Product mix of the City Bank Limited
All over the world, the dimension of banking has been changing rapidly due to deregulation, technological innovation and globalization. Banking in Bangladesh has to keep pace with the global change. Now banks must compete in the market place both with local institutions as well as foreign ones. To survive and thrive in such a competitive banking world, two important requirements are: development of financial infrastructure by the central bank and development of” Professionalism” in the sense of developing an appropriate manpower structure and its expertise and experience.
What is banking?
The Jews in Jerusalem introduced a kind of banking in the form of money lending before the birth of Christ. The word ‘bank’ was probably derived from the word ‘bench’ as during ancient time Jews used to do money -lending business sitting on long benches.
First modem banking was introduced in 1668 in Stockholm as ‘Svingss Pis Bank’ which opened up a new era of banking activities throughout the European Mainland.
In the South Asian region, early banking system was introduced by the Afgan traders popularly known as Kabuliwallas. Muslim businessmen from Kabul, Afganistan came to India and started money-lending business in exchange of interest sometime in 1312 A.D. They were known as ‘Kabuliawallas’.
The word “Banking” has been defined to mean the accepting, for the purpose of lending or investing, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise. The term “Banking” has also been defined as:
USA: Act of Congress defines banking, “as the business of dealing in credit.”
Japan: Act of 1927 in Japan defines as “institutions, which carryon operations of giving as well as receiving credit”.
Banking in our country:
Banks play an important role in the economy of the country. After liberation except the foreign banks all banks were nationalized. These banks were merged and grouped into six commercial banks. Of the total six commercial banks Uttara and Pubali were transferred to private sector from 1985. Now there are four nationalized commercial banks namely Agrani, Janata, Rupali, and Sonali Bank. There are four specialized banks in our country. In addition to this 49 private commercial banks are in our country at present. Of these 49 private commercial banks there are 12 foreign banks, 28 private banks incorporated in our country except Islamic banks and 4 Islamic banks. In 2005, these banks were operating their banking activities through 6038 (June of 2000) branches. The bank and the other financial institutions have become dynamic after taking initiatives to reform the banking sector by the finance minister of Bangladesh. The basic issues are decreasing the amount of loan and increasing paid up capital through decreasing the interest rate of deposit and investment, changing the principles of rescheduling the bank.
History of the City Bank Limited (CBL):
The City Bank Limited (CBL) is the first private sector Bank in Bangladesh. The Bank has been operating since 1983 with an authorized capital of Tk. 1.75 Billion under the entrepreneurship of twelve prominent & leading businessman of the country. The noble intention behind starting this Bank was to bring about qualitative changes in the area of Banking and Financial management. Today, The City Bank serves it’s customers at home & abroad with 77 branches spread over the country & about three hundred oversea correspondences covering all the major cities and business center ofthe world.
The City Bank Limited was incorporated on 14.3.1983 as a Public Ltd. Company Under The Companies Act- 19\3. It got Certificate Of Commencement Of Business On 20.3.1983 and formally started banking operation from 27.3.1983.
Authorized Capital: Tk. 1.75 Billion
Total Number Of Share: 17,500,000
Market Lot Of Share: Five
Face Value Per Share: Tk. 1001-
At present, there are about 5,678 Shareholders approximately.
Products service offering of CBL:
The services encompass wide diversified areas of trade, commerce & industry that tailored to the specific needs of the customers and are distinguished by an exceptional level of prompt and personal attention. Over the years The City Bank Limited has expanded the spectrums of its services. The extensive and ever growing domestic network provides and carries various products and services to the doorsteps of mill ions.
The City Bank Limited (CBL) has already introduced some new Banking products like duel currency Credit Cards, A TM and Online services which has created attraction among the clients. The Bank is going to introduce real time Internet, SMS and Phone Banking systems with all modem delivery channels at an early date.
For significant performance, The Bank has earned national & international recognition. The City Bank Limited (CBL) was one of the 12 Banks Of Bangladesh among the SOO Banks in Asia for it’s asset, deposit & profit as evaluated by “ASIA WEEK” in the year 2000. Other than that, The City Bank Limited (CBL) received the “Top Ten Company” award from the Prime Minister Of The People’s Republic Of Bangladesh in the year 1992-93.
The report has been prepared as a reflection of my activities and achievement during the internship program, which underwent at Gulshan Branch in the City Bank Ltd. It is a descriptive type of study. I interviewed almost all the employees. For this is purpose, I macie a questionnaire.
General banking operation areas as follows: all kinds of deposits like Savings, Current, and Short term deposits, Fixed deposit, different Scheme, cash remittance etc.
Bank loans are greatly emphasized and we can call all this as the “Heart” of the bank, because they are a major source of bank’s income. They are very important to the economy as a whole because the expansion and condition of the bank loan affect the level of business activity through their effect on the Nation’s money supply. The banks extended its credit facilities to different sectors to diversify it’s credit portfolio in compliance with credit policies of Bangladesh Bank as given: Industrial, Housing (Commertial), Work order, Working Capital for traders, Manufacturing processing plants and other business.
Import finance is given by the way of opening irrevocable documentary letter of credit granting post import finance such as PAD, LIM, L TR etc. Pre-shipment and post – shipment export fmance is rendered by way of negotiation/purchase/discount of export bills, packing credit, Back-to-Back LlC etc. Bank remits money of the clients both with in the country and outside the countries by telex transfer, telephonic transfers, pay order, demand draft etc.
Description of the Project
Internship program is attempt to orient the students with the real world situation, give the students to personally observe the complexity and find out the various ways to solve different problems applying the theoretical thought in the department.
The Internship program designed to provide the B.B.A student with an opportunity to obtain on the job training, aim at bringing together the two facts of learning the theoretical and practical.
Objective of the Project
The objective of the internship is to familiarize with the real life banking and to compare it with the books that we have learnt.
The main objectives of the practical orientation are as follows:
- To understand the role of banks in Loans and Advances.
- To familiarize with practical banking activities of CBL.
- To know the General Banking practices ofCBL.
- To know how CBL does deal with Foreign Exchange.
Type of study: It is a descriptive type of study.
Product Mix of The City Bank Limited (CBL):
A product mix is the set of all products and items that a particular seller offers for sale.
A company’s product mix has certain width, length, depth, and consistency. These concepts can be applied in case of The City Bank Limited (CBL) in the following way:
Width of product of CBL: The width of a product mix refers to how many different product lines the company carries.
Tab!e: I Shows CBL product-mix width of three lines:
- General Banking
- Foreign Exchange
- Loan and Advance
Length of product of CBL: The length of a product mix refers to the total number of items in the mix.
Tabie: I Shows CBL product-mix Length of 12. We can also find the average length of a line. This is obtained by dividing the total length (here 12) by the number of lines (here 3), or an average product length of (Here, 12/3) 4.
Consistency of the product of CBL: The consistency of the product mix refers to how closely relate the various product lines are in end use, production requirements, distribution channels or some other way.
CBL product lines are highly consistent in terms of:
Enrl Use: This means customers are using all the offerings of CBL. There is no further processing or reselling of CBL offering.
Example: FDR, MBS, TSSS etc.
Production Requirement: All the production requirements (Documentation) of CBL are same. Example: Papers requirement for Account open, loan sanction etc.
Distribution Channels: This means all products of CBL are offered through all its Bra.lches. All of the offerings (services/products) are same.
During my Internship, I was placed in Gulshun Branch of The City Bank Limited (CBL). First, I have completed General Banking in this branch. General Banking of this branch consists of different sections, namely Account Opening section, Cheque Book Issue and Dispatch section, Remittance Section, Clearing and Bills Section, Accounts Section, Cash Section.
The City Bank Limited (CBL) offers different types of products or accounts under General Banking Department.
According to the Law and Practice, the Banker – Customer relation arises only from contract between these two. And opening of Account is the contract that establishes the relationship between a banker and a customer. So this section plays a very important role in attracting customer and therefore should be handled with extra care.
According to the International code of conduct banks should maintain following steps regarding their customers:
- Banks will act fairly and reasonably in all their dealings with their customers,
- Banks will help customers understand how their accounts operate and seek to give them a good understanding of banking services,
- Banks should maintain confidence in the security and integrity of banking and payment systems.
Different Types of Account or Product:
Gulshan Branch has the following types of accounts:
- Saving Account
- Current Account
- Short Term Deposit (STD) Account
- Fixed Deposit Receipt (FDR) Account
- Deposit Scheme Account
Various Services provide by this Department:
Other then this, General Banking deals with various services for their customers. During my practical orientation I have observed the Gulshan Branch deals with various types of services. These are:
- Demand Draft (DO),
- Pay Order (PO),
III. Telegraphic Transfer (IT),
- Clearing & Bills Section
- Safe Deposit Locker
- Utility Services
VII. Online Banking
Demand Draft (DD):
Demand Draft or DO is an instrument containing an order by the issuing branch upon another branch known as drawee branch, to pay a certain sum of money to the payee or to his/her order on demand. This is the easiest way to carry a large amount of money from one place to another with minimum risk.
Demand Draft Issue:
- Customer is supplied with DD/MT form.
- Customer fills up the form, which includes the name of the Drawer, name of the Payee, amount of money to be sent, exchange, name of the Drawee branch, signature and address of the drawer .
- The customer may pay in cash or by transferring the amount from hislher account (if any) .
- After the money is paid and the form is sealed and signed accordingly it is given to the DD issuing desk.
- Upon receiving the form concerned officer issue a DD on a particular block .
- DD block has two parts, one for bank and another for customer.
- Bank’s part contains issuing date, drawer’s name, payee’s name, sum of the money and name of the drawee branch. Customer’s part contains issuing date, name of the payee, sum of the money and name of the drawee branch.
- After furnishing all the required information entry of the DD is given in the DD issue register and at same time bank issue a DD confirmation slip addressing the drawee branch. This confirmation slip is entered into the DD advice issue register and a number is put on the confmnation slip from the same register. Later on the bank mail this slip to the drawee branch.
- At least two Grade-I officer sign the DD block and if the amount of the DD is Tk.20,OOO/= or more than the amount is sealed on the DD with a special red seal to protect it from material alteration .
- The number of DD is put on the DD form .
- Next the customer signs on the back of the DD and is supplied with his/her part ofDD.
Pay Order (PO):
Payment Order or PO gives payee the right to claim payment from the issuing branch. In other words it is an undertaking by the issuing bank to pay a certain sum of money to the payee or to order on demand.
Following procedure is maintained for the issuance of PO:
- Customer is supplied with PO form.
- After filling the form the customer pays the money in cash or by cheque.
- The concerned officer then issues PO on its specific block. This block has three parts, one for bank and other two for the customer. ‘AiC Payee’ crossing is sealed on all Pay Orders issued by the bank.
- The officer then writes down the number of the PO block on the PO form.
- Two authorized officers sign the block.
- At the end customer is provided with the two parts of the block after signing on the back of the Bank’s part.
Telegraphic Transfer (IT):
At customers’ request branch transfers fund to another branch through Telex and it is known as the IT, in short. IT facility is available only in that branch having Telex facility. Now, it is easy to done by mobile.
- Customer fills up the IT form and pays the amount along with commission in cash or by cheque.
- The respected officer issues a cost memo after receiving the IT form with payment seal, then sign it and at last give it to the customer.
- Next a IT confirmation slip is issued and its entry is given in the IT issue register.
- A test number is also put on the face of the slip. Two authorized officer signs this slip.
- Telex operator then transfers the message to the drawee branch mentioning the amount, name of the payee, and name of the issuing branch, date and test number.
- The confirmation slip is send by post.
Clearing & Bills Sect ion:
Gulshan Branch of CBL receives different types of instruments, such as cheque, PO, DO etc from its customers for collection. It also pays on behalf of its customers for those instruments that come to it through clearinghouse. When instruments of CBL are sent for collection or received for payment through clearing house it is called Inter Bank Clearance or IBC.
Safe Deposit Locker:
Only Savings / Current account holder of CBL can apply for a locker. There are three (3) types oflocker available in Gulshan Branch. These are: (I) Large (2) Medium (3) Small.
Loan And Advance
Profit is the pivot on which the entire business activity rotates. Banking is essentially a business dealing with money and credit. Like every other business activity banks are profit oriented. A bank invests its funds in many ways to eam profit. The bulk of its income is derived from loans and advances.
Banks make loans and advances to traders, businessmen and industrialists against security of some assets or on the basis of personal security of the borrower. In either case, the banks bear the risk of default in repayment. Therefore the banks have to follow a cautious policy and sound lending principles in the matter of lending.
Forms of Advances
- I) Secured advances: – Secured advance means an advance which is made against the security of any asset, the market value of which will never be less than the advanced amount.
2) Unsecured advances: – An unsecured advance is granted to a borrower without obtaining any security from him but bank can impose restriction on the borrower time to time.
Banks look out for Person himself, Relation with the bank, transactions with the bank and viability of business of that particular borrower. Then banks consider the securities offered by the borrower.
Bankers make loans and advances to the businessmen and industrialists against various types of securities. CBL also required sufficient securities before sanction of a loan or advances. Security can be two types-
(I) Tangible Security——-Land, Building, Machinery
(2) Intangible Security—–Bonds, Shares, Debentures, Sanchaya Patra, ICB unit cert. etc.
But following classification of securities is important for bankers. These are-
(I) Primary Security
The security deposited by the borrower himself as cover for the loan is called the primary security.
(2) Collateral Security
The securities deposited by the third party to secure advances for the borrower or on which the creditor (bank) has a personal right of action on the debtor in respect of the advances.
Generally following are considered as security
- Land and Machinery
- Permanent Assets (Building, Factory etc.)
- Gold ornaments
- Economic liabilities
- FDR / DPS
- All govt. security bonds (ICB unit cert., Wage earners bond, Sanchay Patra etc.)
- Insurance Policies
- Shares and Debentures
- Movable properties (Inventory, Stock etc.)
- Personal guarantee
Practices in Banks
The officials of banks generally follow the guidelines of the bank strictly. Government security & other bonds are considered as a safest security for sanctioning advances. Collection of security depends upon the party’s reliability also.
There are 6 types of modes of charging on securities.
Pledge is the bailment of the goods as security for payment of a debt or performance of a promise. A pledge may be in respect of goods including stocks and share as well as documents of title to goods such as railway receipt, bills of lading, dock warrants etc. duly endorsed in bank’s favor.
In case of hypothecation the possession and the ownership of the goods both rest the borrower. The borrower to the banker creates an equitable charge on the security. The borrower does this by executing a document known as Agreement of Hypothecation in favor of the lending bank.
According to section (58) of the Transfer of Property Act, 1882 mortgage is the ” transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, existing or future debt or the performance of an engagement which may give rise to a pecuniary liability”. In this case the mortgagor dose not transfer the ownership of the specific immovable property to the mortgagee, only transfers some of his rights as an owner. The banker exercises the equitable mortgage.
Lien is the right of the banker to retain the goods of the borrower until the loan is repaid.
The bankers’ lien is general lien. A banker can retain all securities in his possession till all claims against the concern person are satisfied.
Assignment means transfer of any existing or future right, property or debt by one person to a 1other person. The person who assigns the property is called assignor and the person to whom it is transferred is called assignee. Usually assignments are made of actionable claims such as book debts, insurance claims etc. In banking business, a borrower may assign to the banker (I) the book debts (2) money due from government’s dept. (3) insurance policy.
Set-off means the total or partial merging of a claim of one person against another in a counter claim by the latter against the former. It is in effect the combining of accounts between a debtor and a creditor so as to arrive at the net balance payable to one or the other, It is a right which accrues to the banker as a result of the banker-customer relationship.
Loan Area of CBL:
Bank, as financial institution IS a service-oriented organization. It provides financial services to the economy by mobilizing fund from surplus unit to deficit unit.
CBL has mobilized funds by introducing various financial products. Efficient & effective fund mobilization depends on individual bank’s capability of designing financial products.
These are: –
Cash Credit (Hypothecation)
- Cash Credit (Pledge)
- Overdraft Facilities
- Secured Overdraft Facilities
- Secured Overdraft (Work Order)
- Letter of Credi t (LlC)
- Back to Back Letter of Credit (BTB)
- Loan against Trust Receipt (L.T.R.)
- Loan against Imported Merchandise (L.I.M)
- Packing Cash Credit (P.C.C.)
These are Short Term Loan. Short Loan means term of loan is equal or less than one year. Gulshan Branch of CBL gives first 5 (Five) above mentioned credit facilities under this term by the Credit Department. Foreign Exchange Department provides rest of the loan facilities.
CBL considers the loans that are sanctioned for more than one year as term loans. Under this facility an individual or enterprise is financed for various purpose. These are:
Mid Term Loan
- Consumer Credit Scheme
- Transport Loan
- Lease Financing
- Long Term Loan
- House Building Loan (Commercial)
- Industrial Loan
SME (Small & Medium Enterprise) loan
- SOD (FO)
- Work Order
Mid Term Industrial Loan
Mid Term Industrial Loan means term of loan is upto 5 years. The City Bank Limited has a vision to improve the financial sector of Bangladesh i.e. economic condition of Bangladesh by providing effective and innovative banking and financial product in financial market. However, in every economy of the world financial sector is highly regulated sector.
Mid Term industrial fmance is allowed for the purposes:
To set up a manufacturing facility i.e. acquire land, buildings, plant and equipment, etc, collectively known as fixed assets
To finance for BMRE where “B” means for balancing, “M” modernization, “R” for replacement and “E” expansion Purchasing of adequate inventories comprising of raw materials, stock in process and finished goods, retaining sufficient cash and extending credit to their customers.
Consumer Credit Scheme
Consumer credit scheme offers the customers to buy their needed items of goods without paying the full cost of the item. Bank used to buy the product in favor of the customer. Customer needs to repay the loan with a fixed installment for a certain period of time. Since Bangladesh is one of the poorest country in the world. The majority of our population is forced to live substandard life. The middle class family carmot afford to buy their essential utility product with their fixed monthly income. In this connection banks in our country has introduced the scheme of consumer credit to extend credit facility to limited and fixed income group to improve their standard of living.
Consumer will repay the loan 24/36 monthly installments.
Loan: The loan limit is Tk. 20,000 to Tk.S, 00,000.
Rate of Interest: 14.50% -17%
CBL Lease Financing is given for EquipmentslMachinery for Industry or for BMRE of business project CBL finance Leasing of
- Capital Machinery
- Heavy construction equipments
- Lifts/ Elevators
- Air Conditioners
- Vehicles like Luxury bus, Mini-bus, Taxi-cab, Car, Pick-up, Trucks, etc
- Medical equipments
- Generators, Computers, etc
- Other costly consumer’s durable
The City Bank Limited offers lease financing facilities on the’ above items under pleasing atmosphere.
The Basic Terms:
The lessee bears all the liberty to decide and select the brand, specifications, price, supplier/seller and purchase terms & conditions of the leased items.
- i) Capital Machinery, Equipment and Medical Instrument – Maximum 5 (five) years.
- ii) Vehicles & other Consumer durable – Maximum, 4 (four) years.
iii) ApartmentlBuilding Case to Case basis.
Entire financed amount along with interest and charges would be recovered by equal monthly installments.
A minimum deposit equivalent to 3 (three) months lease rentals is required, which shall be refunded/adjusted on expiry of the lease term.
Rate of Interest:
- a) Leased item itself
- b) Bank/Insurance guarantee
- c) Encashable securities like FDR, BSP, Share Certificates oflisted companies, ICB unit Certificate etc.
- d) Immovable properties along with cash security if the value of tangible security falls short of the value ofleased assets and
- e) Personal guarantee of a gentleman acceptable to the Bank.
Clients have to take insurance coverage on bank stipulated insured value for the entire lease term at his own cost (Year to year basis).
Clients have to maintain the leased items in usable condition throughout the whole lease period at his cost and shall be solely responsible for any damage or loss although insurance will cover most of the abnormal risks.
Under the method CBL provides 100% funding while only 50%-60% of financing is made under traditional system.
Any finance, which is given against the hypothecation of vehicles like trucks, buses, marine vessel etc is termed as transport Loan. CBL gives advances under Transport Sector for the following purpose:
- Purchase of imported/locally assembled Buses, Minibuses, Trucks, and Scooters
- Import of reconditioned buses is subject to Import regulations.
- Construction or Purchase of Water vessels- passenger & cargo vessels locally built.
- Repair of watercrafts including purchase of engine.
Rate of Interest:
Interest rate is depend on the amount is taken for the time period.
- 3 sets of quotation/pro-forma invoice of the vehicles.
- Quotation of the vehicles body building from a recognized body building firm if not imported in complete form.
Long Term Industrial Loan:
Long Term Industrial Loan means term ofloan is more than 5 years.
House Building Loan (Commercial):
CBL House Building Loan (Commercial) means that are given for construction of buildings or structures to be used not for residential accommodation of the borrower but commercial utilization like renting or sale after the construction.
This is given for Land development, civil construction and renovation of building. Sometimes it is allowed for procuring Escalators, Air condition, Generator, Electrical equipment, Furniture & Fixture etc.
- Business plan (project profile) on the project
- Approved plan of the competent authority with the letter of approval
- Estimation of construction cost prepared by engineer, reputed engineering firm! enlisted surveyor of the bank.
- Survey report of Land by enlisted surveyor of the bank.
The City Bank Limited has a vision to improve the financial sector of Bangladesh i.e. economic condition of Bangladesh by providing effective and innovative banking and financial product in financial market. The purpose of Industrial Loan is almost same with Mid term Loan. But the differences are the time period and interest rate.
Small & Medium Enterprise (SME) Financing:
CBL finances an enterprise that has with minimum 3 and maxunum of 60 employees can apply for SME loan. Applicant should minimum 2 years experience in business. But start-up business will be considered if projections are very good. Enterprise should minimum annual turnover Taka 500,000 to maximum Taka 5 cores. The loan size is of minimum Taka 100,000 to a maximum of I core for a client.
CBL provide working capital or asset finance through:
- Overdraft – secured & unsecured
- Installment loan
- Letter of credit
- Guarantee / bonds
Who can avail the facilities?
- Shop keepers
- Small & medium entrepreneurs, manufacturers, traders etc.
- Suppliers to corporate businesses
- Professionals (doctors, engineers, etc)
- Business services
- Cottage industries
- Fleet (navy) financing
The revolving loan is one, which provides for restoring the credit to the original amount after it has been utilized. How many times it will be taking place must be specifically mentioned in the credit. The revolving credit may be either cumulative or non-cumulative. CBL provides this loan facility.
An installment loan, also known as closed-ended loan, is the borrowing of a certain amount of money from Bank and the repayment of it in installments over a set amount over a specific period of time. CBL gives this loan entrepreneurs, manufacturers, and traders as working capital, to buy goods etc.
Advance in form of overdraft is always allowed on a current account. Cheques will operate this account. The customer may be sanctioned a certain limit within which he can withdraw his loan amount for several times within a stipulated period. Here interest will be charged on the withdrawal loan amount. Overdraft facility normally given to the party for the expansion of business and this facility is given for maximum one year.
Advances allowed against to the individuals, or finns against fmancial obligations, i.e., lien on DPS, FOR, and ICB etc.
Against work order
There are three types of overdraft may take place.
Secured Overdraft (SOD):
Secured credit involves putting up some collateral that the creditor can take to satisfy the debt in case of default. The collateral may be personal property, real property
of liquid assets. In most cases 90% credit is covered. On basis of bank-customer relationship coverage may vary.
CBL gives this loan against the financial obligation of:
- FDR etc
Loan may be allowed upto 90% umier lien on DPS , FDR,erc
This kind of advance is allowed against the work order of a contractor involving construction, supply of goods or services.
Documents to be obtain for CBL loan:
- Work/Supply order for project/Supply of goods etc.
- Confirmation letter from the work awarding authority that all cheques against the work/ supply order shall be paid to the bank direct.
It is another secured loan. This loan is given against:
- Sanchaya Patra
- ICB unit cert. etc
Foreign Exchange, like Foreign Trade is a part of economic activities of a country. The term foreign Exchange is defined as ‘the system or the process of converting one national currency into another and of transferring money from one country to another”.
Foreign Exchange as Foreign Currency, which includes deposits, credits, and balances payable in Foreign Currency as well as Drafts, Traveler’s Cheques, Letter of Credit, Bill of Exchange drawn in local currency but payable in Foreign Currency.
Thus, the international trade and movement of money and capital are the mainsprings of Foreign Exchange dealings. In the modem day, the Banking service specially foreign department, is performing a great role, dealing with Foreign Trade, which are as follows:
- I) Import
3) Foreign Remittance
At Gulshan Br. ofCBL, foreign Exchange department has divided into 3 distinct sections. These are i) Import Section, ji) Export Section and iii) Foreign Remittance Section.
Some national and international laws regulate functions of this department. Among these,
Foreign Exchange Act, 1947 is for dealing in foreign exchange business and Import and Export control Act, 1950 is for Documentary Credits (UC’PDC-1993 revision & International chamber of terms and conditions between exporter and importer law for settlement of terms and condition between exporter and importer in international factors for import and export operation for banks).
The main product of Import section is LlC (Letter of Credit) operation to import goods in the country. Now, I start the discussion with the operation of import section.
Import section helps business and other people to import goods. In international environment, buyers and sellers are often unknown to each other. So sellers always seek guarantee for the payment for his goods exported. During this time, Bank gives export guarantee that it will pay for the goods on behalf of the buyer. This guarantee is called letter of Credit. Thus the banker gives the contact between importer and exporter by its “Letter of Credit”
A letter of credit is a letter by a bank (known as the opening or the issuing bank) at the instance of its customer (known as the opener) addressed to a person or a company (beneficiary) undertaking that the bills drawn by the beneficiary will be duly honored by it (opening bank) provided certain conditions mentioned in the letter have complied with.
When a buyer goes to import some goods from a foreign buyer, he requests his bank make payments to the exporter of goods. And the bank recovers the amount from the importer.
Steps for Import LIC Operation
Registration with CCI & E:
For engaging in international trade, every trader must be first registered with the Chief Controller of Import and Export. Trade can take license only for import or only for export or both. For getting license, trader has to pay some specified fees to the CCI & E.
The license is called IRCIERC – (lmportlExport registration Certificate). For opening LlC with bank, this IRC must be showed to the bank.
Determination terms of Credit:
The term of the letter of credit is depending upon the contract between the importer and exporter. The terms of the credit specify the amount of credit, name and address of the beneficiary and opener, tenor of the bill of exchange, period and mode of shipment and of destination, nature of credit, expiry date, name and number of sets of shipping documents etc.
Application by importer to the banker to open letter of credit:
For opening LlC, the importer is required to fill up a prescribed application form pro·. ided by the banker. This prescribed application form includes details of import information including terms of credit. It is evidence of agreement between the importer and the banker.
Document required with LlC application Form:
- Pro-forma invoice / Indent Invoice
- Liability Sheet
- Demand Promissory Note
- Authority to debit account
- A filled up amendment request form
- A declaration of importer that his application has no illegal matter.
- IMP form
- Insurance cover note, etc.
Opening ofL/C by the bank for the opener:
After getting filled up application form from the importer, the banker may open letter of credit in favor of exporter if the bank satisfies with the credit worthiness of his customer. But, before opening LlC, bank collects credit of exporter from exporter’s country through his foreign correspondence there. Opening bank then issues credit by air mail or cable followed by credit advice as asked for by the opener through his foreign correspondent or Advising bank as the beneficiary on his own form where it is addressed.
The opening banker’s credit advice contains all information of the credit and a reimbursement clause stating how the negotiating banker would get reimbursement of his payment made against the documents. The reimbursement of his payment made against the documents. The reimbursement agreement may be to debit of the opening banker’s account held with the negotiating bank of opening banker in the place of beneficiary.
Such account is called NOSTRO ACCOUNT. If no NOSTRO ACCOUNT is maintained in the beneficiary’s country, then the negotiating bank is asked to claim reir.Jbursement from another bank either at the place of beneficiary or else where by drawing a reimbursement draft.
During LlC operation some Credit facilities evolved to the importer. This credit facilitates are mentioned below:
Payment Against Documents (PAD):
This loan is related to cash LlC after opening LlC foreign exporter sends goods to the importer and a bill of exchange along with shipping documents to the LlC opening banle Upon receiving bill of exchange and other documents, bank immediately make payment to the exporter if no discrepant is found on the shipping documents. Bank hands over the shipping documents to the importer only to exporter on the basis of shipping documents, this is called payment documents.
Loan against Imported Merchandise (LIM):
LIM is occurred from PAD. After payment to the exporter on the basis of shipping documents, bank recovers the amount from the importer. The negotiation bank Sends bill of exchange to the Opening Bank. In this case, importer requests to the opening bank to treat PAD as credit and hand over the shipping documents to him so that he can clear the imported goods from the port. Then bank converts the PAD to regular credit and hand over the documents to loan. Since this loan is given on the imported goods, this is called Loan against Imported Merchandise. Duration of this loan is one month only, If the loan is no repaid after one month, it is treated as forced LIM.
Loan Against Trust Receipt (L TR):
L TR is also a post shipment import finance like LIM. The essential difference is that in L TR, shipping documents are delivered to the client on trust. The act of trust is based on past experience with and credit worthiness of client. L TR facilities usually have validity of 60 to 90 days. In industrial units, period of limit may be longer. In case of this facility, the clients always pay duty and charges. The Bank Manager must be absolutely sure that the client will deposits the sale proceeds towards payment of the bank dues within the stipulated period.
Miscellaneous services provide by this Department:
Student File Open:
Students who are desirous to study abroad can open file in this bank. By opening this file, bank assures the remittance of funds in abroad for study. Moreover, Bank sends financial information to the diplomatic office, which is very helpful for opener to get visa.
Foreign Demand Draft: Bank issues Demand Draft in favor of purchaser or any other according to instruction of purchaser. The payee can collect it for the drawee bank in which the Issuing bank of Demand Draft holds its NOSTRO Account. Bank also makes payment on DO drawn on this bank by its foreign correspondence bank through the VOSTRO Account. In the process of remittance, bank must have to make profit as a business institution. Bank makes profit in two ways· I. Commission charge and 2. Differences between the buying and selling rate.
Outwared IT: Bank also remit fund by tested telegraphich message via its foreigncorrespondence bank in which it is maintaining its NOSTRO Account.
Incoming IT: In the same manner, CBL makes payment according to telegraphic message of its foreign correspondence bank from the corresponding VOSTRO Account.
Cash Dollar/Pound Sell: Bank sells DollarlPound for using in abroad by the purchaser. The maximum amount of such sell is mentioned in the Bangladesh Bank publication of Convertibility of Taka for Currency Transactions in Bangladesh.
Cash Dollar/Pound purchase: Bank can purchase dollar from resident and nonresident Bangladeshi and Foreigner. Most dollars purchased comes from realization of Export bill of exchange.
These are the varIOUS types services given and operated by Foreign Exchange Department.
It is a great pleasure for me to have Internship in The City Bank Limited. Because without practical exposure it couldn’t be possible for me to compare the theory with practice. And it is well established that theory without practice is blind. During the Internship I have observed the function of General Banking, Foreign Exchange, Credit department, Account department of CBL that may help me a lot to be a professional banker in future.
Out of the above discussion a conclusion can be drawn after saying that, the present customer dealing procedure is quite well at this moment and the computerized transaction makes the system efficient and effective.