desks one is for shanchay patra and other is for wage earners bonds in this department are given below:
A.     Shanchay patra.
Shanchay patras is received from Bangladesh bank (BB). People purchasing these bonds by depositing money in this branch and payment are made on maturity to customers from this branch only. Every transaction is reported to Bangladesh bank. In case of issuance, report to be reached to BB within 48 hours, otherwise penalty is imposed. Money is realized from BB after making payment to customer.
There is various type of shanchay patras is sold here. They are as follows:

(i) 8 years defense Savings certificate:
Interest rate:
After 1 year 10.75% and per year 1% interest increases and on maturity 17.75%.
Denomination: (Tk.)   
500, 1000, 10000, 50000, 100000, 200000.
(ii) 5 Years Bangladesh Shanchay patras :
Interest rate:
After one year 10.50% and 1% increases every year. On maturity 14.50%.
Denomination: (Tk.) 500, 1000, 10000, 25000, 50000.

(iii) 5 years investment scheme on half yearly rest.
Interest rate:
13.50% (fixed)
Denomination: (Tk.) 100000, 200000, 500000.
(iv) 5 years family savings certificate scheme:
Interest rate: 13.20% (fixed)
Denomination: (Tk.) 10000, 50000, 100000, 200000, 500000.
(v) 3 years investment scheme on quarterly rest:
Interest rate 13.50% (fixed)


B.      Wage Earners bonds:
Only wage earners bonds that are Bangladeshi national staying out side Bangladesh is entitled for this bonds through FC a/c. Bonds are received from Bangladesh bank. Bonds are sold to customer in this branch and payment on maturity also made here. Every transaction is reported to BB. In case of issuing bonds, report to be reached to BB within 4 days otherwise penalty is imposed. Money is realized from BB after making payment to customers.
Interest rate: 12% and on maturity interest is compounded half yearly basis.
Denomination: (Tk)
25000, 50000, 100000.









PART-6

PERFORMANCE OF KARWAN BAZAR BRANCH


6.1 GROWTH IN DEPOSIT

YEAR
AMOUNT
(TK.IN MILLION)
1994
9438.04
1995
9863.93
1996
9710.51
1997
10506.56
1998
11716.21
Table-4: Growth in Deposit Source: Annual Report, 1998,ABBL

Figure7: Growth in Deposit Source: Annual Report, 1998,ABBL

























6.2  PROFIT OF ABBL

YEAR
AMOUNT
(TK.IN MILLION)
1994
329.87
1995
381.90
1996
470.89
1997
460.65
1998
288.44
Table-5: Profit of ABBL
Source: Source: Annual Report, 1998,ABBL



 Figure-8: Growth in Profit
Source: Source: Annual Report, 1998,ABBL











6.3 GROWTH IN RESERVE AND REVENUE

YEAR
AMOUNT
(TK. IN MILLION)
1994
188.19
1995
202.48
1996
239.64
1997
286.28
1998
315.73
Table-6: Reserve & Revenue
Source: Source: Annual Report, 1998,ABBL

Figure-9: Growth in Reserve & Revenue
Source: Source: Annual Report, 1998,ABBL









6.4 TOTAL CREDIT

YEAR
TOTAL LDOs
1994
6245.19
1995
6735.21
1996
6700.86
1997
6741.88
1998
7807.24
Table-7: Total Credit
Source: Source: Annual Report, 1998,ABBL


Figure10: Total Credit
Source: Source: Annual Report, 1998,ABBL









6.5 GROWTH IN ASSETS

YEAR
AMOUNT
(TK. IN MILLION)
1994
10284.55
1995
10284.12
1996
11235.17
1997
12620.78
1998
13435.35
   Table-8: Growth in Assets
   Source: Source: Annual Report, 1998,ABBL



          Figure11:Growth in Assets
          Source: Source: Annual Report, 1998,ABBL










6.6 GROWTH IN IMPORT

YEAR
AMOUNT
(TK. IN MILLION)
1994
8275.78
1995
8573.00
1996
7645.80
1997
9114.90
1998
10000.70
 Table-9: Growth in Import
Source: Source: Annual Report, 1998,ABBL

Figure-12: Growth in Import
Source: Source: Annual Report, 1998,ABBL










6.7 GROWTH IN LETTER OF GUARANTEE

YEAR
AMOUNT
(TK. IN MILLION)
1994
1288.23
1995
922.66
1996
539.20
1997
873.00
1998
939.00
Table-10: Growth in Guarantee
Source: Source: Annual Report, 1998,ABBL

Figure-13: Growth in Guarantee
Source: Source: Annual Report, 1998,ABBL











6.8 GROWTH IN EXPORT

YEAR
AMOUNT
(TK. IN MILLION)
1994
5144.49
1995
4344.26
1996
4488.90
1997
5181.39
1998
6079.80
Table-11: Growth in Export

 Source: Annual Report, 1998,ABBL
Figure-14: Growth in Export
Source: Source: Annual Report, 1998,ABBL









BIBLIOGRAPHY

  Shaikat, Tanvir; Daily Notebook, written during the orientation program.
  AB Bank, Working Manual for different department.
  Awasthi G D; Trade Payments- Commentary, Cases & Text
  Import Policy, 1997-2002, published by Ministry of Commerce, Bangladesh Secretariat, Dhaka.
       P.N.Vershney Banking  Law and Practice, sultan Chand and sons, 15th edition, New Delhi,1993.
        Gordon and K. Natarajan, Banking theory, Law and Practice, 6th edition, Himalaya Publishing House, New Delhi, 1996.
       M. Abul Bashar Bhuiya, Bangladesh Laws on banks and banking, 2nd edition, M/S Tawakkal Press, Dhaka, 1996.
       Maheshwari, S.N, Banking Law & Practice, Kalyani Publishers, India, 1979
       Gupta, S.B. Monetary Economics: Institutions, Theory & Policy, S. Chand & Company Ltd. New Delhi, 1995
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