THE LOAN DEFAULT CULTURE-OF BANGLADESH SHILPA RIN SANGSTHA (NOTED: ARTIFICIAL)

                              Executive Summary

Bangladesh Shilpa Rin Sangstha (BSRS) is one of the government Specialized bank in Bangladesh, which provides services to the established and emerging the industrial sectors in Bangladesh. It has 19 departments and two commercial banking branches. Its mission is to provide best industrialization in developing the economy of Bangladesh through boosting up the industry, agriculture, trade and commerce.

The Sangstha is committed to provide continuous service to the public and private sectors for achieving balanced growth. So the government is always trying to facilitate the agriculture sector and provide various subsidy, assistances and credit facilities at almost interest free to the backward and forward linkage of the agricultural sector.

BSRS extends medium and long term credit facilities to industrial projects mainly in the private sector. Besides, it provides underwriting advance/ bridge finance/ debenture loans to public limited companies. BSRS provides underwriting commitment to issuers of stocks and debenture. BSRS also floats and manages mutual fund thereby providing impetus to the capital market. It also regularly undertakes transaction in the Dhaka Stock Exchange.

This study report consists of 6 chapters. Chapter one covers the background of the study, origin of the report, objective of the study, scope, sources, methodology, and limitation of study. In preparing this report the required data have been collected from the various manuals, notes books, circulars, and notification, annual report of the Sangstha, annual report of Bangladesh Bank, Bangladesh Shilpa Bank etc.

BSRS provides loan to various borrowers. They cannot get back the loan from the borrower timely. There are three wings of the Sangstha such as- industrial banking, investment banking, and commercial banking. The investment banking wing in a separate entity of the Sangstha and they are responsible for their own earnings. Though BSRS established only for the industrial banking purpose, it has to control all the wings for the profit of the Sangstha.

Finally, I some findings have been presented based on my practical and theoretical knowledge during my internship at BSRS. In order to overcome from the current problems some recommendation have been drown up.


 

                              CHAPTER ONE
1.1 Background:

This report is prepared as the requirement of the course of BBA program. Many students have faces problem to interpret the acquired theoretical knowledge in the wide horizon of the practical field. In this program student get a scope to work in an organization that assists to generate overall idea about the organization along with the practical knowledge.

Without practical knowledge, theory can never be fruitful. A students needs to go to organization for practical orientation, after completion required semester, where his duty is to bear all the some things from operations and activities of the branch. In order to give an abstract result and solution I have gone through different sponsor’s files, visit sponsor to get primary information relating to causes of default.

1.2 Origin of the Study
After completion of BBA program of Department of Business Administration from World University of Bangladesh, 12 weeks organizational attachment is a must and I completed this internship period is BSRS is reputed organization of the country.

I was placed mainly in the head office to monitor the overall activities of the Sangstha. For a BBA student who’s major in Marketing, industrial sector is the most appropriate field to gather the experience. So I decided to explore the existing situation and find out the problems and make some recommendations. May supervisor also approved my proposal and the project originated.


1.3 Objectives of the Study:

Broadly the main objective of the study is to analyzing the causes of loan default on various sponsors of the Bangladesh Shilpa Rin Sangstha. Besides this, there are other objectives, this are-

  • To discuss the overall operation activities of BSRS;
  • To find out the basic identical causes of loan default of the sponsors.
  • To find out the various type of loan Defaulters.
  • To know about the current image of BSRS.
  • To find out requirement for overcome the Default Culture in Bangladesh.
  • To investigate the present and past status of BSRS in the country and to determine whether this sector is finally viable or not.
  • Finally make some recommendation based on the findings of the report.

1.4 Scope of the Study:

The report prepared on the basis of data and information obtained from annuls report of the Sangstha, Sangstha internal HR department, BB report. ADB report, relevant website and personal observation. The working area is confined within the BSRS Head office. And the study is extended to the extend necessary to fulfill the objective of the study.


METHODOLOGY OF THE STUDY:
In preparing the report both primary and secondary data have been used. The following methods where used to collect the data necessary:
Primary Data:
  • Face to face conversation with the officers ;
  • Face to face conversation with the sponsors of the Sangstha.
Secondary data:
  • Annual report of BSRS
  • Prospectus of BSRS
  • Policies of BSRS
  • Published or unpublished or personally collected data from officers, Head office of BSRS.
  • Bangladesh Bank, journals, magazine and other related annual reports, publications, laws, etc.

1.7 Limitation of the Study:
Although sincere attention has been applied to make the report worthwhile, even then it suffers from the following limitations:
  • Major’s constraint I faced due to lack of enough time to prepare the report. I didn’t much investigate on all operational work of BSRS.
  • Lack of secondary data.
  • Lack of sufficient information.
  • 12 weeks for the entire internship program are not sufficient enough to complete a comprehensive ad. Plan.
  • Songstha tries to conceal internal information, so it was a problem to collect facts.
  • Avoidance of management for providing information.
  • Some essential data could not be gathered because confidentiality concerns.
                                                                                         
                                                         CHAPTER- 2

2.1 Background of the BSRS:

Bangladesh Shilpa Rin Sangstha (BSRS) was established on October 31, 1972 under the Bangladesh Shilpa Rin Sangstha Order, 1972 (President’s Order No. 128 of 1972) to provide credit facilities and other assistance to industrial concerns and to encourage and broaden the base of investment in Bangladesh.

BSRS extends medium and long term credit facilities to industrial projects mainly in the private sector. Besides, it provides underwriting advance/bridge finance/ debenture loans to Public Limited Companies. BSRS provides underwriting commitment to issuers of stocks and debentures. BSRS also floats and manages mutual fund thereby providing impetus to the capital market. It also regularly undertakes transaction in the Dhaka Stock Exchange. BSRS has to commercial branches.

The general policy, direction and administration of the affairs and business of the Sangstha is vested in a Board of Directors appointed by the Government. The Board of Directors consists of 9 members including the Chairman and the Managing Director. Five directors including Chairman and Managing Director continued to work in the Board during the financial year.

Managing Director is the Chief Executive Officer who conducts the day to day business of the Sangstha.

The Head Officer of the Sangstha is located at its own eighteen storied building at Kawran Bazar Commercial Area, Dhaka.

BSRS has 18 operational departments under 4 divisions at its head office in Dhaka. It has one commercial banking branch at Motijheel Commercial area, Dhaka and a Corporate Banking Branch at Kawran Bazar Commercial Area at BSRS’s own building.

2.2  Management:

The management of the BSRS is in a 9- members board of directors, including a chairman and a managing director appointed by the government. The managing director is the chief executive officer of the organization. It has 350 employees, including executive officers of different carders. BSRS has 18 operational departments under 4 divisions at his head office in Dhaka and commercial branches at Motijheel.

2.3 Board of Director:

The Board of Director consists of-
  • Chairman
  • Managing Director and
  • Three Directors.

2.4 MANAGEMENT STRUCKTURE OF BSRS:

                                                         Managing Director

General Managers

Deputy General Managers

Assistant General Managers

Senior Principal Officers

Principal Officers

Officers

Junior Officers

2.5 ACCORDING TO BSRS RULES & REGULATIONS:

According to the section-16 of BSRS Order, 1972 the Sangstha may carry on several kinds of business, namely:
·         Assisting in the creation, expansion and modernization  of industrial concern.
·         Encouraging, sponsoring and facilitating participation of capital, internal as well as external in industrial concerns and acquisition or ownership of industrial investments, shares and securities.
·         Underwriting managing and distributing the issue of stock, shares and bond, debentures and other securities either directly or through jointly with any investment or financial institution.
·         Providing finance in the form of long or medium term loans or shares participation.
·         Guaranteeing and counter guaranteeing loans debts, credits, performance of contracts and obligations of any kind;
·         Administering as agent to the Government such as loans and in such manner the government may direct;
·         Engaging in the business of investing and reinvesting in the owning and holding of securities and of discounting of purchase of shares and investment in such other securities as may be approved by the Board.
·         Furnishing managerial, technical and administrative advice to, and assisting in obtaining managerial, technical and administrative service by any industrial concern or person.
·         Facilitating investment by selling new floatation of existing or new industrial concerns without underwriting obligations.
·         Merchandising, buying, accepting, endorsing, negotiating, executing, issuing, discounting, buying and selling of bills of exchange, promissory notes and other negotiable or transferable instruments.
·         Drawing of bills exchange and granting of letters of credit payable outside Bangladesh.
·         Lending money with or without security and making advance upon or holding in trust, or otherwise acquiring or disposing of, on commission or otherwise, any of the securities or investment;
·         Receiving money on time deposit, loan or otherwise on such terms as may be approved by the Board.
·         Taking over, running and selling of such industrial concerns as have failed to repay in full the loan taken from the Sangstha;
·         Opening and maintaining of Investors Deposit Account and managing investment portfolios on behalf of the individuals or institutions;
·         Purchasing and selling shares to the Investors Deposit Account holders over the counter;
·         Providing professional counsel regarding investment and helping generally in broadening the base of investment in sound projects, whether by issuing Mutual Funds or Unit Trust or both in or outside Bangladesh or otherwise;
·         Constituting, promoting, issuing, organizing, managing and administrating Mutual Fund or Unit Trust of any type or character and acquiring holding, dealing, selling, paying or disposing of, dealing in shares, certificates or securities of suchbase of investment in sound projectsentiled to repay in full the loan taken from the Sangstha;
· Funds Trust;
·         Being a member of stock exchange in Bangladesh;
·         Appointing attorneys, lawyers, counsels, consultants and agent;
·         Receiving, recovering and paying interest, commission, fees and other charges and brokerage in connection with the business of the Sangstha;
·         Selling and realizing all property, whether movable or immovable, which may in any way come into possession of the Sangstha in satisfaction or part satisfaction of its claims;
·         Generally doing all such acts and things as may be necessary, incidental, subsidiary or conducive to the transacting of any of the aforesaid business or acts including proceeding in courts of law and
·         Doing of such other acts and things for the purposes of giving effects to               the provisions of the BSRS Order, 1972.
  eceiving, recovering and paying interst,con



   
2.6  FUNCTIONAL STRUCTURE OF BSRS:

BSRS has seventeen departments such as-

·         Human Resource Department
·         Project Approval Department
·         Recovery Department-1
·         Recovery Department-2
·         Law Department-1
·         Law Department-2
·         Board department
·         Loan classification Cell
·         Investment Banking Department
·         Audit and Inspection Department
·         Branch Control and International Department
·         Project Implementation Department
·         Central Accounts Department
·         Loan Accounts Department
·         Public Relation Department
·         MIS and Computer Department
·         Service and Real Estate Department t Banking Department
SRS Order, 1 of any of the aforesaid business or act

BSRS has other four divisions such as-
                   
·         Human Resource and Service Division
·         Law and Recovery Division
·         Finance Accounts Division
·         Project Approval Implementation Division

BSRS has one commercial banking branch at Motijheel Commercial Area, Dhaka and a corporate branch in Kawran Bazar at BSRS Bhaban.


                                              CHAPTER-3
                     
 3.1 Financial Position of BSRS:

BSRS has both local funds as well as foreign funds. The local currency funds of   BSRS consist of paid up capital, reserves, customers, deposits and borrowing from the government.
            (In Tk.Million)
Sources
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
1999-00
Paid-up capital
700.00
700.00
700.00
700.00
700.00
700.00
700.00
Reserves
1586.45
1566.70
1492.95
1313.20
1143.76
873.707
755.654
Borrowings
65.70
73.00
.80.30
82.19
333.88
500.667
584.000
Deposits
317.87
393.78
153.94
138.53
140.36
135.445
89.447
Total
2670.02
2733.48
2427.19
2233.92
2318.06
2209.81
2129.101

3.2 Accounting Treatment for Loans And Advances:
The Loan Accounts Department and Central Accounts Department does all accounting records for loan and advances. The following journal entries are given to record various transactions regarding loans and advances:
.1 For disbursement of loan-

BSRS Tk. Loan not matured A/C…………………………………… ……Dr
Central Accounts Department’s Current A/C………………………...........Cr

2 .When principal due/matured after a period-
BSRS Tk. Loan matured A/C…………………………………..…… ……Dr
BSRS Tk. Loan not matured A/C………………………………………….Cr

3. For interest due-
Interest Receivable on BSRS Tk. Matured A/C…………………………...Dr
Interest Suspense A/C……………………………………………………...Cr

4.
For recovery of loan with interest-
Central Accounts Department’s Current A/C……………………………...Dr
BSRS Tk. Loan matured A/C………………………………………………Cr
Interest Receivable on BSRS Tk. Matured A/C……………………………Cr

5. For recognition 0f interest income-
Interest Suspense A/C………………………………………………...........Dr
Interest Income A/C………………………………………………………..Cr

6. For waiver facility to borrower-
Waiver A/C………………………………………………….......................Dr
BSRS Tk. Loan matured A/C………………………………………............Cr
Interest Receivable on BSRS Tk. Matured A/C…………………................Cr
Penal Interest Receivable A/C……………………………………...............Cr

Other Charges Receivable A/C……………………………………….........Cr
Exchange Risk Premium /PERP A/C………………………………………Cr

Provision for BSRS Tk. Loan matured A/C……………………………….Dr
Interest Suspense A/C……………………………………………………...Dr
Penal Interest Suspense A/C……………………………………………….Dr
Central Accounts Department’s Current A/C……………………………...Dr
Loan loss A/C……………………………………………………………....Dr
Waiver……………………………………………………………………...Cr

7. For charging legal and other expenses-
Interest Receivable on BSRS Tk. Matured A/C…………………………...Dr
Other charges Receivable A/C……………………………………………..Dr
Central Accounts Department’s Current A/C……………………………...Cr

8. For provision of classification Loan-
Profit and Loss A/C………………………………………………………...Dr
Provision For BSRS Tk. Loan matured A/C……………………………….Cr

9. For write-off of Matured loan with interest-
Provision for BSRS Tk. Loan matured A/C……………………………….Dr
Loan Accounts Department’s Current A/C………………………………...Cr

10. Recovery after write-off of the Project-
Central Accounts Department’s Current A/C……………………………..Dr
Profit & Loss A/C………………………………………………………….Cr

3.3 Capital & Resources of BSRS:

At present the resources of BSRS consist of local currency feuds only. Since 1985 , BSRS has not received any foreign currency fund. Prior to 1985 foreign currency funds were the lines of credit channeled by the Government from various international and regional lending agencies. The foreign currency resources were also augmented by negotiating direct credit lines from different foreign countries and by borrowing foreign currency from the Government or any bank or financial institution in Bangladesh or from any foreign Government or foreign bank or financial institution. The local currency fund of BSRS consists of paid up capital, reserves created out of profit, customer’s deposits and borrowings from Government.

Authorize capital and Paid up capital of BSRS are Tk.2, 000.00 million and Tk.700.00 million respectively. Total equity of BSRS as on June 30, 2006 stood at Tk.2382.59 million including reserves and surplus.

The resources position of BSRS as on June 30, 2005 and June 30, 2006 are shown below:

                                                Resources
                                             As on 30 June
(Tk. In million)
Sources
2006
2005
Paid up Capital
700.00
700.00
Reserves
1682.60
1566.70
Borrowings
65.70
73.00
Deposits
317.87
3932.78
Total
2766.17
2733.48

3.4 Three Windows of BSRS:

BSRS has three windows for its business activities. This are-
                                 
                                        BSRS:
·         Industrial Banking
·         Commercial Banking
·         Merchant Banking

Industrial Banking:

BSRS are mainly conducted to provide credit facilities and other assistance to industrial concerns and encourage the base of investment in Bangladesh. BSRS provides industrial loans in the following manner:

·    Long Term Loan: BSRS provides long term loan which may be more than three years.
·      Consortium Loan: Since the inception of the Sangstha, it provides loan to sponsor from its own found.
·     BMRE loan: BMRE provides loan to the existing borrowers.
·     Underwriting or Bridge finance: BSRS provides loan to green project, as the borrower will repay after receiving of IPO money.

Commercial Banking:

BSRS started commercial banking operation in May, 1997. Currently the commercial banking operations are directed towards deposit mobilization, pay order, fixed deposit receives, sales and purchase of ICB unit certificates, savings certificates, price bond, etc. The following deposits from to the customer are-

                            DEPOSIT FROM THE CUSTOMERS
For the following years
year
No. of customers
Amount (TK.in Million)
1998-99
1019
85.49
1999-00
1086
56.950
2000-01
1155
102.152
2001-02
1290
103.14
2002-03
1520
102.56
2003-04
1716
153.94
2004-05
1914
393.78
2005-06
2026
317.87

Investment Banking:

BSRS is an active member of Dhaka Stock Exchange Ltd. It provides underwriting advance, bridge fiancé, and debenture loans to public limited companies.

SL.
Particulars
2004-05
2003-04
2002-03
1
Underwriting loans
23224453
13029086
5713351
2
Dividend on equity
25254953
22259895
18190646
3
Interest on debenture
390889
-
187935
4
Interest on bond and securities
4172805
2986028
2405056
5
Profit on sale of shares
1739967
292100
2405056
6
Commission, exchange & brokerage
549073
1635435
1563022

Total
58332140
40202544
30465066

% of total income from investment of total income of
27.96%
18.20%
16%


3.5 Loan Sanction Procedures:
The entrepreneurs decided about the project by considering the prospect, expected demand and estimated profit. The project Approval Department decides which project to be desirable and acceptable.

The loan sanction procedures of BSRS are as follow-

Loan Application from the borrower with their feasibility report


Discussion at Top Management Committee for decision


Prepare Appraisal Report by BSRS & CIB report from BB


Project approved or cancelled at Project Appraisal Committee


Sanction & Disburse with terms & conditions


Here the elements of an Appraisal Report on Rowshan Ara Mills Ltd. At Debidward, Comilla is given:
               

  Elements of Project Approval Report:

Section: 1 Introduction, Management & Organizational Aspect:

Name of the project
Location of the project
The capacity proposal
Industrial classification
Promoters
Credit worthiness of the sponsors

Bankers Opinion-    Sponsors Declared Banks
                                     Others Banks
                                     CIB of Bangladesh Bank

Section : 2 Technical Aspect:
The proposal
Product mix & Production Capacity
Land & Location
Building & Civil Work
Machinery & Equipment
Technical Service & Quality Control
Installation
Raw Materials
Utilities, Transportation , Other assets
Stores & Spares
Repair & Maintenance
Safety Provision
Pollution Control
Manpower

Section: 3 Financial Aspects:
Cost of the project
Means of finance
Fixed Asset Coverage Ratio
Debt Equity Ratio
Capital Structure
Financial Evaluation
Debt Service Coverage Ratio
Break Even Analysis
Fund Flow Statement
Project Balance Sheet
Financial Rate of Return
Sensitivity Analysis

Section: 4 Market Aspects:
Introduction
The proposal
Demand Estimation
Domestic demand
Export demand
Project export demand for product
Supply of the product
Project supply gap
Raw materials
Output price
Marketing strategy
Product quality
Product distribution
SWOT analysis
Local advantages

Section: 5 Economic Aspects:
Economic rate of return
Foreign Exchange Earning
Exchange Rate of Project
Modified Bruno Ratio
Employment Opportunities
Contribution to GDP

Section: 6 Status of the Government Consent
Section : 7  Conclusion & Recommendation & other usual Terms & Conditions of Loans
Number of the project up to 2006

No. of sanction project
331
No. of project Cancelled
40
No. of project inherited from PCIC
99
 

3.6 Loan Disbursement Procedures:

Disbursement of both foreign currency and local currency loan will be made as per terms and conditions.
BSRS have excellent supervising employee to justify the level of the equity investment by the borrowers of loan.

The disbursement procedures are as follows-


Sanction

Documentation

Partial Disbursement for Machineries

Evaluate the level of equity investment by the borrowers

Approve the remaining amount for disbursement

Projects at Implementation Stage:

Stage
2006-05
2004-05
2003-04
2002-03
2001-02
2000-01
1999-00
Commercial operation
01
-
01
-
02
02
02
Trial operation
-
01
-
01
-
01
02
Under Construction
-
-
-
-
01
03
03
Under Documentation
-
-
-
01
02
05
04
Total
01
01
01
02
05
11
11
                                                                                                     

3.7 Loan Disbursement in Bangladesh:


In the last decades in banking sector new acts and policies were introduced. Through the default amount were kept outside of the bank ledger, but

Recovery of this default amount was not satisfactory.


Industrial term loan of banks and financial institutions-

Lender
Disbursement

2001-02
2002-03
2003-04
2004-05
2005-06
NCBs
5.00
6.69
8.45
4.5
5.9
PCBs
15.79
15.19
25.26
50.8
60.6
FCBs
5.38
6.09
12.54
11.4
9.5
DFIs-.
1.28
2.18
4.5
3.0
3.0
Non-Banking fin.Ins
7.60
9.47
16.05
17.2
17.5
Total
35.05
39.62
66.8
86.9
96.5        

3.8 INTERNAL CONTROL POLICY:

An effective internal control system could have contributed significantly in improving the performance of a bank/ institution if the control culture is brought in through policy and structure changes.

Generally internal control is identified with internal audit; but in practice, the scope of internal control is not limited to audit work. It is an integral part of the daily activity of a bank, which on its own merit identifies the risks associated with the process and adopts a measure to mitigate the same. Internal audit on the other hand is a part of Internal Control System, which reinforces the control system through regular review.
The main objectives of internal control are as follow:

·         Efficiency and effectiveness of activities (performance objectives).
·         Reliability, completeness and timeliness of financial and management information (information objectives).
·         Compliance with applicable law and regulations (compliance objective).

Internal Control Policy:

Internal Control Policy contains internal control over the operating activities of the Sangstha. The internal audit will monitor the functions of various departments of the Sangstha periodically on regular basis. Depending on the requirement, the audit personnel will carry out inspection, surprise inspection in order to help avoiding any fraudulent activities which in tern would strengthen and also to set up sound structural base.

Internal Control process:
(i) Department Control Function Checklist (DCFCL)

(a)               The guideline Procedure deals with matters relating to review/ verifications of departmental functions to ensure that prescribed procedures are being followed by each department.
(b)              All departments are required to check that prescribed controls are being observed and laid down procedures are not overlooked & relaxed.
(c)               Departmental Heads, Branch managers will review the DCFCL to ensure that control functions are performed and documented in the control sheets at the prescribed frequencies daily, monthly and quarterly.
(d)              The DCFCL should be retained with the branch/ departments for functions or inspection by Internal Control and Senior management.



(ii)  Loan Documentation Checklist:

The checklist deals with matters relating to security documentation for sanctioning and draw- down credit facilities to ensure that prescribed documentation is being obtained to safe guard the Sangstha’s legal charge.

(iii)  Quarterly Operation Report:
         
(a)           This guideline procedure reporting of operational functions of each branch/ deptt. Under the following head on the enclosed format:
I.                   Policies, Procedures and Controls
II.                Protection of valuables
III.             Proofs/ Verifications and Internal checks
IV.             Personal and supervision and
V.                Premises Management
VI.             Confirmations on regulatory compliance.

(b)          A report will be prepared in duplicate copies by each branch in the prescribed format; one copy is to be dispatched to the management and another copy to the internal Audit Term by 10th  of the following month.
(c)           The term which are not applicable for individual Branch or Department should be marked as N/A and no signature is required against the terms marked as N/A.
(iv)  Risk Analysis of Control Functions:
             Individual items in the DCFCL need to be assigned a risk rating which will be introduced after reviewing the control function later on.

(v)  Monitoring & follow-up:


The Internal Audit Term (IAT) will review the quarterly operations report to the management and will instruct the branch to rectify the exception and report the same.

Depending upon the gravity of the deviation the IAT will report matter to the Managing Director with a copy to the Audit Committee of the Board of necessary action and rectification.

A copy of the Loan Documentation Checklist would be send by each branch to the IAT, who will review the same. On a quarterly basis IAT will submit a report to the MD/ Audit Committee on the type/ nature of the discrepancies in credit documentation.
Internal Audit:
(i) The ultimate objective of audit is:-

(a)                To ensure regularity of the transactions recorded in the books of account;
(b)               To assay the propriety of the transaction;
(c)                To verify the authenticity of the books of account;
(d)               To detect errors of principle;
(e)                To prevent fraud and errors;
(f)                To detect errors of omission and commission.

(ii)  Procedures:
Internal Auditing is to be carried out by the Audit & Inspection Department, forming a term of offers.

Criteria of Audit:
                Observations and review are based on the following important factors:

(a)            Verification of the accuracy and integrity of the financial accounting records and of the related records and statistics emanating there form.
(b)           To ascertain that standard accounting practices of the organization are being adhered to. This needs that the auditor is well acquainted with all the standing practices of BSRS in respects of its accounting procedures, and he has the underlying purposes of such practices.
(c)            To ascertain that here has been proper authority for the acquisition, retirement and disposal of assets of the Sangstha.
(d)           To confirm that liability has been incurred only in respect of the legitimate operations of the organization.
(e)            To confirm whether necessary protective measures have been taken for safeguarding the assets. In the connection it is essential to look into the insurance coverage of the Sangstha’s properties and other security matters. 
(iii)           Checking Procedures :
Following procedures are adopted for effective checking of the transaction.
a)              Cash book
The cash book should be the first book for examination covering following aspects:
i)                    That the total receipts have been brought into the cash book.
ii)                  That such receipt has been entered under the exact date on which they arrived.
iii)                That the payments recorded are in order.
iv)                That proper voucher is prepared for the payment.
v)                  That payment are made under proper authorization and within budge provision.
vi)                That the items on both side of the cash book have been posted to appropriate accounts in the ledgers. The vouching of the cash book and the verification of the cash balance should be done by the Officer in-Charge of the Audit team.


Cash should be verified in course of audit in the presences of an Officer in the Accounts Department. For cash verification a memorandum may be drawn up in the cash book bellow the entries of the day on which the cash verification is done as hereunder:

(a)         Opening Balance of the month…………………………
(b)         Add amounts received upto date……………………….
(c)         Less amounts paid upto date………………………………….
(d)        Cash balance at the end of the accounting period as per cash book………………………………………………………….

The cash found in physical verification should tally with this figure and a certificate should be recorded to this effect.

b)   Petty Cash Book: The whole of the additions and postings should be checked and vouchers examined for all expenses.
c)  Journal:  The journal should be fully vouched and all the postings checked.
               
3. 9 Business activities:

The principal activities of BSRS are to provide credit facilities and other assistance to industrial concerns and encourage the base of investment in Bangladesh. BSRS also provides commercial banking service since May 1997 and engages in providing equity finance, underwriting assistance etc. to industrial concerns. BSRS is a member of the Dhaka Stock Exchange Limited and also managing a closed- end mutual fund with paid- up capital of Taka 5 core.

3.10 Strategic goal of the Sangstha:

The main strategic goal of the Sangstha is to build-up the socioeconomic growth of the country by providing industrial sectors and assistance to the industrial concerned. The main objectives are:

  • Develop the industrial sector of the country.
  • To provides loans industrial sector both public and private in the country.
  • To eliminate poverty through creating employment and opportunity.
  • To provide loan to the economically, financially feasible projects.
  • To provide loans- Agro-based and agro- processing industry, Textile industry, Pharmaceuticals, leather good etc.
  • To provide fund for profit earning purpose in various fields of small and medium scale of trading, large industry and corporate sectors.
  • To introduce with the modern technology like the developed country.

3.11 Sector-wise Loan and Advances as on 30 June 2006                                                            
                                                                      (Amount in ‘000 Taka)
Industrial Sector
Long term loan
Debenture & underwriting loan
Total
Food and allied
267,394
5,908
273,302
Jute and allied
660,527
9,172
669,699
Textile and allied
614,906
12,597
627,503
Paper and printing
-
-
-
Chemicals and pharmaceuticals
385,570
40,404
425,974,
Tannery, leather and rubber
58,125
8,913
67,038
Transport
35,668
2
35,670
Service
582
2,889
3,471
Engineering
1,587
11,340
12,927
Miscellaneous
61,680
-
61,680
Others
2,086,039
91,225
2,177,264
Commercial loan
-
-
9,319
Loan under investor scheme
-
-
2,429
Staff loan
-
-
135,563
Sub-total
-
-
147,311
Total
2,086,039
91,225
2,324,575


3.12 Particulars of loans and advances:

·         Loans considered good in respect of which the Sangstha is fully secured;
·         Loans considered good in respect of which the Sangstha holds no other security than the debtors personal security;
·         Loans considered good secured by the personal liabilities of one or more persons in addition to the personal security of the debtors;
·         Loans considered doubtful or bad not provide for;
·         Loans due by Directors or officers of the Sangstha or any of these either severally pr jointly with any other persons;
·         Loans due by companies or firms in which the directors of the Sangstha are interested as directors, partners or managing agents or in the case of private companies, as members;
·         Maximum total amount of advance, including temporary advances made at any time during the year to directors or managers or officer of the Sangstha or any of them either severally or jointly with any other person;
·         Maximum total amount of advances, including temporary advances granted during the year to the companies or firms in which the directors of the Sangstha are interested as directors, partners, managing agent or in the case of private companies as members;
·         Due from banking companies;

 
 

                                    CHAPTER-4

 

4.1 Banking System of bangladesh:

 

The banking system at independence consisted of two branch offices of the former State Bank of Pakistan and seventeen large commercial banks, two of which were controlled by Bangladeshi interests and three by foreigners other than West Pakistanis. There were fourteen smaller commercial banks. Virtually all banking services were concentrated in urban areas. The newly independent government immediately designated the Dhaka branch of the State Bank of Pakistan as the central bank and renamed it the Bangladesh Bank. The bank was responsible for regulating currency, controlling credit and monetary policy, and administering exchange control and the official foreign exchange reserves. The Bangladesh government initially nationalized the entire domestic banking system and proceeded to reorganize and rename the various banks. Foreign-owned banks were permitted to continue doing business in Bangladesh. The insurance business was also nationalized and became a source of potential investment funds. Cooperative credit systems and postal savings offices handled service to small individual and rural accounts. The new banking system succeeded in establishing reasonably efficient procedures for managing credit and foreign exchange. The primary function of the credit system throughout the 1970s was to finance trade and the public sector, which together absorbed 75 percent of total advances.

4.2 NUMBER AND TYPES OF BANKS IN BANGLADESH:
The number of banks in all now stands at 49 in Bangladesh. Out of the 49 banks, four are Nationalized Commercial Banks (NCBs), 28 local private commercial banks, 12 foreign banks and the rest five are Development Financial Institutions (DFIs).
Sonali Bank is the largest among the NCBs while Pubali is leading in the private ones. Among the 12 foreign banks, Standard Chartered has become the largest in the country. Besides the scheduled banks, Samabai (Cooperative) Bank, Ansar-VDP Bank, Karmasansthan (Employment) Bank and Grameen bank are functioning in the financial sector. The number of total branches of all scheduled banks is 6,038 as of June 2000. Of the branches, 39.95 per cent (2,412) are located in the urban areas and 60.05 per cent (3,626) in the rural areas. Of the branches NCBs hold 3,616, private commercial banks 1,214, foreign banks 31 and specialized banks 1,177.
Bangladesh Bank (BB) regulates and supervises the activities of all banks. The BB is now carrying out a reform program to ensure quality services by the banks.
BANGLADESH BANK:
Bangladesh Bank (BB) has been working as the central bank since the country's independence. Its prime jobs include issuing of currency, maintaining foreign exchange reserve and providing transaction facilities of all public monetary matters. BB is also Bangladesh Bank (BB) has been working as the central bank since the country's independence. Its prime jobs include issuing of currency, maintaining foreign exchange reserve and providing transaction facilities of all public monetary matters. BB is also responsible for planning the government's monetary policy and implementing it thereby.
 The BB has a governing body comprising of nine members with the Governor as its chief. Apart from the head office in Dhaka, it has nine more branches, of which two in Dhaka and one each in Chittagong, Rajshahi, Khulna, Bogra, Sylhet, Rangpur and Barisal.
4.3 Finance and Banking:

The banking sector in Bangladesh comprises of four types of scheduled bank nationalized commercial banks (NCBs), government owned specialized banks (SBs), private sector commercial banks (PCBs) and foreign commercial banks (FCBs). The PCBs now play a leading role in banking sector. During the FY 2005-2006 bank deposits stood at TK.1689.90 billion compared to TK.1425.85 billion in 2004-2005. At the end of 2005 the private sector commercial bank (including FCBs) accounted for 54.20 percent of bank deposits. The private sector commercial banks have already achieved a dominant position in deposit collection.

During the FY 2005-2006 banks & financial institutions disbursed industrial tern loans amounting to TK.96.50 billion which was TK. 86.90 billion in the preceding year. Total outstanding against disbursement of term loans by the banking sector stood at TK. 273.80 billion during the FY 2005-2006 which was TK. 226.30 billion in the preceding year. During this period banks recovered an amount of TK. 67.60 billion which was TK. 85.40 billion in the preceding year.

4.4 Foreign investment in Bangladesh

Private investment from overseas sources is welcome in all areas of the economy with the exception of only five industrial sectors (reserved for public sector) as mentioned earlier. Such investments can be made either independently or through joint venture on mutually beneficial terms and conditions. In other words, 100% foreign direct investment as well as joint venture both with local private sponsor and with public sector is allowed.
 
· Foreign investment, however, is specially desired in the following categories:
· Export oriented industries;
· Industries in the Export Processing Zones;
· High technology products that will be either import substitute or export oriented;
· Undertaking in which more diversified use of indigenous natural resources is possible;
· Basis industries based mainly on local raw materials;
· Investment towards improvement of quality and marketing of goods manufactured and/ or increase of production capacities of existing industries
· Labor intensive/technology intensive/capital intensive industries.

An indicative list of private sector investment opportunities in Bangladesh Private investment is welcome in all areas of the economy except five reserve sectors.

An indicative list of private sector investment opportunities is given below:
 
· Food and Allied Products:
· Dairy farming and dairy products;
· Poultry farming & poultry products;
· Shrimp, crab and other fish culture, processing and preservation of other species of fish;
· Fishmeal production;
· Fruits and vegetables processing & canning and other agro based industries.

Textile Industry:
 
· Composite textile mills;
· Specialized textile mills;
· Sericulture, reeling and filature.
· Leather and Rubber Products;
· Leather finishing;
· Footwear including shoe upper, sole etc;
· Tires and tubes;
· Leather goods, such as gloves, bags, jackets etc.
Chemicals and Allied Industries;

Soda ash; paper and pulp (based on jute wastes and cuttings);
 
· Paper covering including artificial flowers and toys;
· Jute goods; dyes, pigments and color (basic manufacture);
· Pharmaceutical chemicals (basic manufacture);
· Plastics products including acrylic pipes and toys;
· Special chemicals such as extraction of amino, organic and other acids from agricultural wastes; chemicals for tanneries; manufacture of basic pesticides.

4.5 Securities and Exchange Commission

to supervise the smooth functioning of securities and capital, the Securities and Exchange Commission (SEC) was established in 1993 through an Act of Parliament. It has the important responsibility to ensure proper issuance of securities. Protection of due interest of the investors in the capital market is also a major objectives of SEC. The Commission's main functions include the following: -
· regulating the business of stock exchange and the securities market;
·  Registering and regulating the business of stockbrokers, sub-brokers, share transfer agents, bankers and managers of an issue trustees of trust deeds, registrars to an issue, underwriters, portfolio managers, investment advisers and other intermediaries in the securities market.
· Registering, regulating and monitoring of collective investment schemes including all forms of mutual funds;
·  Prohibiting fraudulent and unfair trading practices related to securities or any securities market;
·  Promoting investment education and training of all intermediaries of securities market;
·  Prohibiting insider trading in securities;
·  Regulating substantial acquisition of shares or stocks and take-over of companies,
· Compiling, analyzing and publishing indices on the financial performance of any issuer of securities;
· Conducting research for the above purposes.

Comparative Advantages For Investment In Bangladesh

Bangladesh has the following comparative advantages for foreign investment over other Asian countries;
  · Low cost and easily trainable labor is abundantly available in Bangladesh. Out of the total population of 127 million, the labor force comprises more than 50 million.
· Bangladesh is one of the three Asian countries (the other wo being Sri Lanka and China) who offers unconditional 100 percent foreign equity or ownership in industrial investments.
· Inflation rate is the lowest (1.3 percent) among the Asian countries.
· there is no restriction on issuing work permit to a foreign national.
·  Bangladesh is most liberal in granting permanent resident ship and citizenship lo foreigners. None reportable investment of only U.S.$ 75.000 in an industrial project is the only condition of granting permanent resident ship and a minimum investment of U.S.$ 500,000 or transferring U.S.$ 1,000,000to any recognized financing institution which should be nonrepatriable is the condition for panting Bangladesh citizenship.
·  Tax holiday allowed for new investment in Bangladesh is the minimum, 5 to 9 years in most of the areas on some conditions, and 12 years in special economic zones (in the Chittagong Hill Tracts).

4.6 Legal procedures:

The Sangstha first tries to recover the installment within the due date as per repayment schedule, but due to non payment of the borrowers it have to take legal action to recover the over due amount. After taking the legal action the Sangstha become able to recover huge amount of money.


Legal Action
2005-06
2004—05

No. of projects
Total claimed amound(TK. Million)
No. of projects
Total claimed amound (tk. Million)
Artha Rin Adalat
32
3565.20
28
2062.40
Bankruptcy court
13
6542.90
10
4448.80
Certificate court
01
25.06
02
62.90
Others
61
4253.02
53
3336.40
Total
107
14386.18
93
9910.50

4.7 Causes Traced at various Stages of the Industrial Project:
At the various stages of the industrial project the causes of sickness can be traced out. The causes of sickness at different stages may summed up as follows-

2)    Production:
·         Improper inventory management
·         Disruption of power supply.
·         Lack of proper quality control.
·         Poor raw material/ input planning
·         Improper plan layout.
·         Lack of proper diversification.
·         Faulty production schedule.

3)    Marketing:
·         Dependence on few buyers
·         Lack of proper channel of distribution
·         Improper product mix
·         Lack of proper quality product
·         Keen competition

4)    Management:
·         Poor management talent
·         Dishonesty and lack of integrity
·         Management Change
·         Set up week organizational.

5)    Finance:
·         Diversion of fund
·         Lack of proper accounting system
·         Lack of proper financial planning
·         Poor management of working capital

6)    Personnel management:
·         Degree of labor  turnover
·         Lower level of industrial relation
·         Better work environment
·         Over staffing
7)    Others:
·         Lack of compliance of the governmental policies
·         Delay in the implementation
·         Level of delay in the approval of the project

                                              
4.8 Causes of Loan Default:
There are many causes of a project becoming sick or default. Various causes of default could be looked at from the board angles. There are two types of causes of loan default which are as follows-

External Causes:
External causes are those over which industry or sponsor has no direct control. These may be enumerated as follows:

·         Power cut or non- availability of power supply.
·         Non availability of raw materials.
·         Changes in Social and Environmental situation.
·         Changes in the culture.
·         Problem created by political situation.
·         Non – availability of sufficient credit.
·         Business fluctuation.
·         Problem created for technological changes.
·         Problem created by international development.

Internal Causes:
Internal causes are those, which are within the control of management of the concerns. These may be listed as follows:

·         Wrong selection of the borrowers.
·         Uneconomic size of the project.
·         Unsound financial plan.
·         Lack of inventory & cost control.
·         Managerial deficiency.
·         Unbalancing of plant.
·         Lack of provision of initial cash losses.
·         Lack of proper market.
·         Lack of proper Knowledge of the employee.
·         Lack of proper rules & regulations.
·         Defective technology.
·         Lack of proper positioning of the employees.
·         Lack of proper management.
·         Inappropriate product mix.

4.9 Different Types of Legal Action Taken By BSRS:
In case of Default:
BSRS applies more the section 46, 47 and 12 of the Artha Rin Adalat Ayin 2003 to recover the overdue from the loan default. These sections help the Sangstha to collect more amount of money than the over laws.

Artha Rin Adalat Ayin:
Section -46
The timeliness of the filing suits against defaulting borrowers as per section 46 of the Artha Rin Adalat Ayin, 2003-

Notwithstanding anything contained, to the contrary, in the limitation Act, 1908, if the borrower does not repay-

a)      A minimum 10% in the first one year; or
b)      A minimum 15% in the first two years; or
c)      A minimum 25% in the first three years


Of the amount, as will be payable during the period, after the commencement of the repayment of the loan as per repayment schedule according to the contract or terms of the contract signed, the financial institutions shall, subject to the provision of sub section (2), file suit within the next one year thereafter.
Section- 47:

This section said about the limitations of claim pf the lending financial institution. The limitation is any financial institution does not claim against the borrower to pay more than 200% of its principal amount of loan by the court.

Criminal case:

In this case, Negotiable Instrument Act, 1881 ( as amended up to 2000) is used;
  • For check dishonor.
  • For branch of contract by the borrower.
  • For sell or stolen of machinery, transferring of machinery.

Offences:
One year jail and three times of check amount as cash.

Insolvency Act:

This Act is applied not only to cover the loan but also to hamper the borrower’s civil right. When there is no property than according to the decision of the management this Act is applied. Generally BSRS does not apply this Act. The Sangstha applies articles 33, 34 and 35 of Bangladesh Shilpa Rin Snagstga Order, 1972 than insolvency Act.


District Judge Court:
BSRS uses this court for legal action under Article 33 of BSRS Order, 1972. This article is applied in a situation when project has been sold, there is no property of the project but a balance of loan amount has been existed as due. Then according to the decision of the management Article 33 is applied. It is applied many times, court fee is only TK.5.

Certificate Court:

Under Article 35 of BSRS Order, 1972 Certificate Court is used to recover the loan. In this court Public Demand Recovery Act, 1913 is applicable. BSRS sues against the borrower for short-term loan under Article 35 in this court.

Civil Jail:

Costs are bearded by BSRS to the borrower in Jail. This type of legal actions is taken where there is no option to recover the loan. Generally BSRS does not want to take this action otherwise situation created by the borrower to take it.

Article 33,34 And 35 of BSRS Order, 1972:
Article 33:

Where the Sangstha becomes entitled to require the immediate payment of any loan before the due date under Article 32 or by reason of the breach of any condition of any agreement between the Sangstha and an industrial concern to which any loan has been granted or any person liable for payment of that loan fails to repay the loan by the due date or in compliance with the notice under Article 32, an officer of the Sangstha generally or specially authorized by the Board in this behalf.


Article- 34:

Article 34 is used for project. Sales are two types-

1. Project takeover and sale
2. Open sale through tender by daily Newspaper.

Article 34 is treated as more than law for sale of project by BSRS to recover its dues. It is a special power of BSRS, which any other institution is not entitled. This article recommended that where the Snagstha take over the management and administration of an industrial concern under clause (1) or transfer any property in exercise of its power of sale or realization under that clause, such taking over or transfer shall not be called in question in or before any court; and do Court shall-

a)      Entertain any suit, application or other legal proceeding such as-

·         For a declaration that such taking over or transfer is legal, ineffective or void; or
·         For setting aside or annulling any order or decision of the Sangstha relating to taking over or transfer; ors
·         For an order of injunction or any other order prohibiting or restraining the Sangastha or any of its offers such taking over or transfer; or


b)      Issue, make or pass any order of interim or temporary injunction or any other prohibiting pr restraining the Sangstha or any of its officers from such taking over or transfer.

 

Article 35:

Without prejudice to the provisions of Article 33 and 34, all sums due to the Sangstha shall be recoverable as arrears of land revenue.

4.10 Rescheduling Procedures:
Rescheduling of the term loan:

The loan, repayable at the fixed time schedule, which is within a fixed period is called term loan. The term loan are shown below-

Reschedule
Rate of Down Payment
First time rescheduling
15% of Matured Installment or 10% of Overdue whichever is lower.
Second time rescheduling
30% of Matured installment or 20% of Overdue whichever is lower.
More than second time rescheduling
50% of Matured Installment or 30% of Overdue Whichever is lower.

Rescheduling of the Continuous Loan:

The loan accounts in which transaction may be made within certain limit and have an expiry date for full adjustment will be treated as continues loan. The rate of down payment for the Continues Loan will be as follows:


 

Amount of Matured Loan
Rate of Down Payment
Up to 1 Crore
15%
Above 1 Crore Up to 5 Crores
10% (Not less than 15 Lacs)
Up to 5 Crores
5% (Not less than 50 Lacs)
If any continues loan changed as a Term Loan, the rescheduling procedures will be as the second time rescheduling of the Term Loan.

4.11 Write-off Procedure:
Banking institution often faces uncertainty in collecting loans and advances due to reduction in qualitative standard of these. These type of loan and advances are classified and sufficient provision is to be required for this. Sufficient provision against bad loans is written off, which is recognized and continuing process internationally. Without maintaining this system the financial statement of the banking institution is overstated. According to the Bangladesh Bank BRPD Circular No- 02 following procedures have to be maintained-

  • Loan classified as bad & loss for which five years have passed and 100% provision has reserved must be written off early as possible.
  • If the provision is not sufficient to write off, the balancing amount must be adjusted from the income in the current year profit & loss account.
  • Legal action must be continued or started for the collection of the write- off loans and advances.
  • A separate unite in the bank (law-2 ) must be given to collect the amount of the write of amount.
  • Separate ledger must be maintained for write off loan and advances and it should be given in the notes to the accounts of the annul report.
  • Though the loan is treated as write off in the bank account, the borrower will be treated as loan defaulter.


Write off Project:
Year
No.of project written off
Amount(million)
2005-06
-
-
2004-05
12
2462.718
2003-04
19
1177.397
2002-03
60
9013.133
Total
91
12653.248

Waiver Facilities:

Bangladesh Shilpa Rin Sangstha Gives various waiver facilities to the borrowers to recover the loan as possible. The waiver facilities which are provided by the Sangstha are interest waiver, penal interest waiver etc. These are provided only for the purpose maximizing the recovery from the projects.

Waiver Facilities to the Sponsors
For the last three Years

Year
Amount in Taka
2003-04
265653140
2004-05
585649932
2005-06
162983269

4.12 Classification of Loan and Provisioning:
Loan classification is a process by which the risk or loss potential associated with the loan accounts of the Sangstha on a particular date is identified and quantified. It based on objective criteria and qualitative judgment, is done to determine the level of reserves to be maintained by the Sangstha for the probable loss risky loan account.



Classification Status
Classification
Types of loan
Rate of provision
Continuous loan
Term loan
Up to 5 years
Above 5 years

1
Unclassified
Less than 3 months
Less than 6 months
Less than 12 months
1%
2
Substandard
3 months or more than 3 months but less than 6 months
6 months or more than 6 months
12 months or more than 6 months
20%
3
Doubtful
6 months or more than 6 months but less than 12 months
12 months or more than 12 months
18 months or more than 18 months
50%
4
Bad & loss
12 months or more
18 months or more than 18 months
24 months or more than 24 months
100%

4.12 SANCTION, DISBURSEMENT AND RECOVERY OF LOANS DURING THE LAST TEN YEARS
                                                                 (TK. In million)
Financial year
Sanction
Disbursement
Recovery
Local currency
Foreign currency
Total
Local currency
Foreign currency
Total
1996-97
38.69
187.92
266.61
114.18
-
114.18
291.03
1997-98
39.93
182.82
222.75
45.46
158.15
230.61
302.85
1998-99
26.79
70.38
97.17
56.12
184.16
240.28
261.52
1999-00
-
47.70
47.70
72.24
78.83
151.07
278.13
200-01
11.42
12.05
23.47
47.44
24.46
71.90
351.51
2001-02
11.50
-
11.50
11.43
40.00
51.43
322.38
2002-03
27.47
-
27.47
27.21
-
27.1
468.93
2003-04
10.20
-
10.20
10.20
-
10.20
298.01
2004-05
75.00
-
75.00
57.20
-
57.20
289.48
2005-06
241.60
-
241.60
74.24
-
74.24
313.21
Total
482.60
500.87
983.47
515.72
512.60
1028.32
3177.05

              
4.13 OUTSTANDING & OVERDUE LOAN OF BSRS DURING
THE LAST TEN YEARS
                                                                                        (TK. In million)
As on June 30

Loan outstanding

Over dues
Over dues as % of outstanding
Year
Private
Public
Total
Private
Public
Total
1997
15,249.02
391.58
15,640.60
12,987.76
203.55
13,191.31
84.34
1998
16,513.44
369.60
16,883.04
14,271.06
219.63
14,490.69
85.83
1999
17,865.91
353.98
18,219.89
15,141.05
230.87
15,371.92
84.37
2000
17,578.73
274.86
17,853.59
15,517.55
207.00
15,724.55
88.07
2001
17,244.02
221.10
17,465.12
15,232.47
207.00
15,439.47
88.40
2002
16,318.73
207.00
16,525.73
14,511.83
207.00
14,718.83
89.07
2003
6,983.06
56.83
7,039.89
5,559.88
56.83
5,616.71
79.78
2004
6,122.31
56.87
6,179.18
4,729.93
56.87
4,781.8
77.39
2005
2,950.13
0.90
2,951.03
1,197.80
0.90
11,98.70
40.62
2006
2,323.68
0.90
2,324.58*
784.37
0.90
785.27
33.78


4.13 SECTOR WISE OUTSTANDING & RECOVERY:
Industrial sector
2005-06
2004-05
2003-04

Outstanding
Recovery
Outstanding
Recovery
Outstanding
Recovery
Food &Allied
273.302
41.047
457.632
50.88
1169.474
758.122
Jute & Allied
669.699
12.076
812.140
16.73
1100.697
10.256
Textile & Allied
627.503
108.562
625.365
65.82
1624.144
105.657
Chemical & Pharmaceutical
425.974
56.109
574.207
53.727
1526.227
47.232
Transport
35.670
-
96.632
3.806
163.237
5.174
Service
3.471
-
6.451
0.325
47.762
2.242
Engineering
12.927
3.088
41.223
13.951
172.405
9.592
Miscellaneous
128.718
76.911
6.01
2.668
1.273
-
Total
2177.264
297.874
2619.658
207.935
5805.218
255.994
                                    
Industrial sector
2002-03
2001-02

Outstanding
Recovery
Outstanding
Recovery
Food &Allied
576.107
154.311
331.350
6..084
Jute & Allied
379.20
11.788
10.836
13.981
Textile & Allied
1027.720
178.634
782.782
146.475
Chemical & Pharmaceutical
851.369
65.122
367.537
48.317
Transport
72.123
4.857
24.908
0.844
Service
3.215
9.213
3.156
2.505
Engineering
68.422
16.149
20.848
9.537
Miscellaneous
0.611
6.993
0.073
0.414
Total
2985.303
440.158
1541.49
283.317

 
                                    CHAPTER-5
5.1 What is default?
If you have Perkins Loans, default occurs if you do not make a payment when due or do not comply with the promissory note’s other terms. For FFELP Loans, you are in default if you are 270 days late on making a payment.
On the other hand, we know that capital is the lifeblood of business. As any business cannot be operated in vacuum, the capital is needed to operate it. For the contribution in accumulating the capital different government institution, private commercial bank, foreign commercial banks and agencies have come forwarded.
5.2 Default has SERIOUS consequences:
  • The entire loan balance (including interest) can be immediately due and payable.
  • You will lose your deferment options.
  • You will not be eligible for additional federal student aid.
  • Your account might be turned over to a collection agency, causing you to pay additional charges.
  • Your account will be reported to national credit bureaus, and your credit rating can be damaged.
  • Your default will remain on your credit report for up to seven years, making it difficult or even impossible to receive credit
    card offers, take out car loans, and be eligible for mortgages during that time.
  • Your federal income tax refunds may be withheld and applied toward your loan repayment.
  • Your employer, at the request of the loan holder, may garnish part of your wages.
  • You may be unable to obtain a professional license in some states.

 5.3  loan:

An arrangement in which a lender gives money or property to a borrower, and the borrower agrees to return the property or repay the money, usually along with interest, at some future point(s) in time. Usually, there is a predetermined time for repaying a loan, and generally the lender has to bear the risk that the borrower may not repay a loan (though modern capital markets have developed many ways of managing this risk).
This content can be found on the following page:
http://www.investorwords.com/2858/loan.html

Loan is the amount of money that is given by the bank to sponsors for establishment of industries and others that adds value to the society.

Loan includes guarantee or indemnity, BSRS Order, Section-2 (t)

According to the definition of Oxford DictionaryLoan means money that an organization such as bank lend to a person who borrowers to take out or to repay the borrowed money”.

5.4 Loan Default Culture:

To know about the loan default culture we have know the definition of culture. According to the definition of Oxford DictionaryCulture means the customs and beliefs, art, way of life and social organization of a particular country or group.”

A total of 157 big defaulters in Bangladesh have gone into hiding after grabbing a huge amount of money from different banks. A BIBM survey showed that of 125 interviewed, 82 got loans through political influence.

 
In Bangladesh there is a tendency of loan default since her inception. So it becomes a culture in our society. After the liberation war, the loan amount of the banks and financial institutions become huge default in the consequent years.

5.5 Types of Loan Defaulter:
The loan default culture is an universal phenomena in this country’s bank and financial institution. A borrower may be a default for various reasons. There are three types of loan defaulter are as follow:

A)      By born defaulter
B)       By made defaulter
C)       Genuine defaulter;

·        By born defaulter:
A borrower may become a defaulter at the beginning of the project or at the start of the business, this is called born defaulter. Such as inappropriate machineries purchase and installment.

·         By made defaulter:
These types of borrowers are the intentional defaulter and they are not paying the loan amount after establishing the project or the company.

·        Genuine defaulter:
The borrowers in these types of default are paying the loan amount as per rescheduling procedure of the bank and financial institutions after establishing and starting the commercial operation of the project.

5.6 Causes of default:
  • Marketing problem.
  • Non-cooperation from the different financial institutions and BSRS’s delay in rescheduling
  • Working capital unavailability.
  • Stop of operation for a long period.
  • Exorbitant escalation of price of raw materials.
  • Cost of production is high.
  • Former FBCCI President Yusuf Abdullah Harun, who told that corrupt bankers and official should also be brought under legal action like the defaulters.

5.7 Causes of loan default at BSRS:
There are many reasons for loan default at BSRS. The main reasons for the loan default at BSRS are given below:

  • Free market economy.
  • High tax on cost of material.
  • Backdated, imbalanced and reconditioned machineries.
  • Changes in marked demand.
  • Natural calamity.
  • Lack of experience in related industry.
  • Labor unrest.
  • Changes of government policy.
  • Political causes subscription.
  • Short sanction.
  • Increase in population.
  • Non availability of the core goods.
  • Fluctuation in exchange rate.
  • Poor productivity both in term of quality and quantity.
  • Non availability of skilled of manpower.
  • Fluctuation in price of goods and services.
  • Non availability of raw material.
  •  Shortage of gas, water power increase in prices of them.
  • Decrease in production, sales and profit for the wrong selection of the project site.
  • Other uncertainties.
  • Minimum recovery of cost of fund- without this level legal action continued.
  • Unplaced in management.
  • Increase of political problem.
  • Rules and regulation is not so heard to the sponsors.
  • Management structure is changes by more and more.
  • Increase of the cost of raw material.
  • Other internal and external causes of the sponsors.

5.8 Loan and advances:
(a)           loan and advances have been stated at gross value while necessary provision for loans and advance is made as per Bangladesh bank’s circulars.
(b)           Interest on industrial term loams is recognized as income on realization basis. Unrealized interest on term loans is, therefore, credited to interest suspense account. However, no interest is accounted for a term loans classified as bad/ loss since January 1999 as per BRPD circular # 16 dated 06 December 1998 issued by Bangladesh Bank.
(c)           Penal interest on loans is considered as income only upon realization. However, charging penal interest on loans is suspended since 01 July 1996.
(d)           Interest waived off is first adjusted against the relevant interest suspense account and the balance, if any, is charged to the Profit and Loss Account.
(e)           Specific provision no longer required is written back in the account only upon realization of corresponding loans and advances.



5.9 Loan Default in Various Banks:

Nationalized Commercial Banks (NCBs):
Commercial Banks are operating in the country according to direction of the Government of Public Bangladesh.
The three Nationalized Commercial Banks have highest loan default amount than the other types of banks. Among the Sonali Bank has highest amount of loan default.
                                                                                    (million Tk.)
Bank
Total amount of loan default
Total default as % of total disbursement
Sonali Bank
4864.00
27.56%
Janata Bank
16966.80
15.88%
Agrani Bank
28419.70
30.25%


Owned Specialized Banks (DFIs):
There are five Nationalized Specialized Banks that have very high default culture as well; consequently the further initiative must be taken for the default position of the DFIs.

Particulars
June, 205
Total disbursement
421273.287
Total amount of loan default
102664.30
Total default as % of total disbursement
24.37%
Net amount of loan default
52835.50
Net default as % of total disbursement
14.27%
                                                           

                                                                                                (million TK.)
Banks
June, 2005
Total disbursement
106271.591
Total amount of loan
37407.60
Total default as % of total disbursement
35.20%
Net amount of loan default
18863.30
Net default as % of disbursement
21.51%


Private Commercial Banks (PCBs):

Private commercial Banks also have loan default amount for the most of its loan provide to the management related persons. As on June 2005 among the Private Commercial Banks, Islami Bank Limited has the highest loan default amount.

                                                                    (million TK.)
Particulars
June, 2005
Total disbursement
675522.421
Total amount of loan default
43508.30
Total default as % of total default
7.76%
Net amount of loan default
16012.00
Net default as % of total default
3.00%




Bank
Total amount of loan default
Total default as % of total disbursement
NCC Bank Ltd.
1409.80
8.40
Islami BankLtd.
5521.60
6.11
Pubali Bank Ltd.
4950.10
17.89
Uttara BankLtd.
4199.00
21.35
Arab Bangladesh Bank Ltd.
2093.80
11.71
IFIC Bank Ltd.
3808.20
17.55
National Bank Ltd.
2447.90
10.01
Citi Bank Ltd.
1307.1
6.66
United Commercial Bank Ltd.
1327.50
7.40
Oriental Bank Ltd.
4844.50
26.82
Eastern Bank Ltd.
1027.30
5.92
Prime Bank Ltd.
348.40
1.25
South East Bank Ltd.
1275.00
4.57
Dhaka Bank Ltd.
277.30
1.43
Al-Arafah Bank Ltd.
748.10
8.91
Social Investment Bank Ltd.
1614.00
11.28
Dutch Bangla Bank Ltd.
126.66
0.67
Mercantile Bank Ltd.
807.90
4.08
One Bank Ltd.
374.40
3.64
EXIM Bank Ltd.
582.50
2.61
Premier Bank Ltd.
438.40
2.63
Standard Bank Ltd.
36.60
0.44
Mutual Trust Bank Ltd.
-
-
Bank Asia Ltd.
402.00
2.99
Jamuna Bank Ltd.
15.80
0.18
Shahjalal Bank Ltd.
44.90
0.46
BRAC Bank Ltd.
204.50
2.51
The Trust Bank Ltd.
102.10
1.30

Foreign commercial Banks (FCBs):

In Bangladesh the Foreign Commercial Bank Have relatively low loan default culture in the previous year. Now the default culture of FCBs are given bellow-
                                                                    (million TK.)
Particulars
June, 2005
Total disbursement
81116.883
Total amount of loan default
1249.20
Total default as % of total disbursement
1.54
Net amount of loan default
(973.60)
Net default as % of total disbursement
(1.23)


Bank
Total amount of loan default
Total default as % of total disbursement
Standard Chartered Bank
814.30
1.97
Habib Bank
11.80
1.25
State Bank of India
-
-
National Bank of Pakistan
-
-
Citi Bank NA
217.70
3.64
Bank Al Falah
46.60
3.62
HSBC
65.80
0.32
American Express Bank
5.00
13
Bank of Delon
-
-

5.10 Loan Recovery at BSRS:
Due to recovery performance of the DFIs in Bangladesh gradually deteriorating over time, government as well as the Board of Directors of the respective DFIs has taken program for the increase of the loan recovery. For the loan recovery at BSRS has five departments. They are-

·         Recovery Department-1
·         Recovery department-2
·         Law department-1
·         Law department-2 and
·         Investment banking department.

At the end of the project implementation, the project implementation sends the file of the project to recovery department and the function of the recovery department start to recover the due amount of loan.

And the other recovery policies of BSRS:

  • The officer of BSRS is personally visiting the project.
  • 5% rebate is allowed to the sponsors who pay the installment before the due date.
  • Appointment of agent to recover the over dues.
  • Law department-2 applies section 33, 34 of BSRS order, 1972 to recover default amount.
                                                             

5.11 Categories of Loans:
All loans and advances will be grouped into four categories are namely-
  • Continuous loan
  • Demand loan
  • Fixed term loan
  • Short term agricultural & micro credit loan;

b)          Continuous loan:
The loan accounts in which transactions may be made within certain limit and have an expiry date for full adjustment will be treated as continuous loan.
b)             Demand loan:
 The loans that become repayable on demand by the bank will be treated as demand loans. Example are- forced LIM, PAD and IBP etc.
c)               Fixed term loan:
The loans, which are repayable within a specific time period under a specified repayment schedule, will be treated as fixed term loans.
d)             Short term agricultural & micro credit loan;
Short- term agricultural credit will include the short term credits as listed under the Annual Credit Programmed issued by the agricultural credit and special program department (ACSPD) of Bangladesh Bank.
                                                                                                                              
5.12 Loan Portfolio:
At the end of FY 2005-2006 total outstanding loan stood at TK.2324.58 million as against TK.2951.03 million as on June 30, 2005. Among the loan outstanding the private sector accounted for TK. 2323.68 million and the public sector accounted for TK. 0.90 million. In order to ensure credit discipline, BSRS strictly followed the credit guidelines of BB to classify it loan accounts in order to make necessary provisions. Classified loan accounted for 54.0 % of loan portfolio at the end of FY 2005-2006 as against 61.13% on 30 June 2005. Provisions against classified loans maintained were 61.56% and 65.23% of total loan portfolio for the respective years. There was no provision short fall on account of loan portfolio as per BB guideline.

During FY 2005-2006 TK. 340.33 million were written off. Cumulative amount of writ off by the Snagstha stood at TK. 1301.54 million at the end of FY 2005-2006.

5.13 Recovery of Loan:
Recovery of due/ overdue loans got priority during the 2005-2006 as in the previous year. BSRS continued a number of incentives, rebatrs and concessions to the borrowers for repaying the dues on or before scheduled dates. During the FY 2005-2006, BSRS recovered a total amount of TK. 313.21 million in cash. It includes TK. 226.16 million from long term loans disbursed in foreign and local currency and TK.87.05 million on account of other operations like underwriting advance/ debenture loan, staff advance, consumers credit etc.
                                                                            Recovery of loan
Category of loan
Amount recovered (TK. In million)
2005-2006
2004-2005

A)
Long term loan



Long term project loan
226.16
207.93
Bridge loan/ debenture loan
71.71
70.67
Stuff loan
7.87
5.41
Sub-total(A)
305.74
284.01
b)
Short term loans:



Secured overdraft (SOD)
1.68
0.76
Consumers credit
5.79
4.71
Sub total (B)
7.47
5.47
Grand total (A+B)
313.21
289.48

                            Sector-wise project loan recovery position
   
                                                                                     (TK. In million)
Year
Private
Public
Total amount
Target
Amount
Percentage
Amount
Percentage
2005-06
297.88
100
-
-
297.88
280.00
2004-05
279.14
100
-
-
279.14
400.00


5.14 Loan written off:

As per Bangladesh Bank Circular #02 dated 13 January 2003 and Bangladesh Bank letter # BRPD (P)661/13/2003-2230 dated 01 June 2003, loan and advance of 127 companies among to TK 13,016,469 have been written off from the banks as on 30 June 2006 in the following manner:

 
Particulars
No. of projects
Principal
Interest
Penal interest
Other charges
Total Taka
A. Term Loan






Balance as on 01 July 2005
92
1,482,777,788
9,324,750,770
1,779,291,644
72,368,210
12,659,088,412
Add: Amount written off during the year
12
87,810,109
237,198,123
14,744,149
580,015
340,332,396
Less: Amount recovered during the year
-
7,021,720
4,166,592
-
343,388
11531,700
Balance as on June 30 2006 (A)
104
1,563,566,177
9,557,782,301
1,794,035,793
72,504,837
12,987,889,108
B. Underwriting loans






Balance as on 01 July 2005
23
691,000
27,938,990
-
21,371
28,651,361
Add: Amount written off during the year
-
-
-
-
-
-
Less: Amount recovered during the year
-
-
-
-
-
-
Balance as on June 30 2006 (A)
23
691,000
27,938,990
-
21,371
28,651,361
Total (A+)
127
1,564,257,177
9,585,721,291
1,794,035,793
72,526,208
13,016,504,469


5.15 Loan classification & provisioning:

Classification of loan & advances started from 1989 as part of financial sector reform programmed and as per instruction of the Bangladesh bank. Firstly, this was done on yearly basis and then half yearly. At present, this is being carried on quarterly basis considering 31st March, 30th June, 30th September & 31st December as reference dates.

Reduction of classification rate of loan & advances as well as enhancement of provision had been the topmost priority during the year under report. Various efforts/ steps were taken & adequate measures.

Adopted to achieve the optimum result in this area, the main focus being the intensive & strict follow-up in respect of recovery of classified and overdue loans along with arresting new classification thereof.

 
                              CHAPTER-6
6.1 SWOT ANALYSIS OF BSRS:

In order t develop marketing strategy SWOT analysis is very important element of any organization. The SWOT analysis of BSRS is given below:

STRENGTHS:

  • Good interpersonal relation: In BSRS there is no bossing relation between superior and the subordinates. A good interpersonal relation exists between the officers and staffs.
  • Efficient performance: BSRS provides hassle free customer service to its clients comparing to the other Development Financing Institution (DFI) in Bangladesh.
  • Companionable environment: The work environment of BSRS is sophisticated. The whole office is well furnished. It provides canteen facilities for lunch to its employees.

WEAKNESS:

  • Lack of customer confidence: The public as a loosing concern knows BSRS. So, average customers lack the confidence in BSRS and judge the Sangstha as an average DFI.
  • Narrow operating span: BSRS has a very narrow operating span in the country. It has only two branches in Dhaka.
  • Absence of strong marketing activities: BSRS currently does not has any strong marketing activities through mass media Television. Television ads play a vital role in image building, which is necessary for BSRS.
  • Absence of foreign exchange service: BSRS does not provide foreign exchange service though it starts commercial banking activities. It should provide foreign exchange service as it is both a DFI and commercial bank.

OPPORTUNITIES:

  • Contribution to industrialization: BSRS is a government bank it has a wide area of opportunities to create base of industrialization in the country than private banks.
  • Experienced manager: One of the key opportunities of BSRS is that it has efficient managers They facilitate the operation of BSRS.
  • Huge population: Bangladesh is a developing country. To satisfy the needs of huge population, a large amount of investment is required. So BSRS has a large opportunity in this situation.

THREATS:

  • Default culture: This is the major threat of BSRS because of loan default culture it is known to the public as a loosing concern by this time.
  • Similar product is offered by all banks: Now days different foreign and private bank are offering similar type of product with an almost similar profit margin which results decline in profit.
                                     
                                    6.2  CASE STUDY:

                                        CASE NO # 01
1. Name: SA CARPET MILLS LIMITED.
2. Location: Chittagong.
3. Types: Agriculture Industry (Public Limited).
4. Product & production Capacity: The company makes 3 types of carpet- jute carpet, lute mate & jute twin. Production capacity was 524 sq ft. carpet through 2 shift in 300 days.
5. Present Condition: At present the mill is in process with low capacity.
6. Comm. Production Started at: 1982.
7. Loan Sanction & disbursement: Total TK. 800.15 (lacs) during 1978-79.
8. Recovery: Total 328.5 (lacs) on installment up to now.
9. Security: Have no collateral security.
10. Outstanding Amount: As on 31-12-2002 total Tk. 533.92 lacs.
11. Legal Procedure: At 25-10-1999 BSRS made against the company at bankruptcy court. But the company made ret at 2000. Company got stay order, which vacated lately.
12. Causes of default:
According to Sponsors:
  • BSRS did not send any notice about sale.
  • Non-cooperation from the different financial institutions.
  • Exorbitant escalation of price of raw materials.
  • They do not get any complying and opportunity notice from BSRS.
According to BSRS:
  • The sponsor is willingly defaulter.
  • From the beginning of the project management has intention to non repaypement of the installment amount.
  • Inconsiderable excuse from the sponsor.
 
                                  CASE NO # 02
1. Name: R CHEMICAL LIMITED.
2. Location: Nrayangonj.
3. Types: Public limited.
4. Product & production Capacity: Basic chemical products.
5. Loan types: Underwriting and bridge finance.
6. Present Condition: Project continues in a limited way.
7. Commercial production started: June 1982.
8. Loan Sanction & disbursement: Total Tk.540000 as on 8-01-1980. As on 14-01-1981 total Tk. 540000.
9. Security: Pari passu charge on the project.
10. Recovery: Up to 1990 total Tk.681405.70 recovered.
11. Outstanding amount: Up to 31-12-2002 total Tk.5836098.
12. Loan position: Classified as Bad and loss.
13. Last condition: Company have to pay last 2 installments from 4 installment.
14. Causes of default:
According to Sponsors:
  • Late start of production.
  • Imbalance of machineries.
  • Shortage of working capital.
  • Lack of proper management authority.
  • Marketing problem.
  • Inability to operate profitably.
According to BSRS:
  • Due to unavailability of raw materials.
  • Due to the sectored problem.
  • Low intention to repay the loan.
  • Due to changes in key management personnel.


                                  CASE NO# 03

2.      Name: M M S PREKKHAGRIHA LTD.
3.      Location: Munshigonj.
4.      Types: Service Industry ( Private  ltd.)
5.      Product & production Capacity: Yearly 1160 exhibition of film in the cinema hall.
6.       Present Condition: BSRS sued the company & its directors. The court declared the directors insolvent & appointed Sltan Mia as a receiver.
7.      Cmm. Production started at:  July , 1983.
8.      Loan Sanction & Disbursement: Total TK. 16.00 (lacs) during 1980-81.
9.      Recovery: Total installments TK.40670 & TK. 22.01 (lacs) on project sale.
10.  Security: Only project mortgage that is already sold at TK. 22.01 lacs.

11.             Causes of Default:
According to Sponsor:
  • Cost of construction increased.
  • Non- sanction of working capital by BSRS duly.
  • Waiver is not given in due time.
  • Due to working capital shortage better film could not be exhibited.
  • Construction period extended but repayment schedule not revised.
According to BSRS:
  • Management related weakness.
  • Internal conflict of the management.
  • Due to key personnel sickness such as managing directors’ health.
  • Willingly defaulter.
 
                                       Case No # 04
1. Name: G JUTE MILLS LTD.
2. Location: Murapara Narayangonj.
3. Types: Jute & cottage (Public limited).
4. Product & production Capacity: 2679 metric tons Hussein & Sacking.  Annually.
6. Present Condition: According to Article 34 of BSRS Order, 1972 take over & sale was granted by the court. But stay order was taken by the company during 2005 and which causes not to treat the director as defaulter by the CIB of BB.
7. Commercial production started: October 1966.
8. Loan Sanction & disbursement: Total TK. 102.75 (lacs) during 1980-81.
9. Security: Only the project is mortgage.
10. Recovery: Total installment TK. 490.35 (lacs).
11. Outstanding amount: As on 26-06-2005 total TK. 103.20 lacks according to loan account department.

14. Causes of default:
According to sponsors:
  • Cost of raw material increased.
  • Non- sanction of working capital by BSRS duly.
  • Waiver is not given in due time.
  • Power supply shortage.

According to BSRS:
  • Power supply shortage.
  • Management problem within the organization.
  • Management conflict of the interest related.
  • Change on government policy to take initiative to purchase produced goods. 
 
 
                                      Case No # 05.
1. Name: S COLD STORAGE TTD.
2. Location: Suihary, Dinajpur.
3. Types: Foods & Allied (Public limited).
4. Product & production Capacity:2500 metric tons potatoes storage capacity annually .But actual capacity was 3276 metric tons.
5. Present Condition: Project continues its operation due to rescheduling facility provided timely.
6. Commercial production started: March 1984.
7. Loan Sanction & disbursement: Total TK. 118.88 (lacs) during January 1980-81.
8. Security: Only the project is mortgage.
9. Recovery: Total installment TK. 359.41 (lacs). Up to 12-12-06.
10. Outstanding amount: As on 31-12-06 total TK. 91.69 (lacs) according to loan account department.
11. Causes of default:
According to Sponsors:
  • Sponsor has gotten working capital from other banks timely.
  • Natural calamity for which potato production reduced.
  • Company managing director died suddenly.

According to BSRS:
  • Due to operational problem.
  • Comparatively operate at a high cost.
  • Waiver facility is not given properly.
  • Depend on only one project.
  • Because of shortage of production.

 
                                         Case No # 06
1. Name: A JUTEX MILLES LTD.
2. Location: Nrayangonj.
3. Types: Public limited.
4. Product & production Capacity: Jute yern production, 100% production capacity 5000 tons annually.
5. Loan Types: Underwriting with bridge finance and debenture loan.
5. Present Condition: Project continues in a limited way.
6. Commercial production started: April, 1984.
7. Loan Sanction & disbursement: Total TK. 370000 as on 1981-1983 & 370000 as on 1981-1983.
8. Security: Total 810 shares at a face value TK. 100 per and debenture TK. 10000 & TK. 20000 option certificate.
9. Recovery: Up to 1990 total TK. 75624.00 recovered.
10. Outstanding amount: Up to 30-06-1992 total TK. 1558871.00.
11. Loan position: Classified and Bad and loss.
12. Write off Amount: Total write of amount TK. 218.82.26.
13. Causes of default:
According to Sponsors:
  • Due to changes in demand situation.
  • Company could not go to the operation.
  • For the issue of shares in the IPO it has no submit audited F/Ss.

According to BSRS:
  • For the change in the situation.
  • Unable to establish the project for the shortage of fund.
  • Due to the sectored problem.

                                   CHAPTER-7
Finding & conclusion:
7.1 Findings of the study:

While working at BSRS Head office, I have acquired some experiences. After analysis of the collected and other related information, I have the following findings to which I think, should be given attention for attaining the objective of BSRS:

·         There are some irregularities in Sanctioning Loan and Advances to the clients.
·          Existence of some corrupted and irresponsible employees and employers in BSRS.
·         Branches have no effective information for relationship banking concepts. And some are politically motivated.
·         Lack of skilled and efficient employees and demands for more employees in some departments are another important finding at BSRS.

7.2 Overall Result of the Study:
The major finding of my study at Bangladesh Shilpa Rin Sangstha, after successful completion of the internship is as follow:

  • Though the organization is performing better, there is an image crisis that is organization is a losing concern.
  • Government policy changes, inactive control in the international perspective causes more default to the BSRS.
  • The Branches of the Sangstha cannot give LC opening facility as it is restricted by the ministry for the excuse of making it as private organization since 1985.
  • Agriculture and textile sector got priority in sanctioning the loan.
  • By considering the credit risk management of the Sangstha extended the project loan to a number of projects under syndicated financing agreement with other banks and financial institutions.
  • IDCP is allocated over the life of the project, which reduces the burden on the borrowers.
  • BSRS are not giving the working capital to the sponsors, who is provided by the other bank and it may reduces the degree of default at BSRS.
  • The investment banking entity of the Sangstha is very profitable than the commercial banking sector.
  • The Sangstha is unable to maximum utilization of the available resources.
  • Governmental influence in providing loan and recovery of the loan according to the repayment schedule.
  • The capacity of the Sangstha is analyzing the risk uncertainties of the project.
  • Sangstha have lack of coordination in change of transferring among various bank.
  • Employee shortage, turnover problem in the Sangstha.
  • Delay in taking decision from the top management.
  • The sangstha of the projects become sick due to the lack providing the working facility.
  • Lack of motivation of the Sangstha employees.
  • Lack of management of the Sangstha.
  • Lack of coordination among the various departments of the Sangstha.
  • Political interaction in the Sangstha causes irresponsibility of certain employees.
 
                                7.5 Conclusion:
Bangladesh Shilpa Rin Sangstha (BSRS) is one of the government Specialized bank in Bangladesh, which provides the established and emerging the industrial sectors in Bangladesh. So the government is always trying to facilitate the agricultural sector and provides various subsidy, assistances and credit facilities at almost interest free to the backward and foreword linkage of the agricultural sector.

Some of then have left the public sector banks, some have retried and many are still serving the banks and have been promoted in a big way because of their political pull, bureaucratic cover on simple profit-sharing in a blatant manner. The default was accumulated not in years but over decades. And the more way try to reduce the total default the larger it gates.

That we have to realize is that large bank default today is not a peculiar Bangladeshi problem, but a global issue. Such as- USA loss of 240 billion dollars to the government, Japan loss of 400 billion dollars eventually, China loss of 700 billion dollars to the govt. and India, France, Malaysia, Singapore is the loss of same condition to the govt.

Some of the industries which are sick, are victims of fast changing official policies, particularly the import policy that now allows manufactures once forbidden, or high import duties of them. Many of the industries have been hurt by frequent load shedding, shortage of water, excessive holidays, frequent violence and prolonged.

If the government, the Bangladesh Bank, income tax authorities, does not cheek such abuses then we will have far more sick units raised on large bank loans. So if the conditions, rules are run to the correct way, then the default culture of the Sangstha will be reduce at an optimum level and Sangstha will be a example of out-performed DFIs to other banks and financial institutions.
                                     

7.4 Recommendations
As a student of program of Business Administration, I have completed my internship report in the BSRS and got opportunity to have practical knowledge on the Loan Default Culture of DFIs in the country. Now I am willing to give some recommendations which may be a positive solution of BSRS. I want to prescribe the following ways to the loan default culture:

·         The Sangstha should provide longs only to the experienced, motivated prospective entrepreneurs.
·         Political influenced should be lowered as possible in case loan sanction.
·         Working capital facilities should be given to the sponsors.
·         LC opening facilities should be given to the commercial branch which is most profitable area of making huge amount of profit for the other commercial banks.
·         Different social program should be adopted to make understand the sponsors.
·         Incentive facilities should be given to the regular as well as irregular payers.
·         Responsibility, morality and patriotism should be emphasized among the employees.


                              BIBLIOGRAPHY:
1.      Majumder, N.H and S. Harun-ar-Rashid. 2004. Project Appraisal and Management. Journal of BIBM.
2.      Annual Report of Bangladesh Bank: 2001-02, 2002-03, 2003-04, 2004-05, 2005-06.
3.      Bangladesh Bank (BB). 2006. Bank Regulatory and policy Department: Credit risk management.
4.      Bangladesh Shilpa Rin Sangstha, 1999-2006. Annual Report: Financial statements:2005-06, 2004-05, 2003-04, 2002-03, 2001-02, 1998-99.
5.      Monthly review of Dhaka Stock Exchange, December 2006.
6.      Annual Report of BSB: 2004-05. P-18-20, 38-56.
7.      Operating Policies and Strategies of BSRS.
8.      Ministry of Finance, 2005, Bank O Arthik Prothistan Shomuher Karjoboli 2004-05, Finance Division, Government of Bangladesh(GOB)
9.      BB. 2006. BB quarterly Report: Industrial Loans Advances Recovery. January-March 2006.
10.   Banking Sectors in Bangladesh. Types of Bank, Performance of different banks are available at: /www. Bangladesh info.com.
11.   157 Big Defaulter go into hiding, May 19. Available at: http/www.deja.com
12.   Ahmed, S 2000. Recovering Defaulted Loan. Available at: http:/www.default.com.
13.   Pualaski, a 2003. Economic Conditions and Emerging Risk in Banking. November 4. Available at: http/www.apuwalski@fdic.gov.
14.   BB. 2007. Bank Regulatory and policy Department: Master Circular of loan classification. Dhaka. BB.
15.   Bangladesh Shilpa Rin Sangstha- Web: www.bsrs.org.bd
16.   Different types of- Google.com.


 

                                                    Table of Contents

LETTER OF TRANSMITTAL……………………………………………i
ACKNOWLEDGEMENT…………………………………………………ii
EXECUTIVE SUMMARY……………………………………………….iii
                                                 CHAPTER-1                                  PAGE No.
1.1 Background of the study……………………………………………….1
1.2 Origin of the study……………………………………………………...1
1.3 Objective of the study………………………………………………….2
1.4 Scope of the study………………………………………………………2
1.5 Methodology……………………………………………………………3
1.7 Limitation of the study…………………………………………………4
                                                   CHAPTER-2
2.1 Background of the BSRS……………………………………………....5
2.2 Management……………………………………………………………6
2.3 Board of Directors…………………………………………………......6
2.4 Management structure of BSRS………………………………………7
2.5 According to BSRS Rules & Regulations…………………………….7
2.6 Functional Structure of BSRS…………………………………………9
                                                      CHAPTER-3
3.1 Financial Position of BSRS…………………………………………...11
3.2 Accounting Treatment for Loan & Advance………………………..11
3.3 Capital & Resource…………………………………………………...13
3.4 Three windows of BSRS……………………………………………...14
3.5 Loan sanction procedures…………………………………………….17
3.6 Loan disbursement procedures………………………………………20
3.7 Loan disbursement in Bangladesh…………………………………...21
3.8 Internal control policy………………………………………………..22
3.9 Business activities of BSRS…………………………………………...27
3.10 Strategic goal of the Sangstha………………………………………28
3.11 Sector wise loan and advance……………………………………….29
3.12 Particulars of loan and advance……………………………………30
                                                         CHAPTER-4
4.1 Banking system of Bangladesh………………………………………31
4.2 Number and types of Bank…………………………………………..32
4.3 Finance and banking…………………………………………………32
4.4 Foreign Investment in Bangladesh…………………………………..33
4.5 Securities and Exchange Commission……………………………….35
4.6 Legal Procedure……………………………………………………….36
4.7 Causes Tract at various stage of the industrial project…………….37
4.8 Causes of loan default………………………………………………...39
4.9 Different types of legal action taken by BSRS………………………40
4.10 Rescheduling procedures……………………………………………44
4.11 Write of procedures…………………………………………………45
4.12 Classification of loan and provisioning…………………………….46
4.13 Sanction, disbursement & recovery of loan………………………..48
4.14 Outstanding & overdue loans of BSRS…………………………….49
4.15 Sector wise outstanding & Recovery……………………………….50                                                          
                                                         CHAPTER-5
5.1 Definition of Default…………………………………………………..51
5.2 Default has serious consequence……………………………………..51
5.3 Definition of Loan…………………………………………………….52
5.4 Loan default culture…………………………………………………..52
5.5 Types of loan defaulter……………………………………………….53
5.6 Causes of default………………………………………………………54
5.7 Causes of loan default at BSRS………………………………………54
5.8 Loan and Advance……………………………………………………55
5.9 Loan default in various bank………………………………………...56
5.10 Loan recovery at BSRS……………………………………………..60
5.11 Categories of loan……………………………………………………61
5.12 Loan portfolio at BSRS……………………………………………...61
5.13 Recovery of loan……………………………………………………..62
5.14 Loan written off……………………………………………………...63
5.15 Loan classification & provisioning…………………………………65
                                                     CHAPTER-6
6.1 SWOT Analysis……………………………………………………….66
6.2 Case study……………………………………………………………..68
                                                     CHAPTER-7
7.1 FINDING & CONCLUSION:
7.2 Finding of the study…………………………………………………..74
7.3 Overall results of the study…………………………………………..74
7.6 Conclusion…………………………………………………………….76
7.5 Recommendations…………………………………………………….77

BIBLIOGRAPHY:………………………………………………………..78


 
INTERNSHIP REPORT
ON
“THE LOAN DEFAULT CULTURE-OF
BANGLADESH SHILPA RIN SANGSTHA.”