Operations of Credit Administration Department (CAD)
of IDLC Finance Limited
IDLC is one of the leading non banking financial institutions in the country. The nonbank financial institutions (NBFIs) constitute a rapidly growing segment of the financial system in Bangladesh. The NBFIs have been contributing toward increasing both the quality and quantity of financial services and thus mitigating the lapses of existing financial intermediation to meet the growing needs of different types of investment in the country.
IDLC Finance Limited started its operation in 1985 and it is the pioneer financial institution in Bangladesh. IDLC Finance Limited has different kinds of products and services. IDLC is financing in different sectors through their products and services. IDLC Finance Limited is a mother company. It has two separated subsidiaries and they are IDLC Investments Limited and IDLC Securities Limited. I have done my internship in IDLC Finance Limited in Credit Administration Department in Corporate Head Office. Being an intern in the Credit Administration department, I got the opportunity to see how the Credit Administration works. Details of all those will be discussed on this paper.
I hope that my report would give a thorough insight to all these responsibilities carried out during my tenure as an intern. With limited access to data due to confidentiality, I have tried to provide as much information as were possible about the works involving Credit Administration in IDLC Finance Limited.
Introduction and History
Non-Bank Financial Institutions (NBFIs) play a significant role in meeting the diverse financial needs of various sectors of an economy and thus contribute to the economic development of the country as well as to the deepening of the country‟s financial system. As the development process proceeds, NBFIs become prominent alongside the banking sector. Both can play significant roles in influencing and mobilizing savings for investment. Their involvement in the process generally makes them competitors as they try to cater to the same needs. However, they are also complementary to each other as each can develop its own niche, and thus may venture into an area where the other may not, which ultimately strengthens the financial mobility of both.
IDLC Finance Ltd, a leading financial institution of the country achieved significant growth in all areas of business up to 3rd quarter of the year 2009. IDLC began its operation in 1985 as the first leasing company in Bangladesh. In 1995, IDLC was licensed as a Financial Institution by the country’s central bank and during the last two decades, the company has grown in tandem with the country’s growing economy. The company’s wide array of products and services range from retail products, such as home and car loans, corporate and SME products including lease and term loans, structured finance services ranging from syndications to capital restructuring and capital market services. The company also strengthened its presence in the country’s growing stock market with launching a subsidiary-IDLC Securities Limited-which is offering full-fledged brokerage service for retail and institutional clients.
IDLC is a multi-product financial institution offering an array of diverse financial services and solutions to institutional and individual clients to meet their diverse and unique requirements.
Following are the guiding principles that shape the organizational practice of IDLC Customer first:
IDLC has grown with its customers, who are believed to be the center of all actions. As the crux of IDLC‟s corporate philosophy, customer service gets the highest priority.
Innovation: IDLC has continuously introduced new financial products for meeting the needs of the entrepreneurs in a complex & challenging business environment. The concept of innovation is in-built into the working culture.
Professional Knowledge: IDLC is staffed with qualified professionals and innovative minds in the country. Years of operational experience, large industrial database and competent workforce have gives them unparalleled advantages.
Professional ethics: The professional at IDLC maintain the highest degree of financial and business ethics in all transactions with the clients. Over the last two decades, IDLC have put in bets efforts to meet the expectations of the clients and investors.
One stop solution: Work at IDLC begins with the idea generation, and then goes on into the feasibility study followed by arrangement of financing to implement the project. IDLC advises the clients, finance them and even arrange financing for them via different financing modes, namely: lease financing, term loan, bridge loan, syndication, bridge loan, syndication, ordinary shares, preferred shares and debentures.
Wings of IDLC Finance Limited
SME: Provides specialist lending to small and medium sized businesses
Consumer: offers retail finance for homes and cars with a small proportion of personal loans and loans against deposits
Corporate: provides lease financing, term loans and other financing options to corporate across the country
Capital Markets: Two wholly owned subsidiary
- IDLC Securities Ltd.
- IDLC Investments Ltd.
IDLC always endeavors to diversify into other financial services which have long term prospects to ensure steady and long term growth as well as to sharpen its competitive edge in a changing and challenging business environment. In 1997, it expanded its range of services by introducing Housing Finance and Short Term Finance, which have broadened its customer base and have contributed significantly to IDLC‟s growth and profitability. In early 1999, after getting license of Merchant Banking from Securities and Exchange Commission, IDLC started its operation of underwriting, issue management, corporate financing and other investment banking related services.
Small and Medium Enterprises:
- Small Enterprise Finance
- Small Enterprise Loan/ Lease
- Seasonal Loan
- SME Surakkha
- SME Deposit
- Commercial Space Loan
- Medium Enterprise Finance
- Medium Enterprise Loan/ Lease
- Commercial Vehicle Finance
- Healthcare Finance
- Revolving Short Term Loan
- SME Deposit
- Commercial Space Loan
- Supplier and Distributor Finance
- Factoring of Accounts Receivable
- Bill/ Invoice Discounting
- Work Order Financing
- Distributor Financing
- IDLC Purnota
- SME Advantage Card
- Commercial Vehicle Loan
- JICA-SME Loan
Different Aspect of Job Performance
Learning from the job performance: Internship experience at IDLC was really a very good learning opportunity for me. It was a process of learning by doing. There were two interns in Credit Administration Department including me. Me and the other intern both of us worked together to attain the goals assigned to us. The two major goals those were assigned to us were:
- Organizing whole inventory system of security cheque:
This is the inventory of all Undated and Post Dated cheque from the customers as a security. All the cheques are kept in a vault according to alphabetic order and CAD also maintains a soft copy of the inventory in Excel sheet to properly track the hard copy of the cheque. Whenever any file is closed or whenever any loan gets default security cheques are required to be sent to the respective branches. And whenever there is a new file added we need to entry new UDC or PDC in the vault. So, when I started working in IDLC the inventory system was not organized. We could not find the hard copy of the security cheque using the location reference of soft copy of the inventory from excel sheet. So, I had to organize the whole inventory by updating the correct locations of the security cheques in the vault.
- EDMS of lease/loan files as much as possible:
It was one of the challenging tasks I had to do in my internship period. Before we started the work, on the very first day we are introduced with the different legal documents of a file like Personal Guarantee, Appraisal report, Sanction letter etc. After getting acquainted with the documents, I was introduced with the EDMS system of CAD. EDMS is a system through which soft copy of all the documents of different lease and loan files are stored in server. There are different steps to EDMS a file. My supervisor and previous intern of this department trained me up to use this system and to EDMS a file.
- Other responsibilities:
During the internship period I was also assigned with one more task and that was to cross check all the loan and lease files in the vault with the list (soft copy). If there was any file which exists in the vault but it is not included in the list then I had to include its name in the list. Thus I had to check all the lease and loan files in the vault.
Apart from these work I also assisted all the seniors in their work whenever necessary. I helped them to update the insurance information in the software, to prepare loan or lease documents and to prepare cheque, receiving cheque from the client etc.
Critical observation and Recommendation
Credit Administration Department (CAD) is a very organized department. They carry out all the activities very preciously to ensure that each file is processed at its best time. Moreover there is still some room for improvement in some areas. For example, CAD can manage their inventory system of security cheque by a full time employee instead of providing it to interns. It takes some time for a new intern to understand the inventory system, so there is a huge possibility of making mistake in managing the inventory system. As this inventory is a very sensitive thing so it will better be managed by an experienced person.
When Credit Administration of Corporate Head office sends any land documents to other branches of the organization CAD does not keep any record in the inventory system (excel sheet), CAD just keeps the email print out copy of the sent document. It is really hard to find later on to whom the land document was sent. So, if CAD keeps note in the inventory beside the organizations name that to whom the document is sent then it would be easier to find out to whom it was sent.
Main body of the report
Credit Administration Department (CAD)
CAD is one of the core departments of IDLC Finance, which is under Credit and control. This department deals with all the documentation and final approval for disbursement of a loan and lease file. There are different person designated to deal with different types functions at Credit Administration Department. For example, one of them is fully responsible for SME loan while other is responsible for corporate lease or loan and someone else is fully responsible to deal with RM‟s
Responsibilities of Credit Administration Department
The Credit Administration function is critical in ensuring that proper documentation and approvals are in place prior to the disbursement of financial facilities. For this reason, it is essential that the functions of Credit Administration be strictly segregated from Relationship Management/Marketing in order to avoid the possibility of controls being compromised or issues not being highlighted at the appropriate level.
Credit administration function is basically a back office activity that support and control extension and maintenance of credit. A typical credit administration unit performs following functions:
It is the responsibility of credit administration to ensure completeness of documentation (facility agreements, guarantees, transfer of title of collaterals etc) in accordance with approved terms and conditions. Outstanding documents should be tracked and followed up to ensure execution and receipt.
Security documents are prepared in accordance with approval terms and are legally enforceable. Standard facility documentation that has been reviewed by legal counsel should be used in all cases.
Exceptions should be referred to legal counsel for advice based on authorization from an appropriate executive in CRM.
Disbursements under facilities should only be made when all security documentation is in place. CIB report should reflect/include the name of all the lenders with facility, limit & outstanding. All formalities regarding large facilities & facilities to Directors guided by Bangladesh Bank circulars & related section of financial Institutions Act should be complied with. All Credit Approval terms must be met before disbursement.
After the facility is approved and draw down allowed, the facility should be continuously watched over. These include keeping track of borrowers‟ compliance with credit terms, identifying early signs of irregularity, conducting periodic valuation of collateral and monitoring timely repayments.
The obligors should be communicated ahead of time as and when the principal installment becomes due. Any exceptions such as non-payment or late payment should be tagged and communicated to the management. Proper records and updates should also be made after receipt.
Facility disbursements and the preparation and storage of security documents should be centralized in the regional credit centers. Appropriate insurance coverage should be maintained (and renewed on a timely basis) on assets pledged as collateral. Security documentation should be held under strict control, preferably in locked fireproof storage.
How Credit Administration Department works:
The primary responsibility of the Credit Administration is to assist the Business Units to achieve their respective growth, maintaining the quality of service to client as well as the documentation accuracy. The Business Units are:
- Corporate Division
- SME Division
- Structured Finance Department
- Factoring Department
Credit Administration deals with every activities starting from documentation, disbursement, execution, Renewals till settlement of a lease, loan, syndication and short term facility contact. CAD ensures that all security documentation complies with the terms of approval and are legally enforceable, it control facility disbursements only after all terms and conditions of approval have been met and all security documentation is in place. CAD also maintains control over all security documentation. CAD administers the facility after approval and disbursement. It includes generation of late payment charge bill, monitoring insurance coverage, any foreclosure, expiry, partial termination etc. CAD monitors lessee/borrower‟s compliance with covenants and agreed terms and conditions.
The overall process is described below:
- Issuance of Sanction Letter:
When IDLC receives any lease or loan application from the client then appraisal report of the client must be approved by the management. Credit Administration receives the approved copy of the appraisal report. After receiving the approved appraisal report, CAD prepares the sanction letter in favor of the client. Then sanction letter is sent to the specific business unit for signing.
After signing, sanction letter is handed over to the client and client returns the acceptance copy of the sanction letter with due signature and seal on it.
- Document Preparation and Signing:
Credit Administration ensures that all security documents are prepared in compliance with the terms and conditions of approval and are legally enforceable. CAD maintains control over all security documentation. It uses its enlisted panel of lawyers for legal vetting of land documents.
These panel lawyers are also used for drafting, providing legal opinion on various security documents.
Duly prepared security documents are handed over to the business unit. Business units are responsible to get it signed by the authorized signatory of the client. Duly signed documents are sent back to Credit Administration. Then CAD checks the full set of documents. If there is any deviation from the approval, Credit Administration declares the pending items.
Credit Administration is responsible for all disbursements relating to financing of the respective business unit. It is also responsible to ensure that full security documents are in place before disbursement.
- CAD ensures that full financing data entry is completed
- Full set of security documents are in place
- Deviation memo is duly approved by the management
Credit Administration gives necessary “Disbursement entry” in the software and prepares the “Disbursement Memo” for approval. Head of Credit Administration approves the Disbursement. Then the approval memo is forwarded to Accounts & Taxation department for cheque preparation. When cheque is prepared, it is handed over to Credit Administration. Credit Administration handovers the cheque to the authorized person of the client.
- Execution of the contract:
Credit Administration gives necessary information entry in the system. Based on the entry, clients‟ receivable dues are created in the system. Then, Head of Credit Administration approves execution.
After execution of the contract CAD is responsible to get the Lease/Loan agreement signed by IDLC‟s authorized signatory. Duly signed agreement is forwarded to client along with payment schedule.
- Expiry of the contract:
Credit Administration (CAD) is responsible to close the contracts upon expiry of the term and hand over the asset (in case of lease) in favor of the nominated person, however, subject to fulfillment of certain terms and conditions.
At the beginning of the month Credit Administration gets „to be expired‟ contracts list from the software. Then, CAD prepares the receivables calculations for the contracts and gets it confirmed by Accounts and Taxation Department. After this, Receivable letter is forwarded to client if there is any receivable. Respective RM is also notified for collection. After receiving the letter, client pays the receivable amount to IDLC.
Then, Credit Administration prepares the closure memo and gets it approved by management. The approved memo is forwarded to Accounts for necessary adjustments and closing. Payable amount (if any) is refunded to the client with the consent of RM.
However, if there is no receivable from the client end, Credit Administration directly prepares the expiry memo, get it approved and payable amount (if any) is returned to the client. Then CAD issues „No Objection Certificate‟ (NOC) in favor of the client. Along with NOC, post dated cheques (if any) are returned to the client. For security release, if it is not tagged with any other contract, it is released by CAD with intimation to all concerned departments.
Responsibilities relating to other products (Except Lease and Loan)
Being an agent Credit Administration is responsible for preparation of documents and security part in consultation with lawyer. Upon execution, receivable, reimbursement, payment calculation is done by CAD manually. CAD also arranges meeting among the participants to take any decision or solve any disputes like rate reduction or enhancement issue. CAD does all sorts of follow up, correspondences between the borrower and the participants.
Credit Administration is responsible for proper data entry at the software level. CAD makes all the daily reimbursement to the clients under factoring financing. It looks after the full security documentation of Factoring. CAD ensures the full disbursement as per approval. CAD also makes yearly or monthly renewals of agreements and gets the agreements signed.
Other Functions of the Credit Administration Department
If client wants to close any facility by force before it expires then at the request of the client, Credit Administration prepares the foreclosure calculation. This is the calculation for whether there is any due or not. Receivable amount is confirmed by the Accounts and Taxation Department. Then the receivable letter is forwarded to client. The client is advised to pay within a stipulated time period. Upon receipt of the receivables, the contract is closed, following the same process as „Expiry‟
In case of total loss of leased assets or sale of assets, the contract may be partially terminated or prepaid by the client.
At the request of the client, Credit Administration prepares the prepayment calculation and gets it confirmed from Accounts and Taxation Department. Upon notification, client pays the amount. Upon receipt, Credit Administration prepares the partial termination memo and gets it approved by the management.
Then Credit Administration prepares the amendment agreement, revised payment schedule and other security documents. CAD forwards these documents to the client with a clear notification about the present status of the contract. For lease contracts, the asset is transferred to client‟s nominated person or institution‟s name.
Credit Administration is also responsible for rate reduction or restructuring. If there is any rate reduction in any facility or if there is any restructuring needed then respective business units prepare the memo and they get it approved by the management and forward it to Credit Administration for necessary documentation.
Credit Administration prepares the amendment agreement and other necessary papers and then documents are handed over to the client. After signing is done the CAD collect documents from the client and check whether the documents are duly signed or not.
At the execution period, Credit Administration enters details information of insurance policies in the system.
At every month end the renewal letters for the „Insurance policies to be expired within the next month‟ are printed out from the software. These are system generated letters. Letters are forwarded to client with a copy to the insurance companies. Credit Admin follows up with the client for collection of renewed insurance policies and if needed informs the respective RM. Upon collection of renewed insurance policy, Credit Admin enters necessary data in the system.
For small business finance clients, client pays insurance premium for full term and IDLC make yearly payments to the insurance company for renewal of the expired policy. Credit Administration is responsible for these renewals.
Insurance Claim Settlement:
Being the owner of the asset, insurance claim is done by IDLC. Credit Administration forwards the claim notice to the insurance company. CAD signs on the claim papers submitted by the insurance company. IDLC receives the claim amount from the insurance company. Then, Credit Administration adjusts client‟s other receivables or refunds the amount to the client.
Otherwise, client submits the papers to insurance company directly, which issues claim cheque in favor of IDLC. If client requests for refund, Credit Administration refunds the amount provided their other payments are regular and if there is no due.
Some other responsibilities of CAD
Other than these regular activities in the department, there are some other functions those are also carried out by CAD and those are:
- Issuance of Certificates at client‟s request for their tax purposes, audit purposes etc. Credit Administration prepares the certificates.
- Credit Administration issues letter to the client for their post dated cheques.
- Credit Administration refunds the freight bill / other bills to client after deduction of their receivables (if any).
- Credit Administration looks after the expiry / foreclosure issues of Bogra and Sylhet branch.
- CAD also stores the soft copy of all the files through EDMS system. Whenever it is required anybody can see the soft copy of the documents from the EDMS system.
SWAT analysis of CAD
SWAT = Strength, Weakness, Advantages, Threats. SWAT analysis of Credit Administration department is shown below:
- Highly Motivated, dedicated group of employees
- Supportive Management
- IT support
- Operation is growing very fast, lack of skilled resources
- Find the right people for the right job at the right time
- Good relationship with both internal and external parties
- Retention of the customers
IDLC is one of the finest non banking financial institutions in the country. IDLC finance manages all of the departmental works in a very organized way. Credit Administration is one of the core departments of IDLC finance which helps all the business units of the organization to run smoothly and properly.
Though CAD operates in a very good way but still there are some scopes for improvement those can make the department perform even better:
– CAD can improve its inventory management system of stored files. As there are hundreds of files in the vault and different important documents are frequently handed over to different branches so CAD can make a more updated soft copy of the inventory system where it can update the information of a file. For example, if a document is sent to Dilkusha branch it should be updated in the soft copy of the inventory file. Whenever someone else from other branch will ask about or request to send that document it can be easily notified to them that to which branch the document is already sent.
– As there is huge responsibility over CAD and according to that there are less skilled workers. CAD tries to meet its labor demand only by hiring more and more interns at a 3 months interval. But to run its operation more smoothly CAD should hire some more permanent skilled employees for the department besides interns.
In performing the internship, I was specially introduced to the real life experience. I also feel that, it was a unique opportunity for me to learn about the practical work and official accounts and finance system in a reputed organization. This internship has improved my knowledge and attitude about the operation of a financial institution. During my internship period, I have learned a lot of things about financial market.
The aim of this report was to critically examine the functions of Credit Administration Department (CAD) of IDLC Finance Limited and how efficiently are providing services to its customer. From the discussion it has been seen that the performance of Credit Administration Department is really satisfactory.
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