Main principle of this report is to analysis Banking Operations of Dutch Bangla Bank Limited. Other objectives are to observe and analyze the performance of the specific branch and the bank as a whole. Report also analysis existing banker customer relationship. Other focus subjects are about foreign trade and about loans and advances. Overall discussion are about general banking and about the function of administration.
Objective of the Report
The primary objective of the study is to meet the partial requirements for the fulfillment of the course ‘practical orientation in banks’. The core objectives of the practical orientation program in banks are as follows –
- To observe and analyze the performance of the specific branch and the bank as a whole.
- To be acquainted with day to day functioning of service oriented banking business.
- To study existing banker customer relationship
- To learn about foreign trade.
- To learn about loans and advances.
- To learn about general banking.
- To know about the function of administration.
In order to make the report more meaningful and presentable, two sources of data and information have been used widely.
The ‘Primary Sources’ are as follows –
- Face-to-face conversation with the respective offices the branch.
- Informal conversation with the clients.
- Practical work exposures on different desks of the branch covered.
- Relevant file study as provided by the officers concerned.
The ‘Secondary Sources’ of data and information’s are –
- Annual report (2007) of Dutch-Bangla Bank Limited.
- Periodicals published by Bangladesh Bank.
- Different publications regarding banking functions, foreign exchange operation and credit policies.
- The internet was also used as a theoretical source of information.
A proper procedure has been taken to complete this study. The procedures were as follows:
- Observing the procedure of banking activities followed by each department.
- Face to face discussion with the respective personnel.
- Reading various files.
Profile of the bank
Dutch-Bangla bank limited is a Bangladesh-European joint venture commercial bank incorporated in 1995. With the permission of Bangladesh Bank Limited, commenced formal commercial banking operation from the 3rd June 1996.
The Netherlands Development Finance Company (FMO) of the Netherlands is the international sponsors of the bank. The FMO is the Dutch development bank of the Netherlands specialized in the financing of private enterprises in Asia, Africa, Latin America and Eastern Europe.
Under a technical assistance grant form the FMO, ABN-AMRO bank of the Netherlands provided technical assistance to Dutch-Bangla Bank Limited during the first year of operation of the bank (1996-97.)
Dutch-Bangla bank limited (DBBL), primarily is a public company limited by shares, incorporated in Bangladesh under company act 1994. It is also guided by the bank company act 1991 (and its subsequent amendment) and Bangladesh Bank Ordinance 1972, so as to enable the company for doing banking business. The word DUTCH implies that this is a joint venture company and Dutch involvement is there.
History of DBBL
Dutch-Bangla bank limited is a brainchild of its chairman Mr. Mohammed Shabuddin Ahmed. He dreamed it long back, when he had been trying to arrange fund for Tamijuddin Textile Mills Limited (TTML.) and Kader Synthetic Fibers Limited (KSFL) though the traditional banking system. TTML is a public limited company. Its main business is yarn manufacturing with a conventional spinning mills of 44000-spindles capacity. KSFL is also a public company limited by shares with an investment of about Tk 2.0 billion and now engaged in manufacturing polyester draw textures and twisted yarn. Three international financing agencies like ADB, FMO, AFIC and two local development financing institutions, BSB & SABINCO have their investment in KSFL, both in terms of loan and equity. The projects were implemented, but had to face time and cost over run due mainly to the procedural delay in getting access to credit. Among others this might be a good reason for thinking about a bank wherein the entrepreneurs will have easy access to modern banking services.
Mr. Ahmed has close relationship with FMO, the Netherlands Development Finance Co. Limited since 1983. Nederland Financiering-Maatschappij voor Ontwikkelingslanden n.v. (FMO), a well reputed Holland based international financing institution has been extending their services, especially in development of SSE, SME and many other socio-economic activities mainly in the developing countries. Mr. Ahmed however, opened dialogue with FMO regarding the banking project some times in 1989. So far my knowledge goes, the first evidence in black and white was the letter dated January 07, 1990 written to one Mr. D.C. Vender Bijl, the then Manager, South-West Asia Department, of FMO. In a letter dated March 22, 1990 Mr. Groosman, another brilliant offer of FMO visited Bangladesh and wrote to Mr. F.J.Smit, the then Deputy Managing Director, FMO advocating Mr. Ahmed’s proposal. In this way correspondence in writing, discussion over telephone had been going on. Mission came to study the market, to prepare feasibility report and memorandum of understanding. The proposed name of the bank at first was ‘Development Finance and Commerce Bank Bangladesh Limited (DFCBL). At one stage opinion passed by the FMO mission that ‘Bangladesh is not yet ready for such investment’. But Mr. Ahmed did not leave the idea, rather he started exploring the possibility more vigorously.
At last Mr. M.E.H.J. Groot of small-scale department of FMO in his letter dated December 07, 1992 responded positively indicating that ‘Small Enterprises Department of FMO is in a position of finance intermediary Bank’ and accordingly asked for a ‘Business Plan’. The interim reply we are working on it and the document is coming in due course, we sent to FMO on 22-12-92.
The vigorous exercise of market and collection of primary data in crude form through ‘questionnaires’ started. The proposed name at that stage changed to ‘Long term credit and commerce bank limited. Thereafter lots of reports were prepared, tons of papers were utilized and not only man-days but also hundreds of man-nights were spent before materializing the dream through convincing FMO, taking approval of GOB, Bangladesh Bank, MOF, RJC, SEC, BOT etc. The result is today’s DBBL. The first European joint venture bank in Bangladesh has established.
Any way, let us now come to the theoretical aspects of the topic that usually requires to follow for formation for a company, in general and a banking company, in particular.
Banking company is also a company like others and required to be formed by way of incorporating it with the registrar of Joint Stock Companies and Firms (RJSC&F) as per companies act. 1994. But unlike others it is also guided by the bank company act. 1991 and Bangladesh Bank Ordinances.
The major steps to follow may be seen on the Screen. During the formation stage several studies including preparation of per-investment feasibility study, strategic plan, business plan, which inter-alia covers setting goals and objectives, formulating strategic plan, forecasting financial profitability, analyzing SWOT etc. The investors required to be convinced and satisfied with the goals, objectives, profitability and risk involvement before making investment.
The strategies, objectives, goals etc. set for the bank before launching it.
- Synchronized and steady growth of the bank.
- Utilize all available resources to develop various plans, policies and procedures in each of the objective and goal areas.
- Implement plans policies and procedures.
- Draw upon the connections, advice etc. of the foreign partners.
- Utilize a team of professional employees.
- Search for a total customized solution of I.T. for the purpose of full automation step.
- Develop a realistic deposit mobilization plan.
- Develop appropriate lending risk assessment system.
- Develop capital plan.
- Develop a system to make good advances.
- Develop a recruitment, compensation training and orientation plan.
- Develop a plan for offering better customers service.
- Develop appropriate management structure, systems, procedures and approaches.
- Develop scientific MIS to monitor bank’s activities.
- Build up a low cost fund base.
- Make sound loans and investments.
- Meet capital adequacy requirement at all the time.
- Ensure 100% recovery of all advances.
- Ensure a satisfied work force.
- Focus on fee-based income.
- Adopt a appropriate management technology.
- Install a scientific MIS to monitor bank’s activities.
All these were set during formation stage mainly for planning purpose. As you know planning is a continuous process. All these need to be updated and reset commensuration the need of the time.
The authorized capital of bank is Tk. 400.00 million. Total shareholders’ equity capital at the end of June 30, 2002 stood at Tk. 627.27 million consisting of paid-up capital of Tk. 202.135 million, share premium Tk. 11.068 million and reserves and retained earnings Tk. 414.07 million. On close of business on June 30, 2002 the capital adequacy ratio 9.13% as against accepted standard of 8.00%.
Dutch-Bangla Bank Limited has gone into public floatation during the 1st quarter of 2001 and has been listed with both DSE and CSE. Banks total issue is only 10%. Market prices of DBBL share rose up to Tk. 14325.80 average share price on last tr5ansaction day was Tk. 1465 per share.
On June 8, 2008 Dutch –Bangla bank limited has opened its Mirpur branch in Dhaka. It is the 64th branch of the bank. 1 more braches at khilkhat or tongi has been opened shortly.
Basic accounting system of the bank’s branches has been automated to optimize benefits and increase overall efficiency of superior customer services by way of increased speed, accuracy and also to ensure security. The bank has to continuously look for more and more sophistication and efficiency with this end in view, the bank has established information technology (IT) division as a top priority area. The division has been working for early automation of the full ranger of banking operation including launching of plastic money.
The relationship between banker and customer begins with the opening of an account by the customer. Opening of an account binds the banker and customer into contractual relationship under the legal framework of the ‘Contract Act – 1872’. But selection of customer for opening an account is very crucial for a bank. In fact, fraud and forgery of all kinds start by opening account. So, the Dutch-Bangla bank ltd. takes highest caution in this regard.
General Banking Department
General section is considered as the direct customer service center. It is the starting point of all the banking operation. It opens new accounts, remits funds, honor cheques, takes deposits, issues bank draft and pay order etc. General banking is also known as retail banking. Following are the major section in General banking.
- Account opening section
- Clearing section
- Remittance section
- FDR section
- Cash section
Account Opening Section
According to the law and practice the banker – customer relation arises only from contract between the 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 seek to give them a good understanding of banking services.
- Banks should maintain confidence in the security and integrity of banking and payment systems.
Individual or firm intended to open account in the branch applies for opening account in a prescribed form. The form is duly filled in by the applicant himself. The applicant is also required to fill the specimen signature sheet. Applicant must submit required documents with application form. Different kinds of document are needed for different kinds of account. For individual only introduction by another account holder of the bank is sufficient. But for firm and others, relevant documents must be submitted. Then the authorized officer scrutinizes the introduction and examines the documents submitted. If every thing appear satisfactory. Then he opens account.
Types of Account
Types of Account
Following types of account are generally opened by the Dutch-Bangla Bank:
- Current Deposits Account
- Savings Deposits Account
- Short Term Deposit
- Fixed Deposit
- Bearer Certificate Deposit
- Monthly Term Deposit
Savings Deposits Account
Dutch-Bangla bank ltd. Offers interest on every day’s balance in savings account @ 8.50% P.A.
Requirements for opening Savings Deposits Account
- Signature card
To open a saving account customer will have to fill up an application from supplied by the bank. The form contains following particulars:
- Name of the applicant
- Name of father/husband of the applicant
- Profession of the applicant
- Two Photographs
- Present address
- Permanent Address
- Introduction by any account holder or by a person acceptable to the bank.
- Verification by the concerned officer of the branch.
- Signature of the applicant.
After filling the form applicant will have to sign thrice on the specimen signature card. Most important thing is that these signatures must match with the signature on application form. These documents are then checked by the concerned officer and sent to the manager of the branch. Manager rechecks all the information and talk with the applicant to know more about him/her. When he is fully satisfied he put his signature on the form and verifies the signature. If any special instructions are required manager write it down at the end of the specimen signature card.
The form and the specimen signature card then sent to the officer who put an account number on the form and on the card. After completion of the above mentioned formalities a new account is opened with the bank for the new customer. Account can be open in joint name by to or more parties but who will operate the account it should be mentioned in the application. To obtain a cheque book the new account holder must deposit at least Tk. 3000/= in the account. This amount may vary depending on nature of the relationship of the person with the bank.
Short Term Deposit Accounts (STD)
Short term deposit or STD account opening procedure is similar to that of the saving account. The rate of interest on this type of account is 6.5% per annum. The deposits held in STD A/C are payable on short notice.
Requirements for opening STD A/C
- Account opening agreement form.
- Specimen signature card.
- Approval of authority
Fixed Deposit Receipt Account
Fixed Deposit Receipt Account deposit is taken for some maturity period
Requirements for opening FDR A/C
- Account agreement form
- Amount and period of deposit must be mentioned clearly
- Specimen signature card
- Approval of the authority
Fixed deposit is the amount deposited by the customer for a fixed period of time. In Dutch-Bangla bank ltd. This time period is minimum three months and maximum three years and above. The duration and the rate of interest on 1,00,000-9,00,000 different time period FDR is shown in the table below:
|Duration||Rate of Interest|
Opening procedure of FDR Account
- Bank provides the interested customer a fixed deposit form.
- Customer fills the form, which contains name of the customer, amount of money, duration, rate of interest etc.
- After filling the form customer pay the money in cash or by cheque.
- After receiving the form from the customer the respected office look for the cash seal or transfer seal. If any of these are present and the form is properly singed the officer provides a specimen signature card to the customer.
- Customer signs thrice on the specimen signature card along with his/her full name.
- At the same time respected officer issue a fixed deposit receipt on the specific FDR block.
This block has two parts, one for customer and another for the bank, containing same information on both parts. These are:
- Name of the customer
- Amount of money deposited
- Date on which the money is deposited
- Due date – on which the FDR will be matured
- Duration for which FDR has been made
- Rate of interest to be paid
When all required information is written on the block it is signed by at least officers and the manager verifies the specimen signature and put his sign on it.
Before taking his/her part of the FDR block the customer must sign on the back of the part to be kept in the bank and the signature must match the signatures on the specimen signature card.
Customer will receive interest depending on the duration of the FDR and will not get any interest if (s) he encash it before three months. Suppose a customer have an FDR account for the duration of 12 months and (s) he wants to encash it 10th month. In this case the customer will receive interest for (6+3) or 9 months. But if the duration is 3 months and the FDR is encashed before the maturity period then no interest will be pain on.
An FDR is renewed automatically for three months if the customer does not come to cash if after the maturity period. It can also be renewed upon the direction of the customer.
The local office of Dutch-Bangla bank ltd. facilitates customers with different types of current account. There are current accounts for individuals, proprietorship firms, partnership firms, Joint Stock Company and corporate body.
Account opening forms for these categories are different. Some terms and documents may differ but the overall process of account opening is similar to that of the saving account. Here I like to state what kinds of information to be furnished in the form and which documents customer should provide.
Requirement of CD account may vary upon individual, legal status of company and clubs, societies and associates.
Individual CD A/C
- Name of the Applicant
- Profession or Business of Applicant
- Address of the Applicant
- Photographs of the Applicant
- Introduction by an account holder of the branch or by a person acceptable to the branch
- Signature on the Application form
- Signature on the Specimen Signature card
- Verification of details and signatures by authorized officer.
Joint CD A/C
All the requirement of individual CD a/c must be fulfilled in addition with the joint account should be mentioned.
How the accounts will be operate.
- Account agreement form
- Trade license
- Specimen signature card
- Rubber-stamp impression
- Partnership deed
- Specimen signature card
- Account agreement form
- Letter of Partnership
- Trade License
Limited Liability Company
- Registration certificate from register of joint stock companies
- Certificate of Incorporation
- Memorandum of Association
- Articles of Association
- Annual audit report
- Copy of Board Resolution containing
- Name of the persons authorized to operate the bank account on behalf of the company
- Specimen signature card
- Account agreement form
Bearer Certificate Deposit
This is transferable by mere delivery. This certificate doesn’t contain any information about the depositor. Opening of such account doesn’t require any kind of document.
Closing of an Account
A customer may close his/her account any time by submitting an application to the manager or to the Branch in charge. The account of the customer is then checked to see how much money is still in it. The customer is then asked to draw a final cheque for the credit amount in the account excluding account close charge and other incidental charges. The customer then surrenders remaining cheques to the respected officer who tear off these cheques. Vouchers are then issued debiting the particular account and crediting incidental charges account.
In case of joint account the application to close the account must be signed by the holders even though the account is operated by either of them. All the joint holders should also sign the last cheque for withdrawal of the available balance in the account.
Cheque Book Issue
Issuance of Cheque Book (For New Account)
When a new account is opened and the customer deposits the minimum required money in the account the account opening form is sent for issuance of a cheque book respected officer first draw a cheque book kept under his own disposal. S/he then sealed it with branch name. S/he enters the number of the cheque book in cheque issue register. S/he also writes down the name of the customer and the account number in the same register.
Account numbers are then writes down on the face of the cheque book and on very leaf of the cheque book including requisition slip. The name of the customer is also written down on the face of the cheque book and on the requisition slip. ‘Issued on’ along with the date of issuance is written down on the requisition slip. Number of cheque book and date of issuance is also written on the application form. Next, the customer is asked to sign in the cheque book issue register. Then the respected officer signs on the face of the requisition slip put his initial in the register and hand over the cheque to the customer.
Issuance of Cheque Book (Old Account)
All the procedure for issuing a new cheque book for old account is same as the procedure of new account. Only difference is that customer have to submit the requisition slip of the old cheque book with date, signature and his/her address. Computer posting is then given to the requisition slip to know the position of account and to know how many leaf/leaves still not used. The number of new cheque book is entered on the back of the old requisition slip and is signed by the officer.
If the cheque is handed over to any other person then the account holder an acknowledgement slip is issued by the bank addressing the account holder with details of the cheque book. This acknowledgement slip must be signed by the account holder and returned to the bank. Otherwise the bank will not honor any cheque from this cheque book.
At the end of the day all the requisition slips and application forms are sent to the computer section to give entry to these new cheques.
Customers of a bank need to transfer his fund or money to anywhere within the country they can do it through the remittance section of the bank. Remittance section of general banking deals with only local remittances. During my internship I have observed local office branch deals with four types of local remittances. These are:
- Demand Draft (DD)
- Telegraphic Transfer (TT)
- Pay Order (PO)
- Mail Transfer (MT)
This is an order to pay money, drawn by one office of a bank upon another office of the same bank for a sum of money in any place, which is outside of the clearing house area of issuing branch. It is a negotiable instrument. It can be crossed or not. For payment of DD bank checks the ‘Test Code’ first mentioned on the draft. If test code agrees, then the bank makes payment. The issuing bank sends an advice about the DD to the paying branch, for further confirmation. Demand Draft 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.
Demand Draft Issue
- Customer is supplied width DD/MT form.
- Customer fill 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 his/her 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/MT 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 confirmation slip from the same register. Later on the bank mails this slip to the drawee branch.
At least two officer sign the DD block and if the amount of the DD is Tk. 20000/ 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 of DD.
Duplicate DD issue
If the customer reports that original DD purchased by him/her is lost or stolen and produces legal documents then the bank may issue a duplicate DD.
Demand Draft Payment
When a DD is brought for payment, the branch check out the following matters:
- Whether the DD is drawn on them
- Whether it is crossed or not
- Whether it is properly signed by authorized officers of the issuing branch
- The branch then checks out whether the confirmation slip has arrived or not
- If the confirmation has not arrived, the DD is given entry in the Ex-advice register.
Afterwards, when the confirmation slip arrives it is given entry in the DD/MT advice register and the word ‘Ex’ is written down beside the amount. The date of receiving the confirmation slip is written down in the contra date column of the Ex-advice register.
Concerned officer write down the date on which the DD was paid, on the confirmation slip, sign it and write ‘E.P. on < date of receiving the confirmation slip >’ between two parallel lines.
When the confirmation slip arrives before the DD, it is entered into the DD/MT advice register and kept in a file. Later when the DD arrives the date is put on the confirmation slip and the above-mentioned procedure is applied.
When the situation of payment arises concerned officer check out whether it is crossed or not.
If it is crossed (s) he should just transfer the amount to the account mentioned in DD by crediting the account and debiting the issuing branch.
If it is to be paid over the counter, the officer must check whether the person carrying the DD is the payee or not.
If all the particulars are alright and the payee is genuine bank made the payment.
Stop Payment of Demand Draft
The issuing can issue instructions to the drawee bank to stop the payment of the DD issued by them only on written request of the drawer and should inform the drawee bank immediately. Once the drawee branch made the payment, no action can be taken against it.
Pay Order (PO)
It is like cash but not exactly cash. It is an instrument which is issued from a certain branch of a bank and must be enchased from the same branch. Unlike cheque, there is no possibility of dishonoring pay order because before issuing pay order bank takes out money of the pay order in advance. It is not a negotiable instruments because it can not be endorsed or crossed.
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.
Pay order (Issue)
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. A/C 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 banks part.
Pay Order (Payment)
As the PO issued by the bank is crossed one it is not paid over the counter. On the contrary the amount is transferred to the payees’ account. To transfer the amount the payee must duly stamp the PO.
Telegraphic Transfer (TT)
In case of TT the issuing branch sends a telegraphic message to another branch to pay a certain some of money to a named payee account. Test code is furnished on the TT message for the protection of it. Generally for such kind of transfer, payee should have account with the paying bank, otherwise it is very difficult for the paying bank to recognize the exact payee.
At customer’s request branch transfers fund to another branch through telex and it is known as the TT, in short. TT facility is available only in that branch having telex facility. The procedure of issuing and paying TT’s are stated below:
- Customer fills up the TT form and pays the amount along with commission in cash or by cheque.
- The respected officer issues a cost memo after receiving the TT form with payment seal, then sign it and at last give it to the customer.
- Next a TT confirmation slip is issued and its entry is given in the TT issues 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.
- When a TT arrives through telex it is sent to the respected officer for the verification of the test number. If the test number is OK, the officer write down ‘Test Agreed’ on it and sign it. Otherwise a message is sent back to the issuing branch for the correction of the test number.
- After agreeing the test the branch issues a debit voucher and accredit voucher – debiting the issuing branch and crediting the payees account. Branch also issues a credit advice slip addressing the payee informing him/her about the arrival of the money.
- Later, when the confirmation slip arrives the contra date, on which the payment was made, is put on it and the officer sign it.
Like every other business activity banks are profit oriented and profit is the central point on which the entire business activity rotates. A bank invests its funds in many ways to earn income. The bulk of its income is derived from loans and advances. Since major part of bank’s income is derived from credit and since the money banks credited is customer’s fund, banks should follow a cautious policy and sound lending principles in the matter of lending.
Banks are the principal source of credit for borrowers. Banks provide loan able funds for millions of households, for most local units of government and for agricultural, commercial and industrial activates of a nation. Worldwide, banks grant more installments loans to consumers than any other financial institution. Bank credit is a catalyst for bringing about economic development. Without adequate finance there can be no growth or maintenance of a stable output. Bank lending is important to the economy, for it makes possible the financing of different sectors. At the same time, a bank will, therefore, distribute its funds among various assets in a manner as to derive sufficient income. But as liquidity and profitability are conflicting considerations. Dutch-Bangla Bank Ltd. as a bank, while employing the funds pays due regard to both profitability and liquidity.
Kinds of Advances
There are various kinds of borrowing facilities provided by banks to their clients. These facilities can be broadly classified into following categories:
The bank advances a lump sum for a certain period at an agreed rate of interest, in case of loan. Loan may be a demand loan or a term loan. The entire amount is paid on an occasion either in cash or by credit in his current account, which he can draw at any time. The interest is charged for the full amount sanctioned whether he withdraws the money from his account or not. The loan may be repaid in installments or at expiry of a certain period.
Overdraft is a temporary accommodation usually granted to an operating account subject to the limit sanctioned. This is a permanent arrangement and the customer need not to draw the sanctioned amount at once, but draw the amount as and when required. This interest is charged on the amount, which he withdraws, not on the sanctioned amount. OD is of two types practiced in Dutch-Bangla Bank Ltd. Foreign Exchange branch. These are as follows –
Secured Overdraft (Sod)
Branch sanctions SOD against different securities like FDR, Sanchaypatras and work orders.
Temporary Overdraft (TOD)
It is given to the valued customers only. It is not that much secured. Usually it forwards without any security or sometimes exercise lien against the instrument, deposited in the bank. The processes of extending SOD are as follows –
The party must have a current A/C with the branch if the ownership of the firm is proprietorship, then a trade license must be submitted and in case of a limited company, all the documents required to open a current A/C, should be submitted. The financial statements of the concerned firm should also be submitted. The party must maintain a good transaction with the branch and have a good turnover rate. The party will apply to the officer in charge of credit department of the branch for SOD arrangement.
The concerned officer of the branch will give him a credit application form and the party will have to fill up this form. In this form he discloses all the information about his concern, purpose of the loan, description of security, etc. The concerned officer will prepare a ‘Credit Proposal’, where he writes about the business concern, details of proprietors/directors of the concern, management structure, the existing credit facilities, the particulars about the facilities that asked for – such as margin limit, date of expiry, details of security, and any other relevant information. Then the proposal is sent to the Head Office, Credit Division for approval. The responsible department of the Credit Division will appraise the proposal and if it seems to a viable then the loan will be sanctioned.
After the loan is sanctioned, the branch will issue two copies of a sanction advice, where all the terms and conditions set by the bank is mentioned. The borrower is advised to write, ‘accepted’ on the original copy if he is satisfied with the terms and conditions of the bank and retain the duplicate one as record.
By this arrangement, a banker allows his customer to borrow money up to a certain limit. CC is a favorite mode of borrowing by trades, industrialists, etc. for meeting their working capital requirements. It is operated like overdraft account. Depending on the needs of the business, the borrower can draw on his cash credit account at different time and when he gets money can adjust the liability. Dutch-Bangla Bank Ltd. charges interest on the daily balance of the account. Based on charging securities, there are two forms of cash credit.
Cash Credit (Hypothecation)
Hypothecation is a legal transaction whereby goods are made available to the lending banker as security for a debt without transferring either the property in the goods or possession. The banker has only equitable charge on stocks, which practically means nothing. It is given against registered mortgage of land and building, hypothecation of goods and personal guarantee of Directors.
Cash Credit (Pledge)
Pledge is the bailment of goods as security for payment of a debt or performance of a promise. Transfer of possession is the judicial sense. In case of pledge goods the bank acquire the possession of the goods or a right to hold goods until the repayment for credit with a special right to sell after due notice to the borrower in the event of non-repayment. It is not applicable in foreign exchange branch.
The processes of opening a CC a/c are as follows –
The interested party must have a current A/C and good transaction with the branch; applies for CC pledge or hypothecation arrangement; fills up the ‘Credit Application form’ as provided by the respective officer; the concerned officer prepares a ‘Credit Proposal’ detailing all relevant information; sends the credit proposal to the Head Office, Credit Division for necessary action, Head office, Credit Division examines the proposal and if finds it viable then sanctions it and sends it to the branch; the branch issues two copies of ‘Sanction Advice’, one for its own record and the other for the party to keep.
After getting the cash credit arrangement, the banker will issue a cheque book for withdrawing cash from the account. Whenever the CC account holder wants to withdraw cash from the account, the cash officer will scrutinize the amount of cheque in order to make sure that the total drawings do not exceed the sanctioned limit.
It is given against personal guarantee, hypothecation of goods and land & building.
Local office branch provides advances to the staff for purchasing house, building, sanchaypatras, and meeting up certain requirements like family medical, personal medical, wedding purposes. Bank provides this facility under installments, loan able amount varies on the basis of purpose.
Local Office branch purchases demand bills of exchange that are called ‘Draft’ accompanied by documents of title to goods such as bill of landing, railway receipt, truck receipt. The purchase of bill of exchange drawn at an issuance, i.e. for a certain period maturing on a future date and not payable on demand or sight.
Dutch-Bangla Bank Ltd. is advancing both short and medium term credit to the commercial sector on the basis of their capital structure, constitution and liquidity consideration. It is given against land and building along with machinery, personal guarantee of Directors and hypothecation of raw materials.
Bills Purchased and Discount
Banks grant advances to their customers by discounting bill if exchange.
Loan against Imported Merchandise (LIM)
Advances allowed for retirement of shipping documents and release of good imported through L/C taking effective control over the goods by pledge fall under this type of advance. When the importer failed to pay the amount payable the exporter against import, L/C, then DBBL gives loan against imported merchandise to the importer. The importer will bear all the expense i.e. the godown charge, insurance fees, etc. and the ownership of the goods in retain to the bank. This is also a temporary advance connected with import, which is known as post import finance.
Payments against Documents (PAD)
The importers are to open letter of credit through any bank for importing goods. Most of the time, the banks are to extend credit to the importers, without violating the rules and circulars of Bangladesh bank, for buying required foreign exchange. This loan on receipts of the shipping documents from the negotiating bank is transferred and lodged to PAD. PAD is associated with import and import financing. This kind of loan is issued in favor or the exporter to fulfill the commitment of issuing bank of L/C to the exporter.
Loan against Trust Receipt (LTR)
Advance allowed for retirement of shipping documents and release of goods imported through L/C falls under this head. The goods are handed over to the importer under trust with arrangement that sale proceeds should be deposited to liquidate the advances within a given period. This is post import finance by DBBL.
Inland Bill Purchased (IBP)
Payment made against documents representing sell of goods to local export oriented industries, which are deemed as exports and which are denominated in local currency/foreign currency falls under this head. The bill of exchange is held as the primary security. The client submits the usance bill and the bank discounts it. This temporary liability is adjustable from the proceeds of the bills.
IBP is one of the moods of advancing money by bank and it is a profitable way of deploying banks fund for short period. The party himself must draw genuine trade transaction and the bill and he is not the purchaser of the bill. ILC and mother L/C of export is needed to sanction the loan. The banks scrutinize the shipping document of ILC and asked the ILC opening bank for acceptance of the bill with maturity date. The bill will purchase up to 80% of the accepted value.
Credit Policy of Dutch-Bangla Bank Ltd. (DBBL)
The credit policy of any banking institution is a combination of certain accepted time tested standards, and some other dynamic factors determined by the realities of varying and changing situations in the market place.
Credit policy lays down the DBBL principles and broad parameters of the lending operations. The key is to a sound, healthy and profitable credit operation, however, lies in the quality of judgment and sense of proportion of the officers making lending decisions, and their knowledge of the borrowers and the market place.
DBBL 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.
Rate of Interest on Loan
|Lending Type||Rate of Interest (%)|
Loan to Primary Producers
Other (Loan to Agriculture Input Traders/Fertilizers)
|Term Loans to industry (Other than and cottage industry)||16.50|
|Working capital loan||16.50|
|Term loan to small and cottage industries||14.00|
Securities against Advances
All securities are suitable for all types of advances. Each security has its own suitability. Specific security to be obtained by the local office branch while allowing advance are shown below against the types of advances:
|Types of Advances||Securities|
|Loans||Lien of various kinds of Sanchaypatras, Govt. Securities and shares quoted in the stock exchange, debentures, fixed deposit receipts, pledge of gold/gold ornaments, and hypothecation of vehicles. Collateral of immovable properties.|
|Overdraft||Sanchaypatra, Non-resident foreign currency deposit, shares debentures, Govt. promissory notes, fixed deposit receipts, life insurance policies, gold ornaments, and work order.|
|Cash Credits||Pledge or hypothecation of stock in trade, goods, produce and merchandise, machinery, land & building on which machinery are installed.|
|Inland bill purchased||Bill itself|
|Pad||Shipping documents for imports|
|Lim||Pledge of imported merchandise|
|Ltr||Trust receipt obtained in lieu of import documents|
|Export cash credit||Pledge or hypothecation of goods or export trusts receipts.|
|Foreign bill purchased||Shipping documents.|
General procedure for loans and advances
The following procedure is applicable for giving loans to the customer. These are
- Duly fill-up first information sheet
- Application for credit line
- Collecting CIB report from Bangladesh Bank
- Making credit proposal
- Project appraisal
- Head office approval
- Sanction letter
First Information Sheet
First information sheet is the prescribed form provided by the respective branch that contains DBBL information of the borrower. It contains following particulars-
Name of the concern with its factory location, officer address and Tel No. Name o the main sponsors with their educational qualification. Business experience of the sponsors, details of past and present business, its achievement and failures, name of all the concerns wherein the sponsors have involvement. Income tax registration no with the amount of tax paid for the last three years. Details of unencumbered assets personally owned by the sponsors. Details of liabilities with other banks and financial institutions including securities held there against. Purpose of loan sought from DBBL. Estimated cost of the Project & means of finance.
Application for Credit
After receiving the first information sheet from the borrower bank official verifies all the information carefully. He also checks the account maintains by the borrower with the bank. If the official becomes satisfied then he gives application for credit line form to the prospective borrower. The application for credit lines contains the following particulars:
Name, address, telephone, telex no & cable address. Date & place established/ incorporated, status / constitution. Name of major shareholders (in excess of 15%).
State relationship between shareholders. Name and net worth of directors/partners/owners with background & relationship with each other (Net worth statement of each person to be attached as per format). Capital structure & how the capital is deployed in business. Details of properties/assets of the applicant, with valuation against each type of property/assets and details of charges against them.
Names and addresses of subsidiaries/affiliates/allied concerns, stating relationship with applicant, nature of business and borrowings from banks against each nature & details of business. Latest audited/un-audited balance sheet and profit & loss statement attached will be submitted by management structure. Names & address of other bankers, sanctioned facilities & liabilities outstanding with details of securities there against. Type, extent and period of credit facilities required. Purpose of facility, repayment arrangement, sources of repayment, details of securities offered & any other relevant information.
After getting the application banks appraise the application in the following way:
- Getting credit information to determine the credit worthiness of the borrower through –
- Confidential report from other bank
- Personal investigation
- Credit information bureau report form Bangladesh Bank.
Considering the following 5C’S –
- Character: The most valuable asset of a person, which is based on the integrity and reliability of the borrower.
- Capacity: Indicate the borrower capacity to employ the fund profitably.
- Capital: Refers to borrower’s own fund invested in the business.
- Collateral: Security offered by borrower.
Collecting CIB Report from Bangladesh Bank
After receiving the application for credit line, Dutch-Bangla Bank Ltd. sends a letter to Bangladesh Bank for obtaining a report from there. This report is called CIB (Credit Information Bureau) report. DBBL ally branch seeks this report from the had office for all kinds of loans. The purpose of this report is to being informed that whether the borrower has taken loan from any other bank; if ‘yes’, then whether the party has any overdue amount or not.
Making Credit Proposal
Then bank branch prepare a loan proposal which contains terms and conditions of loan for approval of Head Office or Head of the concerned branch. Following documents are necessary for sending the credit proposal:
- Loan application
- Declaration of the borrower
- Photograph of the borrower duly attested
- Bio data of the borrower
- Limit sanction
- Credit report
- Legal opinion
- Memorandum of Article
- Trade license
- Copy of title deeds
- Tax clearance certificate
If the officer thinks that the project is feasible then he will prepare a proposal. Dutch-Bangla Bank Ltd. prepares the proposal in a specific form called credit proposal. It contains following relevant information.
- Date established, constitution
- Main sponsor/director with background
- Capital structure, address
- Account opening date, introduced by type of business, particulars of previous sanctions
- Existing vis-à-vis proposed credit limits
- Particulars of proposed/additional facilities
- Security (Existing & Proposed/Additional)
- Movement of accounts
- Components on the conduct of the account
- Details of deposit, liabilities of allied concerns, liabilities with other banks
- CIB report
- Stock position ( Provide St. report)
- Rated capacity of the project (item wise)
- Production/purchase during the period
- Sales during the period
- Business received for the period (Last three years)
- Earning received for the period
- Associated lending/business risk (s).
After fulfilling the previous particulars, the officer places the Credit Proposal to the BCC (Brach Credit Committee). BCC is then find out the rights borrower by considering the following 5C’s. These are character, capital, capacity, collateral, condition (* economic).
Selection of Right Borrower
The borrower has to be creditworthy and competent enough to run the proposed industry. Following are the consideration –
- Preference given for educated/knowledgeable sponsors, who know about their business concern, have technically know-how and expertise in the field of proposed industry
- Who have own land and building for running the project
- Client with innovative ideas
- Client must have net worth more than 2.5 times of the equity required for investment in the project.
- Who have good dealings with the bankers/outside parties and has social contacts and standings
- Have an a/c with Dutch-Bangla Bank Ltd. (DBBL) local officer branch.
It is the pre-investment analysis done by the officer before approval of the project. Project appraisal in the banking sector is needed for the following reasons:
- To justify the soundness of an investment
- To ensure repayment of bank finance
- To achieve organizational goals
- To recommend if the project is not designed properly.
DBBL ally Head Office is engaged in appraising the following projects:
- Proposal for sanctioning a term loan.
- Proposal for sanctioning a working capital
- Proposal for sanctioning a term loan and working capital
- Proposal for renewal of advance limit
- Proposal for enhancement of advanced limit
- Proposal for enhanced renewal of advanced limit
- Proposal for extension of repayment period.
Techniques of Project Appraisal
An appraisal is a systematic exercise to establish that the proposed project is a viable preposition. The appraising officer checks the various details submitted by the promoter in first information sheet, application for credit line and credit proposal. Dutch-Bangla Bank Ltd. consider the following aspects in appraising a proposal.
- Technical viability
- Commercial viability
- Financial viability
- Economic viability
The Head Office (HO) mainly checks the technical, commercial and financial viability of the project. For others HO is dependent on branch’s information. But when the loan size is big, then the HO verifies the authenticity of information physically.
It implies the assessment of various requirement of actual production process. It involves a critical study of following factors:
Location or site of the Project
Selection of the optimum location, therefore, revolves around the joint consideration and evaluation of the following factors –
- Raw materials supplies
- Transportation facilities
- Power, water and fuel supply
- Natural and climatic factors
Plant, Machinery and Equipment
The study should consider some important technological factors with regard to plant and equipment, viz.:
- Adequacy and suitability of the machinery and equipment and their specification\
- Plant layout
- Balancing of different sections of the plant
- Reputation of the machinery supplies etc.
It includes details of finished products by using the raw materials.
Management and Organizational Viability
It is very much important for the success of a project. So it is necessary to evaluate the following:
- Overall background of the promoter, and their
- Academic qualification
- Business and industrial experience
- Business and industrial experience
- Past performance
This study indicates evaluation of a projects’ feasibility in terms of market. The market analysis contains:
- Analysis of past and present demand
- Analysis of past and present supply
- Analysis of demand and supply gap
- Determination of pricing per unit
- Estimates project’s share in the market
- Marketing channel for the product should be accessible to the entrepreneur.
Analysis of financial viability is an essential part of project appraisal. The financial analysis focuses the following for judging this viability.
Cost of the Project and means of Finance
It is necessary to make a preliminary assessment of the project and the means of the financing it. If the cost of the project is too high that it is not possible to mobilize the resources of that magnitude through the available resources, the project is out of question.
It is the ration that shows the relationship between capital contributed by the creditors and that contributed by the owners. A low ration indicates greater long-term financial safety.
Comparison with similar Projects
If the proposed project is similar to other projects, financed earlier by DBBL Bank, then it is only done.
Working Capital Assessment
If the borrower proposes for working capital, then the bank does the assessment. It is done for the raw material, raw material, work-in-process and finished goods. The tied-up period for imported raw material is generally 90 days, for local raw material 30 days, for work-in-process 7-10 days and for finished goods 3-7 days. Ultimately tied-up period depends on the nature of the goods.
Requirement of Fund
It includes allowable bank borrowing and proposed limit by the credit committee on the basis of 70% of RM, WIP & FG and imported raw materials. CC (H), LTR and in case of imported materials L/C the bank offers such facilities.
It includes capacity utilization (%), sales revenue, cost of goods sold, gross profit, total operating expenses and operating profit. It is done for 3 years only. For new projects, capacity utilization is 60%, 70%, 80% for year 1, 2, 3, respectively. Cost of goods sold is around 70% of sales revenue.
Mainly it deals with various ratios like gross profit to sales, operating profit to sales, debt-service coverage ration, internal rate of return, break even point, BEP (efficiency).
Internal Rate of Return (IRR)
IRR is a discount factor where summation of cash inflow and cash outflow of a project equals to zero. In 1st year cash outflows for project implementation. So it sis always negative. In subsequent years cash inflows to the project to make it viable. Normally economic life of a project will operate at break even point. When it is more than zero project will be profitable. Otherwise project will incur loss. The standard IRR value is considered 20% to 35%. Respective officer does it by trial and error method.
Break Even Point
Break even point of an enterprise/firm is a point where total revenue/sales proceeds/sale or output equals total cost. It indicated that level of output/sale proceeds at which the firm recovers all its costs. It neither earns profit nor incurs any loss. In other words, this is a point of zero profitability.
It is normally done in two ways:
- Lowering capacity utilization by 10%
- Lowering selling price by 10%
This analysis is done to see that the project can absorb both the shocks and to determine the project is more sensitive to one over another. Here also both earning forecast and operating results are calculated in the aforesaid two cases.
Lending Risk Analysis (LRA)
Usually experienced bank officials do the critical and crucial job. LRA involves two types of risk aspects.
- Business risk and
- Security risk.
Business risk is again divided into two parts:
- Industry risk which involves supply risk and sales risk
- Company risk which involves performance risk, resilience risk, management competence risk and management integrity risk.
Again there are two elements of security risk
- Security control risk and
- Security covers risk.
Decision matrix form IRA
From the LRA sheet we can calculate the following numbers and plotting them into the matrix to get the decision. The calculated result criteria is as under –
|Low Risk||Average Risk||High Risk||Excessive Risk|
Based on raw materials supply and selling of finished products and also demand supply gap, bank officials determine the industry risk. And company risk is determined by repayment behavior of the sister concern and by the competent management security risk is determined by creating the charges, taking charge documents against registered mortgage of lands and others.
The project should ensure benefit to the national economic and create sufficient opportunity in the following areas:
- Generation of employment
- Income distribution
- Development of small scale industries & ancillary business
- Improvement of quality of life and well-being
- Environmental issues
- Opportunity cost
Head Office Approval
Upon receipt of the credit line proposal from the branch the Head Office aging appraises the project. If it seems to be a viable one, the H.O. sends it to the Board of Directors for the approval of the loan. The Board of Directors considers the proposal and takes decision whether to approve the loan or not. If the loan is approved by the BOD, the H.O. sends the approval to the concerned branch.
The respective officer of Head Office appraises the project by preparing a summary named “Top Sheet” or ‘Executive Summary’. Then he sends it to the Head Office Credit Committee for the approval of the loan. The Head Office Credit Committee considers the proposal and takes decision whether to approve the loan or not. If the loan is approved by the committee, the HO sends the approval to the concerned branch with some conditions. These are like:
- Drawing will not exceeds the amount of bill receivables
- The tern over in the account during the tenure of the limit should not be less than four times of the credit limit.
- All other terms and conditions, as per policy and practice of the bank for such advance to safeguard the banker’s interest shall also be applicable for this sanction also
- Bank may charge/alter/cancel any clause (s) of the sanction without assigning any reason whatsoever and that shall be binding upon the client unconditionally
- Branch shall not exceed the sanctioned limit. Required charge documents with duly stamped should be obtained
- Drawing shall be allowed only after completion of mortgage formalities and other security arrangement.
After getting the approval of the H.O. the branch issues sanction letter to the borrower. A sanction letter contains the following particulars amongst other details:
- Name of borrower
- Facility allowed
- Rate of interest
- Period of the loan and mode of adjustment
- Others terms and conditions
After getting the approval from the HO, the branch issues the sanction letter to the borrower. A sanction letter contains the following particulars amongst other details.
4 P’s in DBBL:
DBBL is using 4 P’s (Product, Price, Place, and Promotion) in there marketing in a broad sense.
Product: DBBL is providing several products and services as follows.
- Saving a/c
- Current a/c
- Short Term Deposit [STD] a/c
- power a/c
- Excel a/c
- SMS Banking
SME banking of DBBL
DBBL always try to keep low charge for all it’s services. The advantages of DBBL Pricing system are as follows.
- All the services are lowest in cost compared to other banks.
- Various types of lone facilities in a low interest rate
- Charges of Bank solvency certificate, Bank statement, Balance transfer, Bank draft, Pay order etc are very low.
- Letter of credit [L.C.] – DBBL provide various types of L.C. related facilities. Even they
DBBL allows trey to provide vest customer service. That’s why they have the largest ATM network all over the country. You don’t need to carry cash if u has any card of DBBL.
- Available ATM booth in every popular location. Total number of ATM booth all over the country are 449 *
- There are 64 branches all over the country.*
- There are a number of PSO in important shaping malls. The total number of PSO all over the country are 634 *
- They took a part in the “Dhaka International Trade Fare” on 2009.
- They are offering account opening by take 500 only.
- Advertisement & calibration.
- DBBL takes lots of promotional activities for there internal employees.
- Credit Risk Management of Jamuna Bank Limited.
- Contribution Scope and Limitation of E-banking in Bangladesh
- Banking Strategy Overview of Standard Bank Limited
- Retail Banking Management of EXIM Bank Limited
- Overall Banking System of Jamuna Bank Limited.
- Growth and Diversification of Investments of EXIM Bank