Study on the Loan Products “Life Line” in DBBL
Subject: Finance | Topics:

Comparative Study on the Loan Products “Life Line”

Dutch Bangla Bank Limited

With the focus of providing one counter service to clients, Dutch Bangla Bank Limited (DBBL) has its journey. Dutch-Bangla Bank is a second generation commercial private Bank. The Bank commenced its banking business with one branch on July 4, 1996. As a part of my under graduation program, I have completed my internship in this organization. Throughout the period of my internship, I had been working in several departments. However, I was officially appointed to work in the loan and advancement department. The report will reveal the background of the company, description of the loans, findings and recommendations based on the experience gathered.

One of my major responsibilities was to assist the clients in opening new accounts. Alongside, filling up IPO form, maintaining database, providing relevant information, accepting cash and credit cheque, maintaining OBC register and writing vouchers were some of the core activities during my internship. In one hand, I was assigned to provide account opening related information to the new customers. Everyday, one of my responsibilities was to capture new or existing information related to account opening and then, disseminate those information to the clients who are interested to open accounts in DBBL. On the other hand, I was assigned to keep a database of the information collected. I had been maintaining a database of clearing cheques. Alongside, I prepared and fill up new and existing files for the department.

The project is based on my critical observation while working in the loans and advancement division of DBBL. The project reveals the various types of loan scheme and the criterion to get the loan. Then, I tried to compare the schemes with that of HSBC bank. Based on the analysis, the report made some recommendations.

To sustain in the highly competitive market, DBBL has been endeavoring to come up with new products which are essential for individual and family life. Life line is not an exception. This is a product category specially designed to meet up the need of everyday life. The life line products can be divided into two parts, namely clean credit line- without any security- and secured credit lines-with minimum security. The report analyzes these products with that of HSBC and infers some recommendations.

The success of a bank depends on the quality of the services it offers. All the commercial banks, therefore, try to provide quality services with competitive interest rates. DBBL is not an exception. Life line package has been developed with the same purpose. Although, the comparative analysis shows that DBBL is in better position, but there are some obstacles it faces to sustain the position. However, the continuous improvement of the services will certainly place the bank in the best position in one decade.

Objective

Objectives regarding this study are as follows:

Understanding the environment, functions and management of DBBL.

  • To learn banking more thoroughly
  • To fulfill academic requirement
  • To identify major strengths and weaknesses of DBBL in retail products in respect to other banks
  • To recommend for the successful operation of the services offered by DBBL.

Methodology

For preparing this paper, I used both Primary and Secondary data.

Primary data

Most of the necessary information has been collected by from the personal observation and one to one discussion with the relevant officials. Throughout the tenure of my internship, I worked in different departments and that gave me a great opportunity to collect information and learn more.

Secondary data

The details of the bank and the selected department have been collected from secondary sources. The relevant information of other private banks has been collected from annual reports, web pages and other published documents.

An over view of DBBL

Dutch-Bangla Bank is a second generation commercial private Bank. During the period of its operation, this bank creates a milestone of success in banking sector. This bank holds an experienced team of banking professional. They achieve this success because of their experienced banking professional team, proper management & so on. Dutch-Bangla Bank Limited is a Bangladesh–Netherlands joint venture scheduled commercial bank established in Bangladesh with the primary objective to carry on all kinds of banking business in and outside of Bangladesh.

Starting with one Branch in 1996, DBBL has expanded to thirty nine (39) branches including nine Branches outside of the capital. To provide client services all over Bangladesh it has established a wide correspondent banking relationship with a number of local banks. To facilitate international trade transactions, it has arranged correspondent relationship with large number of international banks which are active across the globe.

In addition to its banking activities, Dutch-Bangla Bank Limited takes part in different national activities promoting sports, culture, social awareness, etc. Participation in these activities as sponsors is part of its business development policy.

General Banking department

General Banking department generally deals with five sections. However, my work was limited to the following sections:

Account Opening Process:

The relation ship between banker and customer begins with the opening of an account by the customer. Opening an account binds the customer into contractual relationship. Infect all kinds of fraud & forgery start by opening an account. So, the bank should take extreme caution in selection customers.

Under this section, DBBL Bank Assistant Officer opens different types of accounts on the request of clients. Such as:

(a) Current Deposit (CD)

(b) Saving Deposit (SB)

(c) Other type

  1. a) Current Account:

A current deposit account may be operated in several times during a working day. There is no restriction on the number and the amount of withdrawals from a current account and banker does not allow any interest on this account DBBL Banks normally prefer current account due to its cost free nature.

  1. b) Savings account

A saving account is meant for the person of the lower and the middle classes who wishes to save a part of their income to meet their future needs and intend to earn an income from their savings. This is an interest bearing account and a reasonable rate of interest is offered, which is higher than that of short term deposit account but lower than that of fixed deposit account.

  1. c) Other type account:

For Joint Stock companies, Association, Clubs etc:

In case of opening a current account of joint stock companies, association, clubs etc, are said to fulfill true copies of certificate of incorporation or registration (in case of companies and registered bodies only).

 

For Partnership / Proprietorship Company:

To open a current a/c on the name of any partnership or company, the following documents are required to fill up application from stating about the name and address of the firm.

Bank activity:

After selecting the type of account, customer needs to fill up a form which is known as account opening from. After fill up account opening form by customer the assistant officer done following job:

Verify all information

  • Entry all customer information into DBBL’s online server
  • After completion of entry assistant officer it sends to Second officer/Manager for authorization.
  • If Second officer/Manager satisfies with customer information he gives authorization.
  • Assistant officer gets new account number for certain customer after authorization

Description of the project

The project is based on my critical observation while working in the loans and advancement division of DBBL. The project reveals the various types of loan scheme and the criterion to get the loan. Then, I tried to compare the schemes with that of HSBC bank. Based on the analysis, the report made some recommendations.

Objective of the project

Objectives regarding this study are as follows:

To apply theoretical knowledge in the practical filed and dealing with the customers to gather practical knowledge.

Understanding the environment, functions and management of the loan department of DBBL.

  • To learn banking more thoroughly
  • To fulfill academic requirement
  • To find the length and variety of loan products and to analyze the lending procedures
  • To identify major strengths and weaknesses of DBBL in retail products in respect to other banks
  • To identify problems in personal loan disbursement of DBBL
  • To recommend for the successful operation of the department and delivery of the services.

Methodology

For preparing this paper, I used both Primary and Secondary data.

Primary data

Most of the necessary information has been collected by from the personal observation and one to one discussion with the relevant officials. Throughout the tenure of my internship, I worked in different departments and that gave me a great opportunity to collect information and learn more.

Secondary data

The details of the bank and the selected department have been collected from secondary sources. The relevant information of other private banks has been collected from annual reports, web pages and other published documents.

Life Line: The services

To sustain in the highly competitive market, DBBL has been endeavoring to come up with new products which are essential for individual and family life. Life line is not an exception. This is a product category specially designed to meet up the need of everyday life. DBBL considers the product line in the following way:

“A complete series of personal credit facilities to add more color in very step of your life” The life line products can be divided into two parts, namely clean credit line and secured credit lines.

Clean Credit Lines

This type of credit line does not require any cash security or any personal guarantee. Health Line: health line credits are given mainly for hospitalization or other emergency medical needs or to purchase body fitness equipments

Education Line: education loans are given for Higher education purposes, for tuition fees or other Educational expenses and to purchase of computer etc.

Professionals Line: targeted to purchase of Professional equipments and for Office renovation/decoration

Marriage line: Marriage line credit are designed to meet marriage expenses for himself/herself and Marriages in the family

Travel Line: travel line credits are given for Honeymoon trip, abroad or in the country or for any Family trip, abroad or in the country

Festival Line: To enjoy festive period Gift for the family / in laws / relatives Dreams come True line: these are special credit lines designed to purchase TV, Fridge, Furniture, Home Theatre, Motor Cycle, AC etc. Or to decorate/renovate own Home/Car.

Care Line: care loans are for the fulfillment of parents need/dream and to purchase economy car for the family

General Line: if there is any other legitimate purpose which does not fall under the above specific lines, then DBBL calls it general line loans.

 

Secured Credit Lines:

Consumers enjoy flexible facilities with minimum security it requires.

Auto Line: Auto loan is for purchasing a new / re-conditioned car or Refinancing of availed car

Home Line: Home loan is usually disbursed for the following categories:

  • To purchase a flat
  • Refinancing of owned house property
  • Home renovation
  • Extension / construction of building

Full Secured Lines: for family purpose or any other valid purposes, full secured loans are disbursed.

Security (Liquid Securities):

‘Liquid Securities’ means securities readily convertible into cash without recourse to a court of law. Liquid Securities for the purpose of these regulations shall mean realizable value of bank deposits, certificate of deposits, certificate of investments, Government securities, shares of listed companies on the active list of stock exchanger, ICB units and certificates of mutual funds. These securities should be in possession of the banks with perfected lien. (Source: BB Prudential Regulations for Consumer Financing, under section ‘Definition’ point 5.)

Credit Assessment and Approvals

Credit Application Processing

Applications are sourced at the branches through Retail Sales & Service units/Sales Executive/Corp. Retail Customer RM, and Branch Managers, targeting existing customers, Power Account holders and via cold calls and market sales approach. Applications are forwarded via Branch Retail Sales & Service Unit/ BM/SMB and Retail Sales & Services Unit. Credit assessment and disbursement will be done by Retail Banking Division.

The facilities are approved as per the Delegated Lending authorities under their internal lending limits. These include the MD, AMD, DMD (Admin.) and Head of RBD lending Authority.

Credit Authority Matrix

 Clean / Partial Secured

Any deviation of the product will be referred to higher Authority for consideration and to be approved by Managing Director (MD).

Verification requirements

At the time of assessment of an application the contact point verification (telephone, residence, references etc) is generally carried out over the telephone by the assessment officers.

Case to case basis the verification is passed to the external verification agents.

Collection and Write-offs – As per Central Bank Guidelines

Use of Lawyers/External Agents

Lawyers

 The Bank’s enlisted legal advisors will be used for legal issues.

 Third Party Verification Agents

Verifications will be conducted both in-house and through external verification agents. We will introduce verification agency who will verify the applicant’s addresses, phone numbers, employment details etc.

Credit Assessment and Approvals

Credit Application Processing

Applications are sourced at the branches through Retail Sales & Service units/Sales Executive/Corp. Retail Customer RM, and Branch Managers, targeting existing customers, CRC and via cold calls and market sales approach. Applications are forwarded via Branch Retail Sales & Service Unit/ BM/SMB and Head of Retail Sales & Services. Credit assessment and disbursement will be done by Retail Banking Division.

The facilities are approved as per the Delegated Lending authorities under their internal lending limits. These include the MD, AMD, DMD (Admin.) and Head of RBD lending Authority.

Verification requirements

At the time of assessment of an application the contact point verification (telephone, residence, references etc) is generally carried out over the telephone by the assessment officers. Case to case basis the verification is passed to the external verification agents.

Collection and Write-offs – As per Central Bank Guidelines

Use of Lawyers/External Agents

Lawyers

The Bank’s enlisted legal advisors will be used for legal issues.

 Third Party Verification Agents

Verifications will be conducted both in-house and through external verification agents. We will introduce verification agency who will verify the applicant’s addresses, phone numbers, employment details etc.

Security (Liquid Securities/Terminal Benefit/Corporate Gtee.):

DBBL acceptable Terminal Benefit/Corporate Guarantee and liquid securities ‘Liquid Securities’ means securities readily convertible into cash without recourse to a court of law. ‘Liquid Securities for the purpose of these regulations shall mean realizable value of bank deposits, certificate of deposits, certificate of investments, Government securities, shares of listed companies on the active list of stock exchanger, ICB units and certificates of mutual funds. These securities should be in possession of the banks with perfected lien.

Credit Application Processing

Applications are sourced at the branches through Retail Sales & Service units/Sales Executive/Corp. Retail Customer RM, and Branch Managers, targeting existing customers, CRC and via cold calls and market sales approach. Applications are forwarded via Branch Retail Sales & Service Unit/ BM/SMB and Head of Retail Sales & Services. Credit assessment and disbursement will be done by Retail Banking Division.

The facilities are approved as per the Delegated Lending authorities under their internal lending limits. These include the MD, AMD, DMD (Admin.), Head of RBD lending Authority.

Verification requirements

At the time of assessment of an application the contact point verification (telephone, residence, references etc) is generally carried out over the telephone by the assessment officers. Case to case basis the verification is passed to the external verification agents.

Collection and Write-offs – As per Central Bank Guidelines

Use of Lawyers/External Agents

Lawyers

 The Bank’s enlisted legal advisors will be used for legal issues.

 Third Party Verification Agents

Verifications will be conducted both in-house and through external verification agents. We will introduce verification agency who will verify the applicant’s addresses, phone numbers, employment details etc.

Security (Liquid Securities/Terminal Benefit/Corporate Gtee.):

DBBL acceptable Terminal Benefit/Corporate Guarantee and liquid securities

‘Liquid Securities’ means securities readily convertible into cash without recourse to a court of law. ‘Liquid Securities for the purpose of these regulations shall mean realizable value of bank deposits, certificate of deposits, certificate of investments, Government securities, shares of listed companies on the active list of stock exchanger, ICB units and certificates of mutual funds. These securities should be in possession of the banks with perfected lien.

Credit Assessment and Approvals

Credit Application Processing

Applications are sourced at the branches through Retail Sales & Service units/Sales Executive/Corp. Retail Customer RM, and Branch Managers, targeting existing customers, CRC and via cold calls and market sales approach. Applications are forwarded via Branch Retail Sales & Service Unit/ BM/SMB and Head of Retail Sales & Services. Credit assessment will be done by Retail Banking Division and disbursement will be done by respective branches.

There will be two level of approval process:

  1. a) Customer level: For Customer level approval, he/she has to fulfill all the terms and conditions of the Home Line policy and as per assessment criteria of DBBL he/she will be eligible to avail the facility and this approval will be conveyed to the customer.
  2. b) Securitization/Documentation level: This includes vetting of property documents, valuation of the property by enlisted surveyor and site visit. Upon DBBL satisfaction final sanction letter will be delivered to the customer.

FMO Financing: As per Central Bank Circular no. FEPD(BRA)701/K1/2006-130 the loan can be considered under FMO financing for the purpose of flat purchase unto Taka 3 million.

The facilities are approved as per the Delegated Lending authorities under their internal lending limits. These include the MD, AMD, DMD (Admin.), and Head of Retail Banking Division lending authority.

Comparison with other Banks

Home loan

x1

Car loan:

x2

Interest rate comparison

The interest rate comparison is done to show the comparative position of the bank considering the similar products of other banks. Other than the home loan service, all other products have higher interest in HSBC than in DBBL. HSBC maintains a steady state 19% interest for its life line products. During the study, it was found that HSBC is successful in keeping higher mark up due to its brand value to the customers. On the other hand, DBBL is still promoting its life line products to the customers and that’s why, it offers competitive price for the products. Since, the market is very much competitive and uncertain; DBBL has to compete by both quality and price. One of the reasons behind the lower interest rate is the brand value of DBBL. As the brand value is not as same as HSBC or other multinational banks, it has to compromise the price of the products.

However, over the period, DBBL has established itself as the quality service provider. Having the highest number of ATM booths, it has become the most popular bank among the consumers. As a part of the expansion strategy, it is now offering lower interest rate for the products necessary in every day life. The aim is to make the clients loyal to the bank.

This will help the bank to create a sustainable brand value and thereby, have a strong customer base in the long run.

Risk involved in the loans

The eligibility of the borrowers shows how much risk is involved in the loan products. The clean credit products are offered to the persons whose salary varies from 10000 (salaried person) to 30000 (businessman). In addition, the required age is just 22 years. This implies that there are risks involved in the process of disbursing loan without any collateral. Salaried persons are more secured than the businessmen. But the age requirement is too low for the business borrowers. A person of 22 years is presumed to have very limited management capability. So, there are risks of being failure in the business. This implies that the bank has to be very careful in terms of giving loans to the business persons without any collateral.

On the other hand, the secured credit lines are offered to the employees who are not less than 23 years of age. This criterion is set at 25 years for the businessman seeking loans. This implies that there are lees risks involved as these businessmen are presumed to have better management capacity. So, chances are more to be successful in doing business with the loan money.

Industry interest rate versus Life Line rate

The current industry interest rate is around 16%-17% per year. However, some banks are charging more than that. HSBC is charging around 19% whereas DBBL is charging around 16.5%-17.5%.

But, it is a matter of concern that the central bank has issued a guideline to keep the interest rate at 14% maximum for the term loans and working capital financing. This will create pressure for the commercial banks to lower down the interest rate. This will cut down the margin further for the banks. This also indicates that the market situation might change at anytime. So, there is risk of losing profit margin if the central bank intervened in the market.

There is another possible impact of lessening the interest rates. The middle class families will be more attracted to the life line products due to the low interest rate. This will lead to more sales and hence, more profit in future.

Recommendation

  • Management should think about increasing the number of employees in the branch. It was found that the employees cannot provide quality services during the pick hours as there are fewer employees than what is needed. Sometimes, customers have to wait more than the usual time required for a service. In addition, some employees go for professional training. At that time, the bank does not have any alternative way of compensating the position. To fill up the gap, interns are recruited which actually lowers the quality of the services. Interns should be used for assisting the mainstream employees.
  • ATM services should be improved. There are lots of complaints about the ATM service of DBBL. Everyday, employees including the management have to face the wrath of the customers. A considerable time and money are wasted due to the bad service of the ATM booths. DBBL has branded the bank as the highest number of ATM booths holders. This actually motivates the clients to deposit money in DBBL as it provides the opportunity to withdraw the cash at any time. However, if the bad service continues, then the clients will be de-motivated to deposit money in DBBL.
  • The bank should develop culture of timeliness over the period. However, exceptional case should be considered. There are lots of services which DBBL cannot provide in specific time. There are situations when there is no scope of providing prompt service. Other than that, everyone of the bank must be prepared both mentally and physically for providing prompt service.
  • Management should emphasize on the employee satisfaction. Employee satisfaction is supremely important in an organization because it is what productivity depends on. If your employees are satisfied they would produce superior quality performance in optimal time and lead to growing profits. Satisfied employees are also more likely to be creative and innovative and come up with a breakthrough that allows a company to grow and change positively with time and changing market conditions. Many employees are not satisfied due to the rough behavior of the management. The management never favors it employees while dealing with the customers.
  • Physical working environment should be improved. Neat and clean working environment should be the top priority issue. A healthy work environment provides people with opportunities to meet work and personal goals. It was found during the internship period that the branch lacks neat and cleanliness. Some of the customers also complained about the neatness of the fresh rooms. This sort of careless management of the physical working environment de-motivates employees to stay longer time in the branch. Customers also get annoyed by the fact. The bank should immediately look into the fact and take measures
  • The satisfaction of their customer’s needs is their prime focus and they want to achieve it by offering products and services. Dutch-Bangla Bank should analyze the need of the people in the locality in which the bank is operating. But for lack of cooperation customer dissatisfaction is increasing which may result of company’s reputation loss, decrease in profit, cost increases, increase competitor.
  • Business target should be material enough to motivate the employees. The normal practice of account opening is just 150 new accounts per week. But, the new target has been set at 400 new accounts per week. This is more than double of what is the usual practice. During the tenure of my internship, I have found that the employees are very much disappointed about the new target. My analysis reveals that the general employees might think about switching jobs as their performance will be evaluated based on the target achieved. Therefore, management should think the feasibility of the target they set.

Conclusion

Dutch-Bangla Bank Limited is one of the most potential Banks in the banking sector. It has a large portfolio with huge assets to meet up its liabilities and management of this bank is equipped with the export bankers and managers in all level of management. So it is not an easy job to find out the drawbacks of this branch.

It has been observed that DBBL started its banking services with a view to minimize the customer’s needs by offering different products and services which are easy and affordable for all level of customers. To that extent, DBBL always emphasizes its customer services, product development, resource management, branch networking and the contribution to the economic development of the country. The bank also provides social services through DBBF as their social responsibility.

The success of a bank depends on the quality of the services it offers. All the commercial banks, therefore, try to provide quality services with competitive interest rates. DBBL is not an exception. Life line package has been developed with the same purpose. Although, the comparative analysis shows that DBBL is in better position, but there are some obstacles it faces to sustain the position. However, the continuous improvement of the services will certainly place the bank in the best position in one decade.

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