Thesis Report CCS

Consumer Credit Scheme a Comparable Study to Other Commercial Banks With Prime Bank
Report on Prime Bank Limited
Thesis Report on
Consumer Credit Scheme A Comparable Study to other Commercial Banks With Prime Bank Ltd.
Prepared for Farzana Lalarukh Assistant Professor Department of Finance Faculty of Business studies University of Dhaka Prepared by Shahana Shumy Batch: M.B.A. 4th Roll # 4-226, Group-Finance Department of Finance University of Dhaka
Date of Submission: December 29, 2004
Letter of Transmittal
December 29, 2004

Farzana Lalarukh Assistant Professor Department of Finance Faculty of Business Studies University of Dhaka.
Subject: Consumers Credit Scheme a Comparative Study on Prime Bank Limited with Other Private Sector Branch. Madam, With due respect and honor I would like to inform you that I am Shahana Shumy MBA 4th Batch Department of Finance, University of Dhaka, prepare a thesis report on the Prime Bank Limited. The name of the topic is Consumer Credit Scheme a Comparable Study to Other Commercial Banks With Prime Bank. Therefore, I hope and pray that you will be kind enough to accept my report. I would be pleased to make your further classification if necessary.
With best regards. Sincerely yours.
(Shahana Shumy) MBA 4th Batch Roll-4-226 Group: Finance Department of Finance University of Dhaka
Acknowledgement
First of all I wish to thank immeasurable grate & profound kindness of the almighty Allah, The supreme Authority of the universe. The report mainly focus on the present situation, consumer credit scheme: a comparable study to other commercial Banks with PBL, for these I had to work with all the departments, top management and with my colleges. So I am indebted to them all. The talented Staff at the company helps a lot to prepare the report. I am express my deep sense o gratitude and sincere appreciation to my internship supervision Mr. Salauddin Ahmed Khan, Associate Professor & Director, Department of Finance & Banking, University of Dhaka for his guidance & Special supervision during my work. I am very grateful to the following person who helped me every step in preparing this report. First and before all I would like to thank Mr. M. Shahidul Islam SVP, Past Manger of the Elephant Road Branch & Mr. Shamsul Haq, SVP, present manger of the Elephant Road Branch, they are provide me with the time, support and inspiration needed to prepare this paper. A special Thank to Mr. Suk Dev AVP, ERB, Mr. Ibrahim Hossain Gazi, SEO ERB; Md. Moniurzzaman, SEO, ERB, Dorothy Sultana, SEO, ERB; Sultana Parven E.O, ERB; officers of ERB for their will full and heartiest co-operation. A very special thanks to Md. Golam Mostafa, S.O, ERB & A.B.M. Sayedur Rahman, J.O, ERB & Other officers who helped me to gather the supporting m formation, encouraged as well as generous comments & suggestions despite their very inflexible schedule.
Executive Summery
Consumer Credit Scheme-A Comparative Study on Prime Bank Ltd. with other Private Sector Banks. Prime Bank Ltd. was incorporated on 12 th February 1995 under the companies Act 1994. It commenced business on and from 17 th April 1995. Its authorized capital is Tk. 1000 million, paid up capital is Tk. 600 million and reserved fund is Tk. 807.92 million. Prime Bank Ltd. Started functioning with a commitment to play some social role in addition to normal banking. To achieve this objective, this bank started lease financing, capital market operation and consumer credit scheme. Consumer Credit is the combination of two words. Consumer and Credit. Consumer means one who consumes or it also means one who uses article produced. Credit comes from the Latin word Credo meaning I believe. When one borrows money, the loan is based upon confidence in the future solvency of the person and in his repaying the loan as per agreement. Consumer Credit Scheme is a new concept in Bangladesh and it proves the consumers equity participation. First Islami Bank Bangladesh Ltd. and then Prime Bank Ltd. introduced this scheme for developing the standard of living of fixed income group and middle class people. Under consumer Credit Scheme the credit is provided for goods like Car, Pick-up. Motor Cycle, Personal Computer, Television, and Refrigerator etc. The consumer credit scheme of the Prime Bank Ltd. has been successfully operating since 1995. But it faces some pre-sanctioned stage and post sanctioned stage problems. Among Pre-sanctioned.
Stage problems, selection of appropriate customer, lacks of expertise at branch level are mentionable. Among post sanction stage problems, limitations to field inspection facilities, lacks of proper communication with the default customer are also mentionable. In this report, brief information regarding the Prime Bank Ltd. the procedure of disbursing and recovery loan and formalities of consumer credit scheme have been death with far letter understanding. The performances of last five years of this scheme of Prime Bank Ltd. and the analysis of this scheme to other investment have also been mentioned. This scheme needs the contemporary needs of the society. There is a large market demand to this scheme in a developing country like Bangladesh. The performance of Prime Bank is very much satisfactory in comparison to other commercial banks. It is fully a supervisory and monitoring scheme. It was found that service holders bath private and government availed themselves of this loan facility most. Maximum consumed item are: personal computer color television, washing machine etc. The defaulters of this scheme are businessmen, private service holders, defense service holders and contractors. Apparently it seems that recovery position is good. But the size of manpower in CCS is smaller in comparison to total work volume. Most of the bank disburse through cash or pay order but only. IBB, Dhaka gives goods delivery. Officers present physically when a good is delivered. So the objectives are fulfilled properly by these Branches. There are some problems also. The customer fell botheration for it procedure. Sometimes the customers fell trouble whose mentality is to take cash not goods. Finally, it can be stated that consumer credit scheme introduced by different Private Banks has helped much in raising the standard of living of the middle class and fixed earning income group people.
Table of Content
Chapter 1 2 3 4 5 6 Introduction
Subject
Theoretical Review of Consumer Credit Scheme Prime Bank Limited: at a glance Concept of Consumer Credit Scheme Overview of Consumer Credit Scheme of Prime Bank Limited Procedure of Consumer Credit Scheme of Prime Bank Limited Performance Evaluation of Consumer Credit Scheme of PBL Analytical Exploration of Consumer Credit Scheme SWOT Analysis Findings & Suggestion of C.C.S Appendix Bibliography
8 9 10 11 12
Introduction
Introduction
Banks are among the most important financial institutions in the economy. They play vital role in the economy by providing means of payment and in mobilizing resources. The economic development of a country depends on the development of banking sector to a great extend. The role/intermediation/ participation of banking sector in the economic activities of a country is increasing day by day which ultimately contributes to run the wheel development in a more dynamic way. Besides traditional banking, banks are expanding the menu of financial services tl1ey offer to their customers. This proliferation of new services has accelerated in recent years under the pressure of increasing competition from other financial firms, more knowledgeable and demanding customs and shifting technology. The changing and expanding role of banking sector has made the banking business, more complex and competitive which require creativity, specialization of knowledge and adoption of new technology for survival and growth of this business. The Banking Sector of Bangladesh is not an exception of this. To keep pace with this changing world the Banks are required to equip themselves not only with current technologies but also with a bunch of skilled and smart human resources. This course has been designed with a combination of practical] and theoretical aspects of the activities that are conducted by business organizations with special emphasize on Financial (Banking and allied) Institutions.
Background of the Report
With a view to have the scope of viewing the activities of a financial Organization practically, BBA students are send to different banks in 4 th term to fulfill the course requirement under the title' Practical Orientation in Banks. This course provides the opportunity to have a practical exposure on the functions undertaken by a bank branch in their day to day operations- On completion of the orientation program in banks, students are required to submit a written report based on the observations received from this program.
Being a student of BBA 4 th Batch (4th Term), I had the opportunity of working at Prime Bank Limited, Motijheel Branch from October 5 to December 28 for practical orientation with the activities of that branch for the fulfillment of my course requirement. This report has been prepared based on my observations those r received in my practical orientation during the tenor 1 was with them.
The report Practical Orientation in Banking' has been originated considering the above thinking.
Objectives
General Objectives:
The general objective of the report is to know about the management system of Prime Bank Limited as a private commercial bank, its formation, and its functional, operational aspects. To know the background of the organization is the another objective. To enhance the knowledge of the readers about banking and finance is also a disguise objective of the report.
Project Objective:
The project objective of the report is to provide a clear awareness about Households Loan named as 'Consumer Credit Scheme', to describe this scheme operation, its rules for the customers, and analysis of operation and performance of the Prime Bank Limited. Consumer Credit Scheme' in other commercial banks, comparison of their operation with Prime Bank Limited are another objectives. It aims at identifying the Problems and Prospects of this scheme in commercial banks and to make some suggestions to improve the service of operation of Prime Bank Ltd.
Methodology
This report is constructed on Deductive Method. It's a Research Report in nature. Data Collection: The organization part of the report is mainly base d on Secondary data. These data were gathered from Annual reports, Prospectus, Newspapers, Publications, CIB reports and the Bank's internal records. The project part is prepared on the basis of both Primary data and Secondary data. Primary data was collected from all commercial banks by means of interviewing bankers with a questionnaire and also collected from customers with questionnaire interview. Data Analysis: The data were analyzed with simple statistical tools such as, measures of central tendency, data range and arithmetic comparison and percentage of representation. i) Preannounce analysis of PBL such as 'Yearly positions, classified position, Branch wise position are measured by graphical representation. The trend and comparison are presented by graphics. ii) PBL performance has been compared with other Banks in terms of cost effectiveness, positions. Simple graphical representation is used to show the comparative position of different Banks.
iii)
The selection analysis of CCS is based on sample from Islamic Banking Branch's. The groups and items availing, the Defaulters analysis and comparison of CCS ~ to total investment are analyzed by comparative position which are shown by graphical representation of various data.
Language: abstract terminology and technical terms have been avoided as much as possible so that any person can understand the theme of the report. Layout: all necessary parts of conventional formal report have been followed. The readers are expected to get a different taste from the report.
Scope
The report intends to assess the position of CCS finance and CCS promotional facilities, its procedure, types problems etc. This study Covers the period since incorporation of the Bank. The report is prepared with a view to provide a brief but complete idea about' consumer Credit Scheme. The readers will also understand the CCS procedures and performance of Prime Bank Limited. Problems and prospects of CCS have been identified from the view of the bankers. Some finding and recommendation have been mentioned in the report.
Limitations
A survey on CCS was conducted in commercial banks. But the response was not inspiring, on the pretext of confidentially. For having inadequate data, extensive statistical analysis e.g. hypothesis testing, inferences, time series analysis etc. was not possible.
Theoretical Review of Consumer Credit Scheme
Consumer Credit Scheme (CCS) Bangladesh is a densely populated country. Job opportunity here is very scanty; Unemployment rate is approximately 40%. Population below poverty line is 36%. Therefore, it is the prime concern for the nation to generate income through creation of job opportunity & employment. Creation of job opportunity at large scale by us is not possible. What can be done better is to help selfemployment through financial support. There are many small and medium entrepreneurs in the country that have innovative idea, spirit and potentiality to do something productive for local consumers as well as export abroad. They can generate income and contribute to the GDP. They may also provide employment to other people. Development and growth of Small and Medium Enterprise is vital for national development. Such type of beneficial enterprises borrower can not go a long way for want of financial support because they have no access to institutional credit facilities, as they cannot provide collateral security as demanded for such credit facility. Prime Bank Limited, is committed to play positive role in the overall socioeconomic development of the country. There is also a statement in the objective clause of Memorandum of Association of Prime Bank Limited as under: To advance or lend money to the unemployed persons for self employment and rehabilitation in the Society. To finance the Small and Cottage Industries for Industrialization and also to create employment opportunities. It may be mentioned here that as per decision of the Board of Directors in its 78th meeting held on 17.11.1999 a Consumer Credit Scheme (CCS) Cell has already been established at Head Office under the Credit Division. In respect of small businesses, an eminent American scholar Mr. John Naisbitt in his book Rethinking the Future remarked as under:
Now you can replicate quality anywhere in the world. So, the competitive differentiation comes from swiftness to market and innovation. And in this regard, small companies right down to the individual can beat big bureaucratic companies ten out of ten times. It is the small companies who are creating the global economy, not the fortune-500. 50% of United States exports are created by companies with 19(nineteen) or fewer employees. The global economy of the 21st century will be dominated by Small and Medium sized players. If we look at South East Asia, China, Taiwan, Hong Kong, South Korea etc we will find that Small and Medium Businesses are the real engine of growth in those countries. In view of the above a credit scheme titled Consumer Credit Scheme has been formulated as follows. It may also be mentioned that USAID has approved our bank to receive their guarantee facility to lend money to Small and Medium business Houses. 50% of losses, if any, be paid by USAID. Brief details are enclosed at Annexture-A. Objective 01. To provide credit facilities to the small and medium size entrepreneurs located in Urban & Sub-urban areas and easily accessible by our Branches. 02. To encourage the new and educated young entrepreneurs to undertake productive venture and demonstrate their creativity and thereby participate in the national development. To flow credit for creation of employment and generation of income on a sustainable basis through development of small & medium enterprises. 03. To assist potential entrepreneurs to take part in economic activities so that 04. 05. 06. 07. they can improve their living standard. To reduce dependence on money lenders; To make the small & medium enterprises self reliant; To develop saving habit and making acquaintance with banking facilities. To inspire for undertaking small projects for creation employment through income generating activities.
Concepts Small Enterprise Small Enterprise refers to those enterprises: where goods are produced, recycled, repaired or traded in traditional way; where total bank investment is limited to Tk.250,000; where 10 or less workers are engaged on wages or commission basis;
Medium Enterprise Medium Enterprise refers to those enterprises:Where goods are produced, recycled, repaired or traded applying some capital machinery; Where 20 or less people are engaged on wages or commission basis; Where total bank investment does not exceed Tk.75, 00,000. The net fixed assets (excluding land and buildings) of borrowers may not exceed Tk. equivalent of US $250,000. Target Group Initially, Small & Medium Size Entrepreneurs located within the accessible area of our branches will be the target area under this program. The Entrepreneurs should have an existing profitable business or a viable business plan. Eligibility for Credit Facilities The following criteria have to be met by the applicant to qualify for a loan from Prime Bank Limited under its CCS Credit Scheme: 01 The entrepreneurs must be literate i.e. capable of reading & writing. . 02 The entrepreneurs should be skilled in managing his / her business and has . experience of successfully managing the business for at least 02(two) years.
03
The age of the entrepreneurs must range between 25 years to 50 years. . 04 If the applicant is an individual, he must be a national or permanent resident . of Bangladesh. If the Borrower is a company/firm or other business entity it must be registered in Bangladesh and majority shares owned by Bangladeshis. 05 . 06 The applicant must be 100% privately owned, controlled and operated;
The applicants principal place of business must be in Bangladesh; . 07 If acceptable collateral security cannot be provided, the borrower should . arrange for 02(two) guarantors acceptable to the Bank. The type of guarantors depends on size of the loan and business. In accepting a person as guarantor his social standing, income and asset shall be considered. Any default loanee or unreliable person shall not be accepted as guarantor. However, guarantor will be determined on a case to case basis. 08 . 09 . 10 The project shall be financially viable and socially desirable. The Sponsor/applicant shall have reputation in the society.
There should be some innovation / creativity in the project. . 11 Proper utilization and timely repayment of previous loan will be considered . as proven track record of the applicant for renewal & enhancement of credit facility. Restricted Business Production, Marketing, Trading of alcoholic, narcotic and other 01. intoxicating drug or liquor. 02. Production and Trading of any item banned by the Government. 03. Any activity not permissible by the law of the land. Loan Ceiling 01. For small enterprise
: Maximum Tk.2, 50,000/-
02. For medium enterprise : Maximum Tk.75, 00,000/No loan proposal for less than Tk.1, 00,000/- be entertained. Purpose Working capital; Capital machinery; Delivery Van / Transport for business purpose; Refurbishing office/Business premises.
Mode of Finance 01. Cash Credit (Hypo/Pledge); 02. Hire purchase/ Lease Finance; 03. Term Loan. Loan Renewal Successive loans depend on track record of previous loan. Usually, repayment behavior and expansion of business by the borrower are the main considerations for renewal and enhancement of the loan amount. Interest 8% above Bank Rate. Presently 15% Penal Interest: If any borrower fails to adjust loan within validity period or to repay consecutive 02(two)-installments, penal interest @0.25% per month shall be charged on the defaulted amount. Securities It is a supervisory credit scheme. Tangible security in the form of mortgage may not be available in all the cases. So mortgages will not be mandatory. Security will be stipulated on a case to case basis interalia as under(one or several of the following): 01. Registered mortgage of land & building. 02. Mortgage/Assignment of possession right. 03. Assignment of security money, advance rent, if any. 04. Assignment of Trade Receivables not older than 90 days. 05. Hypothecation of machineries, equipment, vehicles, stock-in-trade, raw materials, work-in-process and finished goods. 06. Personal Guarantee from persons acceptable to the Bank.
07. Post dated checks. 08. Lien on deposits/saving certificates/financial obligations. 09. Any other securities to be deemed suitable by the Bank depending on the situation like Insurance Guarantee, Corporate Guarantee, As signment of Contract, Security Money etc. 10. Guarantee of USAID for 50% of the exposure Period of Loan a. In case of continuous loan b. In case of Term Loan :
: 01(one) year. Maximum 05(five) years.
Mode of Repayment 01. In case of continuous loan credit turnover in the account must be equal to the limit in a quarter and full adjustment within the validity period. 02. In case of term loan, the loan should be repaid by monthly installments through post-dated checks as per amortization Schedule. 03. Sale proceeds should be deposited in the account regularly. Loan Monitoring and Review This is a supervising credit scheme. The success of the scheme depends on the extensive and intensive post disbursement supervision, follow-up & monitoring. It must be ensured that the loan fund is not diverted, the sponsors are very serious to the operation of the project, quality is updated and marketing effort is effective. Regular repayment must be ensured. Visit to the establishment must be done at least once in a month. During visit of the project motivational work to be done with a view to strengthening the spirit & morale of the sponsors. A visit report should be recorded in credit file against each visit. Supervision will be done by the respective branches, which will be monitored by CCS Cell, Credit Division, Head Office. A signboard shall be displayed at the shop / factory with writing Financed by Prime Bank Limited. Recovery System
a. If any borrower fails to adjust the loan within validity period or to repay his monthly installment then the responsible loan-monitoring officer of the concerned branch will arrange for adjustment of the overdue installments from the loanees savings account if there is adequate balance. The officer shall regularly follow up for recovery and take any measure including legal action for recovery. b. If any loanee fails to repay his consecutive 02(two) monthly installments, then the Branchs loan monitoring officer will investigate into the actual causes of default and report to the Branch Manager with a copy to CCS Cell, Head office for further action and advice for recovery/regularization of the loan. Other Conditions 01. The borrower shall maintain a non-withdrawal savings account with the concerned branch where he shall make compulsory deposit of @ 0.5% of outstanding loan amount per month for building up his own fund. 02. The borrower must not change the nature of business and place of business without prior permission of the Bank. Allocation for the Scheme Initially a sum of Tk.10 crore may be allocated for disbursement of loan under the scheme, which will be revised from time to time as per performance of loans under the scheme. Processing of Credit Proposal Under the Scheme 01. Initially, CCS Cell, Head Office shall process the credit proposals under the scheme and Head Office Credit Committee shall approve the same. As per desire of the customer the sanction advice will be sent to the concerned branches for documentation and disbursement. 02. CCS Cell/Branch will work very closely with JOBS program for evaluation of credit proposals. 03. The rules and regulations of USAID must be fully complied with for extending loan to Small and Medium Business Enterprise.
Prime Bank Limited: at a glance
Prime Bank Limited
Vision
To be the most efficient Bank in terms of customer service, profitability and technology application.
Mission
Continuous improvement in our business policies and procedur4es, cost reduction through interaction of technology at all level.
Efforts Are Focused

On delivery of equity service in all areas of banking activities with the aim to add increased value to shareholders investment and offer highest possible benefits to our customers.
Strategic Priorities
To have sustained growth, broaden and improve range of products and services
Highlights Highlightsof ofPrime PrimeBank BankLimited Limited
Name of the Bank Registered Office Cable Phone Telex Fax No. E-mail Web Site SWIFT Date of Starting Authorized Capital Paid up Capital Reserve Fund Equity Fund Deposits Loans & advances Investments Import Export Income Expenditure Operating Profit Net Profit Beforetax Total Assets Divided Book Value Per share Earning per Share MV of Shares No. of Board of Directors No. of employees N. of Share Holders
: : : : : : : : : : : : : : : : : : : : : : : : : : : : : : :
Prime Bank Limited Adamjee Coure Annex Building-2, 119-120, Motijheel C/A PRIMEBANK 9567265, 9570747-8 PABX 642459 PRIME BJ, 671543 PBL MJ BJ 88-02-9567230, 9560977, 9566215 primebnk@bangla.net www.prime-bank.com PRBLBDDH April 17, 1995 1000 (Tk. in Million) 600 (Tk. in Million) 807.92 (Tk. in Million) 1526.41 (Tk. in Million) 16902.29 (Tk. in Million) 12686.85 (Tk. in Million) 1996.23 (Tk. in Million) 19564.00 (Tk. in Million) 12189.00 (Tk. in Million) 2250.96 (Tk. in Million) 1503.12 (Tk. in Million) 747.84 (Tk. in Million) 696.84 (Tk. in Million) 20047.70 (Tk. in Million) Cash : 20% Onus : 6:1 234.81 (Tk. in Million) 69.69 (Tk. in Million) 307.51 (Tk. in Million) 23 27 1727
No. of Foreign Correspondents : 422
Concept of Consumer Credit Scheme
Chaptier-4
4.1. Consumer Credit Scheme Consumer Credit is the combination of two words. Consumer and Credit. Consumer means one who consumes or it also means one who uses article produced. Credit comes from the Latin word Credo meaning I believe. When one borrows money, the loan is based upon confidence in the future solvency of the person and in his repaying the loan as per agreement. Consumer Credit Scheme is a new concept in Bangladesh and it proves the consumers equity participation. First Islami Bank Bangladesh Ltd. and then Prime Bank Ltd. introduced this scheme for developing the standard of living of fixed income group and middle class people. Under consumer Credit Scheme the credit is provided for household durables and utility products goods like Car, Pick-up. Motor Cycle, Personal Computer, Televisions, and Refrigerator water Cooler, Furniture and Fixture, Crockery and Cutlery, Sewing Machine, Air Conditioner etc. 4.2 Administration of Consumer Credit Scheme with reference Prime Bank Ltd. The Success of any credit largely depends on its efficient administration. A bank has to undertake different policy prescription to manage the credit in line of the set objectives. Banks always monitor the performance of the loan so that the rate of default is less. This chapter concentrates on the various aspects of consumer credit provided by Bank. Consumer credit scheme is small and medium term loan. This credit is sanctioned for one to five years period. For the small size and three years period of loan, every branch of the Bank has the authority to sanction the loan. But the branches have some loan limited to provide the scheme in different goods. The Bank maintains some policies and guidelines to sanction the credit.
Every branch of the Bank has a credit committee in order to facilitate quick sanction of loan under the scheme. The credit committee is constituted of in each of the designated branches with the following Executive/Officer: Credit Committee Chairman (Branch Manager) Member (2nd Officer) Member (Credit In-Charge) Member Secretary (CCS In-Charge)
At first, the sanctioning of loan, the customer will approach to Consumer Credit In-Charge for getting the loan Under Consumer Credit Scheme. If the Consumer Credit Scheme in-charge thinks that he or she is eligible for the credit then they get the opportunity for application of loan. After that, the Consumer Credit Scheme in-charge presents the application to Credit Committee of the respective branch. If the committee approves that the customer is eligible for the loan then the customer will submit the necessary documents to that Committee. After submission of the documents the credit committee will examine the documents and consumer credit scheme in change will go for physical inspection, as to whether the information is wrong or right that he or she is written on the application form. It all the information is correct then the credit committee sanctions the loan under this scheme. But if the loan amount exceeds the loan then the credit committee sends the necessary documents and information to the Consumer Credit Division, at the Head
Office of the bank. Then the credit division decides that the will be sanctioned or not. The sanctioning mechanism is shown in the following diagram: Customer CCS in-charge Credit Committee Head Office (if branch credit limit exceeds) 4.3 Security and Documentation The security and documentation procedure for th00e loan at different level is shown under the following heading. Application Level: i) ii) iii) iv) Application Letter of guarantee Personal net worth statement (only for business) Declaration.
Credit Committee Level: Quotation of desired goods, Trade license, Articles & Memorandums Demand Promissory Note, Letter of Authority, and Letter Hypothecation, Loan agreement under Consumer Credit Scheme, Letter of Undertaking, Letter of Disbursement and Letter of Installment.
4.4 Disbursement of Loan Credit committee sanctions the loan in favor of loan A/C. The credit committee signs this document in which the details information about the disbursements is mentioned. For disbursing the loan the customer open and loan account of the branch and then he or she deposits the 20% equity of the loan amount as a security and pays different chargers for sanctioning the credit such as security and pays different chargers for sanctioning the credit such as service charge, risk fund, cost of stamps. After depositing all the service charges and equity the bank issues 24 or 36 leaves cheques according to payment period. The customer will sign all the blank cheques and the consumer Credit Scheme incharge will keep the cheques from the customer for collection of the loan in every month. And at last the branch will give the loan by a pay order not cash. After purchasing the goods the customer is bound to show the money receipt of the goods. Inspection of Particulars of Applications Actually Visit: i) ii) iii) iv) v) Applications address & Status. Guarantors address and status and comments. Office and business center Verification of signatures Price verification as per quotation.
Table-4.1 Consumer Credit Scheme of Prime Bank Ltd. Name of Item New Vehicle Reconditioned Vehicle Other Items Loan Item Tk. 10,00,000/= Tk. 7,50,000/= Tk. 3,00,000/= Delegation Power Up to Tk. 6.00 Lac Up to Tk. 6.00 Lac Up to Tk. 1.50 Lac Period of Loan 5 Years 4 Years 3 Years
Personal Computer Tk. 10,00,000/= Motorcycle Tk. 10,00,000/= Photocopier Tk. 10,00,000/= Source: Circular of Head Office
Full Limit Full Limit Full Limit
2 Years 2 Years 1 Years
4.5 Payment of Loan The payment of consumer credit scheme is stared next month of sanctioning the loan. Normally first week of the month is selected for payment of the loan but all over the month has the opportunity to pay the loan. It is customers own liability to pay the loan. If the customer is fails to pay the loan in one or two month then informed him or her by telephone or by letter for repayment of loan. To know the current recovery position, every branch send a statement on the credit in every month showing number of customer, monthly disbursement, recover, overdue and cumulative figure on these. On the basis of these of his position branch and Head Office takes necessary action on it. To ensure the optimum recovery by developing relationship and close supervision with the customers and the beneficiaries without filling any suit/case. Regular checking of recovered and overdue installment Regular checking of the balance of clients SB A/C Regular communication with the overdue customers; physically or by phone. Communication with the guarantors. Issuance of letter to overdue customers, if there are two overdue installments is remained. Issuance of letter to overdue respective guarantor, if there is 3 overdue installments. Contact with the employers, if there are 4 overdue. Issuance of legal notice before classified (After 5 overdue installments)
Maintenance of telephone index and diary. Distribution of specific assignment among the related officers and maintain reports. Issuance of the letter of appreciation to regular clients with statement (Half yearly) Visiting regularly the supplied goods for supervising the proper maintenance. 4.6 Actions in Case of Non-Recovery A banks performance mostly depends on recovery position of the credit whether it is small sized or large sized of loan. Prime Banks recovery position exits 95% to 96%. But the recent recovery position has decreased. If a customer fails to repay the loan for six months or one year then at first the customer will be requested to pay the loan by telephone. The customer can response it or not. If the response in negative then the respective branch sent a letter to the customer and their guarantor. Guarantor is requested to help recovery of rest of the loan amount. After that if there is no response, then lastly bank takes legal steps for recovery of the loan after permission of Head office according to IN Act (Negotiable Instrument), Section-138. The customer is bound to pay three times of default loan. Instruction For Handing of Overdue Installment: First of all the correlated accomplishment has been taken which are: i) ii) iii) iv) v) Letter of authority Letter of guarantor Letter of overdue recovery Telephone contact Cheque bounce letter
Secondly, legal or authorized action has been taken Legal notice to borrower Legal notice to guarantor Suit notice 4.7. Monitoring and Supervision The credit under the scheme is fully supervised and as such, the success of the scheme will depend on proper and persistent supervision, follow up persuasion and monitoring of the credits by the branches. Branches shall maintain proper records of applications received, loans sanctioned disbursed and recovery. Bank operates its credit by a credit committee in every branch of it. Every branch of the Bank has the authority to sanction the credit because of its size and maturity. The top-level management fixes the credit limit of the branch. If the limit is exceeded then the respective branch informs Head Offices consumer credit division of sanctioning the loan. Every month all the branches send a bank statement to Head Office showing the Consumer Credit Scheme position of previous month. Top-management gets an idea about the whole position of the bank in this credit. The branch credit committee always supervises the customer to show a good recovery of the credit.
Overview of Consumer Credit Scheme of Prime Bank Limited
Chapter 5
5.1 An Overview of Consumer Credit Scheme (CCS) of Prime Bank Ltd. A Bank has different sources of investment. The most widely used avenues of investments are commercial credit and industrial credit, real estate credit, foreign exchange, leasing etc. Moreover, commercial banks provide consumer credits to its customers to finance their household durables. A sizable portion of their investment is in this sector. This area has attracted wide spread attention due to high demand from the customers, low risk of default and an easy source of investment. Consumer credit has received important attention from the banking sector in different parts of the world whether they from the banking sector in different parts of the world, whether they are developed or developing. Bangladesh is one of the very poorest countries of the world. Per capita income of our country is very poor. So, the majority of our populations face to a sub-standard life. The middle classes and the professionals cannot effort to buy essential utility products, which require a substantial amount at a time. As such they cannot raise their standard of living to an expected level. To make life of the people easier, to fulfill their dream whatever they want to buy, to establish the living standard of the people, our commercial banks have introduced the consumer credit scheme to serve the needs of the limited income group who cannot afford this and also improve their quality of life for achieving the objective of the Bank. Consumer Credit Scheme is designed to finance the fixed income group for buying essential commodities to be repaid by monthly installment over a period in accordance with a contractual agreement. In Bangladesh, there is a great demand of consumer credit because most of the people of our country are living a sub-standard life. Consumer Credit Scheme is gradually becoming very
popular in our country. Thats why a good number of institutions in our country are successfully operating similar programs. The history of consumer credit in Bangladesh is recent. Among the different commercial banks, Islamic Bank Bangladesh Ltd. introduced this Scheme for the first time in our country. Gradually, other banks have been interested to enter into this investment area observing high demand, profitability and lowlevel of default. These are Prime Bank Ltd. Dhaka Bank Ltd. Uttara Bank Ltd. Social Investment Bank Ltd. Pubali Bank Ltd. Mercantile bank ltd. premier Bank Ltd. Arab Bangladesh Bank Ltd. and City Bank Ltd. etc. Now most of the commercial banks provided this loan in our country. But the amount of disbursement is very poor compared of the demand of this credit. Banks that operate the consumer credit scheme operation in our country, their scheme name and starting date of this program are given below. Table-5.1 History of Banks in this Scheme Name of the Bank Name of the Scheme Starting Date 1993 1996 1995 1996 1995 1997 1996 1997 1997 1997 1999 1999 1999
1. Islamic Bank Bangladesh Ltd. Households Durables Investments Scheme 2. Pubali Bank Ltd. Consumer Loan Scheme 3. Prime Bank Ltd. Consumer Credit Scheme 4. Uttara Bank Ltd. Uttaran Consumer Credit Scheme 5. Social Investment Bank Ltd. Households Loan 6. Arab Bangladesh Bank Ltd. Consumer Loan Scheme 7. STANDARD CHARTERED Personal Finance BANK Grindlays Bank 8. Standard Chartered Bank 9. Al-Arafa Islami Bank Ltd. 10. Al-Baraka Bank Ltd. 11. Mercantile Bank Ltd. 12. One Bank Ltd. 13. Premier Bank Ltd.
Personal Loan Kangkito Samogri Biniog Prokaplo Al-Baraka Consumer Credit Scheme Consumer Loan Scheme Consumer Loan Scheme Consumer Loan Scheme
14. Dhaka Bank Ltd. 15. IFIC Bank Ltd. 16. The City Bank Ltd.
Consumer Loan Scheme IFIC Consumer Credit Scheme Consumer Loan Scheme
1999 1999 1999
5.2 Objectives of Consumer Credit Scheme Every scheme is covered through some objectives, which is prepared in line with the corporate goal, mission and vision. The objectives of introducing consumer credit scheme by banks are considered to be as follows To bring our credit services to a wide range of customers. To provide financial assistance to the limited income group towards buying utility products. To help the professionals in rising their standard of living.To participate in the socioeconomic development of the country. To fulfill the dream whatever they want to buy, can afford. To sell our services to a wide range of customers and increase our Consumer Credit Scheme portfolio. To provide financial assistance to the limited income group for buying household durables and utility products. To help the professionals in raising their standard of living. To provide investment facility to the depositors of the bank. To develop small capitalist or industrialist. To build up strong communication to a wider range of customer through provide loan. To enhance job opportunities through credit facilities. 5.3. Consumer Lending: Theoretical Issues Consumer lending is the heart of retail banking. Retail banking refers to banking services provided to individuals and to small business concerns. Now what is consumer credit? consumer and credit consumer means one who consume. It a means one who uses an article produced.
The word credit comes from the Latin word credo meaning I believe. Hence credit is based upon confidence. When one borrows money, the loan is based upon confidence in the future solvency of the person and in his repaying the loan as per agreement. In this sense, credit means to command the capital of another in return for a promise to pay at some specified time in Future. If denotes trans actions involving the transfer of money or other property on promise of repayment usually at fixed future data. Consumer credit refers to loans individuals that are scheduled to be, repaid in installments and for personal, household or family consumption. Consumer lending differs from commercial and real estate loans in several respects. These are The loans are used for household purposes. Small amount of loan and not secured by collateral. Duration of loan is short- two to five years. The market for consumer loans is highly competitive; there is competition on interest rates, amounts lent, fees and non-credit services.
The rate charged on such loans is relatively high when compared' to rates charged on commercial and real estate loans.
Finally, a large consumer loan portfolio consists of many small loans. 5.4. Finance and Interest charges of consumer credit Every loan has interest and some financial charges. Consumer loans are not exception of it. Lenders of consumer loans to provide borrowers with written information about finance charges and annual percentage rates, before they sign a loan agreement, so that they may compare credit costs. The extent to which consumers use the information to make intelligent decision is not clear. Few consumers have the time or the knowledge to compare the nuances of the costs of financing. As we will shortly, casts are not always what they appear to
be on the surface. Some methods of calculating costs result in higher profits for lenders than others. 5.4.1. Finance Charge The finance charge is the total amount raid far the use of credit. It is the difference between the amount repaid and the amount borrowed, The finance charge includes interest, service charges, and origination fees, guarantee insurance premiums, appraisal fees, credit report fees, and other fees that are charged on the borrowed amount. 5.4.2 Finance Charge on Revolving Credit Revolving loans or open-end credit are those where the borrower has a line of credit up to a certain amount, may pay off loans and credit charges over and indefinite period of time. Revolving loans have no definite maturity. Four methods of assessing finance charges on revolving credit are widely used, which are discussed below1. Adjusted Balance Method: Finance charge is applied against the amount that is due less any payment prior to the due daze. 2. Previous Balance Method: According to this method, the finance charge is applied against the original amount being no consideration of payment. 3. Aver -age Daily Balance Method Excluding Current Transition: The finance charge is based on the average daily outstanding over the current 30 days period, but does not include current transactions. 4. Average Daily Balance Method Including Current Transactions:
According to this method, the finance charge is based on the average daily balance outstanding during the current 30-days period, including the new purchases made during that time. 5.4. 3. Monthly Amortization Amortization refers to the gradual to the gradual repayment of debt over time. We determine the periodic rate by the following equationn P=PMT = Periodic payment [1/(1+1)1] i = interest rate t = time period p = original principal amount. The periodic rate is monthly; the nominal annual rate is determined by multiplying the periodic by 12 to get the percentage. Add-on Loan Rate: In some states the maximum interest rate that may be charged on consumer loans is an add-on rate. The term add-on means the finance charge is added on to, the amount borrowed. Let us consider a Tk. 10,0001oan for one year at 10% add-on interest. The finance charge (FC) is determined by multiplying the amount borrowed, P, by the add-on interest rate expressed as a decimal R, times (T) the life of the loan in years. The FC may include fees and charges. Add-on loan rate is expressed in equation by
IFC= PxRxT
The monthly payments (PMT) are determined by dividing the total amount owed, which is the principal amount plus the finance charge, by the number of payment n. PMT = (P + FC)/ n In a discount loan rate, the creditor deducts the finance . charge from the principal amount of the loan and the borrower receives the difference. When calculating the Annual Percentage Rate on discount loans, P, the amount
received by the borrower is set equal to the discounted monthly payments. The equation of calculating this rate is n P=I PMT[1/(1+1) 1] t=1 PMT = Periodic payment i = interest rate t= time period p = original principal amount. Adjustable Rate Consumer Loans: Adjustable rate consumer loans (ARCS) permit banks to adjust their interest income when their cost of funds changes in order to maintain a positive spread between returns on those loans and costs of funding them. Stated otherwise, they want to keep a constant interest spread between returns and cost, which in turn, matches cash inflows with cash outflows. This is accomplished by indexing the interest rate charged on Adjustable Rate Consumers loans to a market rate, such as Treasury bill. Periodic adjustments are made in the rate charged on Adjustable Rate Consumer loans to reflect changes in the index rate. By using this mechanism, banks transfer most of the interest rate risk associated with lending to their customers. 5.4.4. Interest Rebates for Prepayment of Loans: Many borrowers pay off installment loans before they are due and they are entitled to receive a rebate of part of the unearned finance charge that they paid. The amount they receive depends on the method used for determining the unpaid balance. Banks use two methods - the actuarial method and the Rule of 78- for calculating rebates. Actuarial Method:
The actuarial method measures the exact amount of credit that a borrower has used computed at the APR stated in the contract and it is applied to the declining balance of the loan. In other words, the borrowers are charged for what they used. Nevertheless, most of the interest in installment loans is paid early in the life of the loan. Rule of 78: The rule of 78 is s ome time s c a lle d the s um a t the digits method because it is determined by adding all of the whole numbers between l and 2 (1+2+3+.... +12=78) and the sum is 78. if a loan were for 18 months, the sum would be 171 (78 + 13 + 14 + . , . . . . + 14 = 171). The sum for other maturities is calculated in the same manner or by using the following equation Sum of digits = n/ 2 x (n+ 1) Where n is the number of payments. The difference between the bank's total (cumulative) earnings from the loan and the total finance charge is the amount of the rebate returned to the customer. 5. 4. 5 Annual Percentage Rate The annual percentage rate (APR) is the percentage cost of credit oil an annual basis. The APR may be used to compare credit costs of loans of various sizes and maturities. The APR is the annualized internal rate of return (IRR) on the loan. The IRR may be determined by using the following equation when the payments are the same in each period: n P=I PMT[1/(1+1)1] t= 1 P = Original principal amount, or the amount the case of discount loan rate. PMT = Periodic payments i = Periodic interest rate (%)
n = Number of Periodic payments (number) 5. 5 . T h e C r e d i t D e c i s i o n Two methods used to evaluate consumer credit decisions are based on judgment and statistical techniques. The former is subject to wide variations in decisions because the judgment of one loan officer may vary from that of another. In addition, taking credit application and interviewing the prospective borrower is time consuming costly. The statistical technique described below standardizes the criteria used to make credit decisions based on the applicant's creditworthiness. 5 . 5. 1 . J u d g m e n t A prospective borrower may meet face to face with a loan officer or fill out a credit application. In either case, the bank must review the data on the application and make a credit decision. The evaluation may include a review of the prospective borrower's past credit performance and other data that are relevant. This process works best when the loan is for high-priced durable goods, such as automobiles. 5.5.2 Credit Scoring System Credit scoring system are computerized, statistical techniques that use the information provided in a credit application to distinguish between those who are likely to be good borrowers and repay their loans and those who are not likely to repay their loans. Careful analysis of the credit histories of a bank's customers will reveal certain factors that can distinguish "good" accounts "bad" accounts. These factors very depending on the type of credit histories examined, geographic location, and other considerations. When the key factors are identified, they are used to develop a credit-scoring program. The program will assign a certain number of "points" or weights to factors such as the length of time of employment, whether one rents or owns a home,, the level of income, and so on. If the sum of the points is above the critical value (e.g.
160 points) the applicant is granted credit. Credit scoring systems are especially useful for evaluating large numbers of application low cost per application. 5.6. Bankruptcy Despite banks efforts to select qualified applic3ras and make loans that will be repaid, some individuals will default and some will go bankrupt. The rise in the number of bankruptcies and individuals' willingness to go bankrupt is a major concern no tenders who can only lose money when bankruptcy occurs. Consumer lending is different from commercial and real estate loans in some respects such as purposes, size of loan, collateral free loan, financial charges etc. Financial charges include interest, service charges, origination fees etc. It is estimated in different types of method. Finance charge on revolving credit is calculated by adjusted balance method, previous balance method, and average daily balance method excluding current transaction, average daily balance including current transaction. And the interest rate of this credit is calculated by add-on loan rate that the finance charge is added on to the amount borrowed. Discount rate is another method where creditor deducts the finance charge from the principal amount of loan and the borrower receives the difference. The difference between the initial rate charged on fixed and adjustable rate loans is the premium that banks charged for assuming interest rate risk. To minimize credit risk commercial banks credit decisions must be based on the credit worthiness of the borrower. This may be determined by judgment or a credit scoring system. Despite banks efforts some customers will default and some will go bankrupt.
Procedure of Consumer Report on Prime Bank Credit Limited Scheme of Prime Bank Limited
Chapter-6
Brief Discussion About Consumer Credit Scheme (CCS) of prime Bank Ltd. 6.1.1. Stamp Charge Table-6.1. Stamp Charge of Different Documents SL No. 1 2 Type of Stamps be affixed DP note Revenues stamp Letter of authority Not adhesive stamp 3 Letter of hypothecation Adhesive stamp 4 Loan of agreement Adhesive stamp 5 Loan agreement Not 6 Supplementary agreement Not 7 Letter of undertaking Not 8 Declaration of satisfaction Not Source: Circular from Head Office, PBL Cancellation of stamps is needed. Sanction of CCS loan must be completed within 5 days from date of application. Registration of Motor vehicles can be made in the joint name of the Bank and the Borrower instead of sole name of Bank as at present. Where CCS facilities is converted by 50% by deposits or sanchay patra under lien, no further security may be insisted. Arrangement with National Electronics Ltd. allowed only clerical staff recommendation by NEL. Age-53 yrs. Landlords may be allowed if they have sufficient cash flow and against tow guarantees acceptable to the Bank. No loan shall be allowed for purchase of gold ornaments. Loans under the Scheme may also be allowed against pledge of duly discharged savings certificates, protirakhaya sanchaya patra, FDRs Name of Document Present value of stamp 20 150 150 150 Previous cost 20 150 150 150 150 150 150
etc. up to the face value covering the amount of the loans in lieu of Bank Guarantee/ Insurance Guarantee/ Personal Guarantee. If any customer fail to repay the monthly statement within due date, penal interest 2% to be charged on the outstanding amount for the default period. It is a welfare scheme of our Bank and so no collateral security was stipulated against loans under the scheme. Guarantees of the officials of law-enforcing agencies may be tactfully avoided. 6.1.2 Eliquibility of Customers Consumer credit is not for all classes of people in our country. It is provided to some selected customer based on profession, class etc. the credit scheme is provided for the following organizations engaged professionals: Employees of Government Non-Government Organizations of Institutes Semi-Government, Sector Corporations Professionals like Doctor, Engineer, Lawyer, and Architect etc. Business Executives and Self-Employed Persons. Bank Insurance Company and other Financial Institutions. Locally established and renowned public limited companies. Multinational Companies. 6.1.3 Age Limit Application must be in between 20 to 50 years.
6.1.4 Eligible Materials Under the consumer credit scheme, the credit is provided for goods like. Car Station Wagon Micro Bus Pick-up Motor Cycle Personal Computer Camera Television Refrigerator Photo Copier Sewing Machine Washing Machine Air Conditioner Generator Water Cooler Water Pump Phone Spot Billing Machine 6.1.5 Credit Limit, Down Payment and Period of Loan Amount of credit shall be allowed keeping in view the repayment capability of the customer. The amount of credit shall be determined in monthly installment does not exceed 50% of the disposable income of the customer. The monthly installment size will not exceed one third of take home salary for non-officers only. After repayment of 75% of the credit allowed to a customer, he/she will
be eligible for fresh credit under the scheme but the total amount of credit shall not exceed the ceiling under any circumstances. 6.1.6. Financial Charges of Consumer Credit Scheme Financial charges of consumer credit scheme include interest size will not exceed one third of take home salary for non-officers only. After repayment of 75% of the credit allowed to a customer, he/she will be eligible for fresh credit under the scheme but the total amount of credit shall not exceed the ceiling under any circumstances. 6.1.6 Financial Charges of Consumer Credit Scheme Financial charges of consumer credit scheme include interest rate, service charge, risk fund and other origination charges. Financial charges of prime Bank Ltd. are given to get an idea about it. Table-6.2 Financial Charges under Consumer Credit Scheme of Prime Bank Ltd. Particulars Rate Interest/Profit 16% P.A Service Charge 1% on loan amount Risk Fund 2% on loan amount Cost of Stamps Tk. 470/= Source: Annual Report of Prime Bank Ltd. All branches are advised to transfer their entire outstanding balance in Risk Fund on regular basis to Financial Administration Division, Head Officer at the end of every month though IBCA (Inter Branch Credit Advice) along with a statement as per existing picture. 6.1.7 Mode of Repayment Repayment of loans including accrued interest will be made by equal monthly installments, which will start from the following month of the disbursement of
loan. Before disbursement of loan, the customer will deposit crossed cheque covering the total number of monthly installment in favor of the bank which will have to be presented for collection on the due dates. Installments will be paid within 7th day of each month. However, per-payment is allowed. 6.1.8 Security The client will submit crossed cheque in advance for the entire stipulated installment in favor of the bank towards repayment of loan including interest. The customer will provide some security. These are personal guarantee, Bank guarantee, banks prescribed forms, Financial Instruments, Corporate Guarantee, Ownership for vehicles. To avoid embarrassment where the guarantor is the head of the institution/office, his particulars shall be verified solely by an officer of the bank. The fact and circumstances should be recorded in the file. 6.1.9 Rebate 5% on the amount of interest charged is allowed to the borrower who shall repay the loan installment regularly as per schedule of payments. The branch may refund the calculated rebate amount at the time of adjustment of the loan by passing the following entry: Dr: Interest A/C (Rebate Amount) Cr: CCS loan A/C (Rebate Amount) The Head Officer should be informed in such cases of rebate at an interval of every three months. 6.1.10. Document The customer will execute some documents. These are- Durand/ Promissory Note, letter of Authority, Letter of Guarantee, Letter of Hypothecation, loan
Agreement under consumer credit scheme, letter of undertaking, letter of Disbursement, letter of installment. At the time of disbursement of loan, customer will have to execute some documents. The documents are: 2 Copies of Demand/ Promissory Note: 2 Copies of Letter of Authority; 2 Copies of Letter of Guarantee; 2 Copies of Loan Agreement under Consumer Credit Scheme; 2 Copies of Letter of Hypothecation; 2 Copies of letter of Disbursement; 2 Copies of Agreement/ Arrangement; 2 Copies of Undertaking; 2 Copies of Installment.
Letter of Guarantee: Two guarantees are required for the service holder from executive level employees. One for the businessman from another renowned businessman and another from officer grade serviceman are required. Letter of Assurance: Organizations assurance is required and obligatory. For example, if any client fail to repay the loan amount, organization will take away from his salary and will bound to pay to the Bank. Personal Net Worth Statement:
It is the statement about the borrowers asset and liability Bank gets all kind of information bout the borrower financial position through it.
Quotation: Quotation is required which contains the description and the price of the items. Charge Document: Charge documents are stamped document, which contains different rules, terms, and conditions. If the borrower of the CCS loan is agreed upon all these terms and conditions regarding borrowing, he/she will need to sign the document. If any disagreement or irregularities occur in future this document is used to remedy situation. Before disbursing the CCS loan the following documentation must be completed by the customer/ borrower. On these documents, the stamp is needed for legislative reason. The borrower pays it. Letter of Hypothecation: It contains the terms and conditions and borrower is hypothecated for the equipment. The specification of items is also mentioned here. Demand/ Promissory Note: To promise for paying on demand to Bank is mentioned. Letter of Installment: Borrower promises to pay the irregular installment in any time Letter of Disbursement: The disbursement of loan the borrower indicates this letter.
Balance Confirmation Letter: Borrower promises to balance at least to one installment on his account which cheques is given to Bank. For Car: Registration Certificate Photocopy of Blue Book. Photocopy of Insurance Certificate. Tax taken Copy Driving License.
For a company if the corporal guarantee is given, the further guarantee is not necessary. 6.11.11 Other Conditions No additional amount will be allowed by bank for repairing or any other purpose on account of the articles for which credit was allowed. The client is at liberty to repay the entire outstanding amount in lump sum before expiry of validity period of the loan. The vehicles must be covered by comprehensive insurance policy to be taken by the customer on his/her own expenses. Customer will bear the license fee, registration fee, insurance charge etc. if any in respect of the articles. Customer will bear the expenses for necessary repair and maintenance of the articles during the period of loan. After delivery of the articles, the respective client shall remain responsible if subsequently the articles are broken, stolen or
damaged. The articles shall be used by the customer with optimum care, caution and prudence and he will be liable for compensation or replacement etc. for any damaged caused due to his negligence, carelessness and inefficient handling, he will be liable to adjust Banks dues that is outstanding principal, interest and other charges on demand. Customer will intimate the bank of any change of his address immediately after the change. The Articles shall remain in sole control and custody of the customer who will not let out, lend, resell or transfer the possession or rights of the same to a third party under any circumstances. Customer will keep available all the articles supplied to him for inspection by the bank officials as and when required. Default in payment of 3 (three) consecutive installments shall render the client liable to hand over the articles to the Bank. In case of loan for purchase of Car, Station Wagon, Microbus, Motor Cycle etc. The registration of the same shall be made in the sole name of the Bank until full adjustment of the loan. The registration Blue Book, tax token, Fitness Corticated etc. for vehicles must always be kept up to date at the cost of the customer. 6.2. Rules for Application Intending clients will have to apply for the credit in banks printed application form, which will be available in respective branch or nay other authorized agent on payment of Tk. 10.00 only. Clients will submit the application form dully filled-with quotations(s) for purchase of desired articles. Application Procedure: First Phase:
On proper scrutiny of the application, branch CCS will inform the initial decision (Acceptable of processing/Decline) to the applicant within 3 (Three) working days from the date of receiving application. Second Phase: Branch will provide additional papers to the applicants whose applications are accepted for processing as following. Particulars of Guarantor form. Letter of Guarantee. Personal Net-Worth Statement form for Businessman/ Professionals.
Applications will submit the above forms duly filled in in-with the following additional papers: Salary Certificate for service holder. Trade license and TIN Certificate (in any) for Businessman. TIN Certificate of applicants for Vehicle loan. Attested photocopies of current Tax Receipt, Electric bill etc. & Lease agreement (in any) when the source of income is house rent as a landlord. Branch will inspect the given information in respect of eligibly, feasibility and security. After completion of all necessary formalities branch shall disabuse the loan or decline the proposal within 7 (Seven) working days from receiving the additional papers. Price of the items (Down payment + Loan amount) should be given to the respective supplier through payment Order (PO) after completion of necessary documentation.
6.3 CCS Accounting 6.3.1 Summarized Accounting Entries Disbursement: Debit: Loan A/C, with the amount of purchase price/risk fund/service Credit: Suppliers A/C, P.O. (Purchase Price) Credit: Risk Fund Credit: Income A/C Service Charge A/O arrear interest: Debit: CCS Loan A/C Credit: income A/C Interest On recovery of monthly installments: Debit: Cash/Bank A/C Credit: CCS loan A/C Recovery: Debit; Cash/Bank A/C Credit: Loan A/C. 6.4 Estimation of Installment Its major problem to customer about annuity of money because of the deficient in acknowledgement. For better appreciation it is mentioned below precisely. 1 1-(1+r1)-n1 r1
Annuity factor =
Here, r = Interest rate (p.a.)
k = 12 (months) n = number of years n1= n*k r1 = k Installment = Loan amount * Annuity factor Annuity factor for 2 years = 0.04896312 Annuity factor for 3 years = 0.03515705 6.5.2 Professionals Loan Personal guarantee from seniors in respective professions and/ or personal guarantee from a person having social respectability financial standing acceptable to the Bank. 6.5.3 Business Loan Personal Guarantee for respective employees and another personal guarantee from a person having social respectability/ financial standing acceptable to the bank. 6.5.4 Loan for Self-Employed Business Person Personal Guarantee from a person having social respectability financial standing acceptable to the Bank. 6.5.5 Loan for Army Adjutant General (AG Branch) or Military Services (MS Branch) should be involved their clearance/ recommendation should be obtained. The directives prescribe by Army Head Quarter. No of personnel (BA NO) Should be obtained. The length of services of personnel should be ascertained
No loan should be given if remaining service period does not cover the repayment. Any letter is sent to Army officer thorough Head Office. 6.3 Loan for Different Professionals 6.5.1 For PBL Officers
Only the confirmed employees of the bank will be eligible for the loans under the scheme. A maximum loan of Tk. 50,000/- (fifty thousand) only may be allowed to any Executive/ Officer at a time for one ore more items. S.P.O.s & A.V.P.s may avail themselves of loan of Tk. 1.50 lac to buy private car but in that event they will not be entitled to avail themselves of any loan for other items.
The amount of loan should be adjusted by 48 (forty eight) equal monthly installments. Once a loan is fully adjusted, concerned Executives/ Officers may avail himself of loan again to buy similar or other items. however, car loan cannot be repeated within a period of 5 years from the date of availing the loan.
Since, the borrowers are Banks own Executives/ Officers, they will be exempted form the following payments: a) Down payment (Equity) b) Payment of Risk Fund, c) Service Charge payment.
Since the borrowers are Banks one Executives/Officers, the monthly installments for availing loan shall be deducted directly from the monthly salary of concerned Executive/Officer.
Interest on loan should be charged at pay with the clients under Consumer Credit Scheme will apply. Credit Division, Head Office, and Dhaka shall sanction the loans to the Executives/Officers of the Bank under the Scheme. 6.6 Job Description of the Proposed Unit
Central CCS unit will perform many duties. To identity the potential customer and to focus the features of the scheme to create demand for purchasing household durable availing loan under the scheme. After receiving loan applications the central CCS unit shall make preliminarily scrutiny. The following responsibilities will be vested with the unit: Marketing Loan Sanctioning Recovery of CCS loans of Dhaka City branches Follow up, monitoring and supervision.
There will be 3 (Three) teams consisting of 2 (Two) officers in each team who will perform the above-mentioned activities on rotational basis. They will keep record of their daily activities /performance in a separate register. 6.6.1 Job Description of the Central CCS unit According to responsibilities the job description of the Central CCS unit, Head Office Shall be as under: Officers have to identity the potential customer for consumer credit. For this and to focus the features of the scheme to create demand for purchasing household durable availing loan under the scheme. The respective officers of the unit will go to different Officers, Schools, Colleges, Universities (Government & Private), Insurance Companies, private companies, Private
Clinics professionals, well established businessman and pursue the officials/ employees of the above institutions/ offices/companies, businessman and professionals for availing CCS loan from prime bank limited. They will also work for a possible arrangement with the institutions/officers/ companies to accommodate CCS loans to their employees under the corporate Guarantee of the Concerned institutions/ offices/companies. The marketing officers will pursue their solicited customers to submit their loan applications either direct to the central CCS unit or to any other nearest branch of prime bank limited. The branches shall forward the applications so received to the central CCS unit immediately. In the loan application the borrower shall mention the name of the branch of the Prime Bank limited through whom they want to take the loan. Loan will be given from that branch and officers of that branch will process the loan. 6.6.2 Loan Sanctioning After receiving loan applications the central CCS unit shall make preliminarily scrutiny. If found feasible and bankable, the customer shall be advised for submission of further necessary papers/ information if any. If found not feasible, they shall decline the proposal at that stage and politely advise the applicant accordingly. The customer should be advised at one time for required papers/information instead of piecemeal advice creating dissatisfaction of the customer. They shall arrange for necessary inception, spot verification of the applicants/ Guarantors addresses offices immediately. A Committee shall be formed in the CCS unit consisting of Head of the Unit (Chairman) and other six officers (Members). The respective loans will be disbursed through the branch mentioned by the customer. The central CCS unit will complete documentation and obtain post-dated cheques before issuing sanction advice to the branches. They shall maintain a sanctioning and
declining register in the computer. They shall keep the document and post dated cheques in the safe under joint custody making entry in the safe-in and safe-out register.
The delegation of business power for sanction/approval of CCS loan by the Credit Committee and the CCS Committee is fixed. The limit is different for different things. The delegation of business power for sanction/ approval of CCS loan by the Credit Committee and the CCS Committee will be as under:
Table-6.3
Name of Item New Vehicle Reconditioned Vehicle Other Items Motor Cycle Personal Computer Photo Copier Loan Limit Tk. 10,00,00.00 Tk. 10,00,00.00 Tk. 3,50,000.00 Tk. 30,000,00.00 Tk. 10,000,00.00 Tk. 10,000,00.00 Credit Committee Full Limit Full Limit --------------------------Central CCS Committee Up to Tk. 6.00 Lac Up to Tk. 6.00 Lac Up to Tk. 1.50 Lac Full Limit Full Limit Full Limit
To decide whether approved or declined a meeting is held. There will be a regular meeting in very working day presided by head of CCS unit. After detailed discussion based on the papers and inspection report the committee will sanction or decline CCS loan as per delegated authority and refer to Head Office Credit Committee for approval/ decision beyond the delegated authority of the CCS committee. The head of CCS unit will attend the Credit Committee Meeting along with the proposals and specific recommendations for approval of loan cases beyond the delegated authority of the unit. the Credit Committee
will approved or decline the proposals based on the merit. After deciding whether accepted or declined it is informed to the applicant with in very short time. If approved then documentation is prepared. 6.6.3. Follow up, Monitoring and Supervision The credit under the scheme is fully supervised and the success of the scheme will depend on the porter and persistent supervision, follow up persuasion and monitoring of the credits by the branches. CCS unit shall monitor and supervise the CCS loan portfolio of all the branches. Branches shall maintain proper records of the applicants received, loans sanctioned, disbursed and recovery made thereon. Branches shall send the statements of CCS loan and the overdue list to the CCS Unit within the first week of every month. The CCS unit shall properly utilize the MIS (Management Information System) available in the existing computer program for consumer Credit Scheme of the bank to closely monitor and supervise the scheme. 6.6.4 Steps Taken in case of Default Installment Before disbursement of loan, the customer will deposit crossed cheque covering the total number of monthly installments in favor of the bank which will have to be presented for collection of the due dates. Installments will be paid then within 7th day of each month. If one installment is not paid then it has become overdue. Actions are taken on the basis of default installment. Steps taken are described below: If one month installment is due then concerned officer will call a phone to the client: In case of installment due for two months letter is given to the client and phone is also called;
In case of three months phone and letter to client as well as visit is done; If installment is not given within four months then letter is given to the guarantor; If installment is not given within five months then legal notice is send to the client; In spite of all these steps if installment is not given then case is sued against the client.
In case of installment due for six months the loan is treated as classified loan.
Performance Evaluation of Consumer Credit Scheme of PBL
Chapter-7
7.1. Performance of CCS of Prime Bank Ltd. 7.1.1 Yearly Position of PBL Prime Bank started its CCS operation from beginning of the Bank (1995) at five branches. It has increased it operation. Now in all branches (20), CCS is operated successfully. By establishing CCS unit, Bank emphasis on this loan. Though this loan is very small comparison to other large investment, it dealing is related to many people. Table 7.1 Yearly Position of PBL
Year Cumulative No. of customer 1691 4445 6136 8448 10618 No. of customer Cumulative Amount disbursed Tk. (000) 56586 178833 266145 301196 480416 Amount disbursement during the year Tk. (000) 56586 122247 81312 41051 179200 Overdue (000) Recovered (%)
1995 1996 1997 1998 1999
1691 2754 1691 2312 2170
439 1147 5700 10850 15506
93 98.65 96.26 95.48 96.08
Source: Provided by an Officer form CCS cell, Head Office.
Yearly Position of PBL

3000
No. of customer
2500 2000 1 500 1 000 500 0 1 2 3 4 5
Year No. of customer
Year
Chart 7.1
No of Customer: No of customer increased in 1996 as beginning stages. But for increasing defaulters Bank restricted forgiving this. So, in 1997 the customer was declined. By establishing CCS cell emphasizing on recovery and increasing Branches Bank. Increased its operation. So it increased in 1998 and 1999. The no of customer in 1999 is 2000. Disbursement: Disbursement increased in 1996 as a beginning stage. But now this scheme is operated in all branches. So the disbursement increased. Recovery (%): At the beginning the recovery rate was high (98.68%). But in 1997 & 1998 recovery declined. There was a supervisory agency for recovery. But now bank staff deaf deals all operational. Now the recovery rate has increased. Overdue: As disbursement has increased the overdue also increased. But it is very had for it that the upward trend in 1999 the overdue amount was (1.55 core). 7.1.2 Classified Position CL UC SS DF = Classification of loan = Unclassified = Substandard = Doubtful = below 6 month / 6 installment = + Month to 12 month / 6 +- 12 = 12 + month / 18 + installment Table 11:
installment Classified Position

Table 7.2 Classified Position Figure in (000)

Overdue A/C Amt. 8 Branch All Branches 1436 1595 16854 17894 SS A/C Amt. 284 248 7005 7002 DF A/C Amt. 119 119 3701 3701 BL A/C Amt. 511 511 7602 7602 A/C 914 914 % of classified Amt. A/C Amt. 1830 23.01 8 1830 11.59 8
Source: Provided by an Office from CCS cell, Head Office.
% of Classified 25 20 15 10 5 0
23.01
11.59
8 Branch All Branches
Chart 7.2
Among 20 branches, classified A/C in only 8 branches. Rest 12 branches operate successfully without classification. Though in 8 branches the classified percentage is high, the total classified percentage is lower. 7.1.3 Monthly Position
The yearly position of last five years has been mentioned previously. But here the recent position is mentioned. It will be helpful to see the present situation of CCS. It also gives the monthly trend of CCS of last 5 months. Table 7.3 Monthly Positions
(Figure in 000Taka)
SL . No . Name of the Month Cumul ative No. of Cases Disbur sed Amount Cumulative
Disbursement
Amount Outstanding
No. of Cases
Disbursed
during the month
Amount Disburse d during the month
Amount Overdue
Recovery
Percentage
No. of
Overdue
1 1 2 3 4 5
2
January February March April May
3 10000 10831 11084 11303 11652
4 466671 495639 511110 529501 548734
5 144899 152735 15887 167786 178735
6 118 215 254 279 293
7 7542 12250 15102 18165 21021
8 15936 17831 17895 18417

188110
9 95.76 94.77 95.41 96.22 95.50
10 1415 1557 1699 1613 1552
Recovery Percentage
96.5 96 95.5 95 94.5 94

94.77 95.76 95.41 95.5 96.22
January February March April May
Chart 7.3 Number of Cases Disbursed: It is observed the number of cases disbursed is increasing from beginning of this year for increasing the ceiling. The disbursement has increased for January. So, the amount of outstanding and overdue also has increased.
The recovery percentage of last 5 months also increased. At the end of last year. It was declined sharply. But for proper supervision it is increased.
7.1.4 Branch wise Position Table 7.4 Branch wise Position

(Figure in 000 Taka)
Name of Branch Cumulativ e No. Disbursed Amt of cumulative Disburseme nt Amt Outstandin g Recover y% Amt Overdu e Ceiling Total Classifie d Amt % of Classificat ion
Motijheel Mohakhali Kawran Bazar Moulvi Bazar Elephant Road IBB, Dhaka Gulshan Mouchak Narayango nj Khatungon Agrabad Jubilee Road Sylhet Court Road IBB, Ambarkha Khulna Rajshahi Barisal Bangsal Jessore Total
4000 89 443 20 552 697 90 136 100 1141 168 87 1064 320 682 824 694 433 31 81 11652
173868 4371 21324 1274 34919 31596 4439 6941 3489 41537 12077 11688 59037 18869 44584 23427 26025 22071 3544 3654 548734
43043 1177 8710 971 19000 8277 2045 4387 1908 5306 8431 8572 13264 11732 22729 4663 5778 2757 3094 2891 17873
83.82 100.00 96.07 100.00 98.05 95.92 98.08 88.74 92.18 97.01 95.30 87.10 99.71 99.63 99.43 95.56 98.93 94.48 100.00 99.77 95.50
10761 0 735 0 195 1291 46 205 157 1504 237 87 178 29 120 1223 254 1066 0 22 18110
60000 10000 10000 10000 20000 20000 10000 5000 10000 30000 10000 10000 30000 15000 25000 10000 20000 20000 10000 10000 345000
12053 0 236 0 0 790 0 15 0 2771 0 0 0 0 0 1550 124 769 0 0 18308
28.93 0 2.67 0 0 11.89 0 0.40 0 49.70 0 0 0 0 0 35.29 2.17 26.19 0 0 11.9
% of Recovery & Classification

120 100 80 60 40 20 0
M ot i jh ee l ra n B az El ar ep ha nt Ro ad G ul sh an N ar ay an go nj Ag ra ba d R aj sh ah i Sy lh et rk ha ,A m ba Ba ng sa l
Recovery % % of Classification
Ka w
Chart 7.4 The position of eight branches is dissatisfactory. These branches are Motijheel, Kawran Baza, IBB-Dhaka, Mouchak, Khatungonj, Khulna, Rajshahi, Barisal. There are classified accounts in these branches. Total classified amount of these branches is 23.01%. But rests of the branches are doing well. These branches recovery rate is above 99%. There is no classified loan in these branches. But stamp charges vary from bank to bank. But it is dominated by Bangladesh bank order. By it bank is not getting any benefit in terms of money. But for document it is essential for legal procedure. It approves the validity of documents. It varies with number of charge document of guarantor document in PBL the stamp is one number of the highest position. It was more but recently it is reduce to Tk. 470. Service charge is imposed upon the loan amount. In PBL it is lower than other bank, which is non-refundable. 7.3.2 Comparative Study of Position Number of branches handling the scheme: All banks increase in their branches of CCS operation for its large market demand. The IBBL stands on the highest position, but PBL is in middle position, but operates in its all branches Pubali Banks in only six branches.
IB B
Table 7.7 Number of Branches handling the Scheme

Name of the Bank PBL IBBL MRC ANZ ABBL UBL Pubali 1995 5 39 1996 9 63 0 7 0 0 3 1997 10 67 0 10 5 20 5 1998 15 70 0 12 10 35 6 1999 20 102 9 17 15 44 6
Source: Questionnaires (Survey on Bank)
No. of Branches handling the Scheme

120 100 80 60 40 20 0 PBL IBBL MRC ANZ ABBL UBL Pubali 1995 1996 1997 1998 1999
Chart 7.5 Number of Clients: IBL deals vastly of this loan. So, it has highest number of customer. PBL also has increased its customer. Other newly oriented bank also has increased their customer. So, a large number of people have got this loan facility from several banks.
Table 7.8 Number of Clients

Name of the Bank PBL IBBL 1995 1691 18902 1996 2754 34921 1997 1691 42916 1998 2312 46020 1999 2170 68819
MRC ANZ ABBL UBL Pubali
1555
1760 1230 610
340
2100 730 1750 720
3136 2150 1020 2504 750
Source: Questionnaires (Survey on Banks)
Number of Clients
80000 70000 60000 50000 40000 30000 20000 10000 0 1995 1996 1997 1998 1999
PBL
IBBL
MRC
SCB
ABBL
UBL
Pubali
Chart 7.6 Recovery Position: The recovery percentage of Standard Chartered Bank is satisfactory level. PBL is on the second position for recovery that is more than 95%. But IBBL, UBL, Pubali stands below PBL. Amount Outstanding: Outstanding figures are related to disbursement and overdue and for increasing them outstanding figures increase. Table 7.9 Amount Outstanding
Name of the Bank PBL IBBL 1995 565.86 2798 1996 1402.67 5039 1997 1426 3751 1998 1257.09 3140 1999 1499.24 5815
Amount Outstanding
7000 6000 5000 4000 3000 2000 1000 0 1995 1996 1997 1998 1999
PBL IBBL
Chart 7.7 Amount Disbursed: Table 7.10 Amount Disbursed (Tk. in 00000)
Name of the Bank PBL IBBL MRC SCB ABBL UBL Pubali 1995 565.86 4393 1996 12222.47 9111 933 1997 813.12 11699 1108.8 490 244 1998 410.51 12562 1260 438 724 216 1999 1792.2 19484 1290 519 1052 255
119
Source: Questionnaires (Survey on Banks) IBBL is on the highest position for its nationwide Banks. The disbursement has increased gradually for increasing its demand.
Amount Disbursed (Tk. in '0000)
25000 20000 1995 15000 10000 5000 0 PBL IBBL MRC SCB ABBL UBL Pubali 1996 1997 1998 1999
Chart 7.8
Overdue: Overdue amount of PBL has increased gradually for increasing its operation. But IBBL has maintained same level of overdue amount. Overdue amounts of other Banks have also increased. Table 7.11 Amount Overdue
Name of the Bank PBL IBBL SCB ABBL UBL Pubali 1995 4.3 79 1996 1.74 240 4.5 1997 57 701 18.3 3.8 15.4 1998 108.5 672 31 .5 29 23.1 1999 155.06 684 8 90 18.5
1.26

Amount Overdue
800 700 Tk. in '0000' 600 500 400 300 200 100 0 PBL IBBL SCB ABBL UBL Pubali 1995 1996 1997 1998 1999
Chart 7.9 IBBL classified percentage is higher than PBL. But SCB and Pubali stand below PBL. Here it is ignore the MCB, One Bank, Premier Bank, IFIC. Because they started this operation from few month ago. Table 7.12 Classified Position: Figure in (00000)
Year Name of the Bank No. of A/C 1995 Amou nt Classi % of Classi fied No. of A/C 1996 Amou nt Classi % of Classi fied No. of A/C 1997 Amou nt Classi % of Classi fied 1998 No. Art of Cla A/C ssifi
Class ified PBL IBBL SCB

Pubali
fied
Classi fied
fied
Classi fied 304 1012
fied
59.33
421
7.02 11
Classi fied 779 1524 320 20
ed 12 62 99 5
7.2 CCS System of Other Commercial Banks Islami Bank Bangladesh Ltd. CCS was first introduced by Islami Bank Bangladesh Ltd. Which was named Households Durables Investment Then Prime Bank Ltd. Social Investment Bank, and other commercial banks introduced this scheme for its large market share Because of increasing the defaulter number the Dhaka Bank Social Investment Bank Ltd. have stopped this operation. Uttara Al, Baraka, Publai Banks are not dealing with this operation. It is operated with different names. All households items are given through this scheme. But Mercantile Bank and standard chartered Bank add marriage, overseas and treatment loan. Age limit mainly between 20-55. Ceiling is different for different bank. Prime bank provided one of the largest and highest ceilings. The period of loan ranges usually between 2 to 4 years. Down payment required is generally 20-25% for households but 30-40% for car loan. Car is the highest disbursed items of CCS for its unit price. About all banks disburse the amount in cash but Islami bank and Islamci banking Branch of Prime bank disburse in kind.
Table-7.13 CCS System of other Commercial Banks
Name-e of the Bank Starte d Operation Name
Islami Bank Ltd. Feb.93 All branches Household Durables Investment Scheme All households Like PBL Govt. service25+Pvt.(3050) *75,000/*Installment Not exceed 50% of salary
Uttan Bank Ltd. 96 50 branches Uttara CCS
Marcantile Bank Ltd. 2nd June All branches CCS
Al Baraka Bank Ltd.
Al Arafa Islami Bank Ltd. 97 All branches CCS
IFIC Bank 99 All branches IFIC CCS
Pubali Bank Ltd. 96 6 branches CCS
Premier Bank Ltd. 99 4 branches CCS
One Bank Ltd. 99 All branches CCS
16 branches Al Baraka CCS All households Do 20-55
Items
All households Like PBL 20-55
All households Like PBL 18-55
All households Service 20-50
Do
Do
Do
Do
Eligibility Age
Like PBL 20-50
Do 20-50
Do 20-50
Do 20-55
Ceiling
3 lac
Car (4 lac) *Household (1 lac) *Other (0.5 lac)
50001000000
1 lac
4lac
0.8 lac
0.1lac-3 lac
6 lac
Analytical Exploration of Consumer Credit Scheme
Chapter Eight
8.1 Analysis of Consumer Credit Scheme (CCS) of Prime Bank Ltd. 8.1.1 Class-wise availing this opportunity It is taken sample on of 255 for calculation this study. Among them, service holders who are in prominent private organization stand on the highest position. Then government service holders, teachers, establishes businessmen and professional stand on the ranking of this list.
Table 8.1 Percentage of group availing the scheme

Category Service (pvt.) prominent Service (pvt.) Ordinary Service (govt.) Business Professional Defense Teacher Insurance Bank Other Total Number 50 18 42 30 22 10 32 22 24 5 255 % 19 7 16 12 9 4 13 9 9 2 100
Source: Record book (Sample is taken form IBBL, Dhaka)
% of Consumers availing loan facilities

Service (pvt.) prominent
9% 9% 2% 19% 7%
Service (pvt.) Ordinary Service (govt.) Business Professional Defense
13% 4% 16% 9% 12%
Teacher Insurance Bank Other
Chart 8.1
8.1.2 Ranking of Consumed Items Computer is on the highest position. So, this scheme helps on education for student whose parent cannot provide them at a time. Then freeze, CTV, stand on ranking which effect on living standard. Table 8.2 Ranking of Maximum Consumed Items
Total 206 % Car 28 13.5 Computer 78 37.8 CTV 32 15.5 Motor Vehicle 8 3.8 Freeze 34 16.5 Other (washing + Air conditioner + Furniture + VCD) 26 12.6
Source: Record book (sample is taken from IBBL, Dhaka)
Ranking of Consumed Item

90 75 60 45 30 15 0
le C TV ze C ar pu te eh ic Fr ee O th er r
Quantity %
C om
Position of A/C: This table shows the situation of A/C, which is never disclosed. The real defaulter rate is 51.08% and a classified rate is 40.1%.
ot
or V
Chart 8.2
But for accounting procedure it is hidden behind the shadow. When the percentage is calculated, it is taken whole accounts both adjusted files and continuing files. For this reason, the percentage of recovery increases sharply. Table 8.3 Position of A/C
Files Total % 700 100 Adjusted files 469 67 Continuing files 231 33 Default files 118 51.08 Regular files 113 48.9 Classified files 53 40.1 Suit files 10 4.3
Source: Record book (sample is taken from IBBL, Dhaka)
Number of A/C in IBBL

750 600 450 300 150 0
Total %
Fi le s
fil es R eg ul ar fil C es la ss ifi ed fil es
fil es
D ef au lt
fil e
C on tin
Ad j
us te d
ui ng
Chart 8.3 8.1.3 Defaulter Analysis Defaulter group: Businessmen who are not well established are defaulter most group. Then the private service holders who are in ordinary organization is the second position. Table 8.4 Defaulter Group
Gropu Business (not well establishes) Service (PVT) not prominent Service (Govt.) Professional Toatl Number 26 17 4 6 53 % 49 32 7.5 11.3 100
Source: Record Book (Sample is taken from IBBL, Dhaka)

Su it
fil es
% of Defaulter Group
11% 8% 49%
Business (not w ell establishes) Service (PVT) not prominent Service (Govt.)
32%
Prof essional
Chart 8.4 Defaulter from overdue list, Defense and Insurance service holder add on the defaulter list. For mobilization defense service holder, they add as defaulter group. 8.1.4 Action against defaulter
Group Suit Legal notice served Perusing Number 10 32 76
Source: Record Book (sample is taken from IBBL, Dhaka) Attitude of Guarantor in Default Loan: It is seen when a borrower fails to repay loan, then 70% guarantor helps the bank to recover the loan and in 30% case the guarantor does not help. If the guarantor does not help then in most of the cases (about 80%) bank takes legal action and sometimes (about 20%) bank seeks help from local community. Table 8.6 Attitude of the Guarantor in Default Loan
Attitude Helps the bank to recover the loan Does not help Total Percentage 70 30 100
Source: Based on Questionnaire
8.1.5 Analysis of CCS Investment to total Investment of PBL CCS disbursement is only 1.5% to total disbursement. But its overdue and classified percentage is most dissatisfactory comparison to total investment. So, the CCS loan is going on bad situation because of its growing no of defaulters. Table 8.7 Percentage of Investment
Total Outstanding 815/42 (lac) Total Overdue 22.56 (lac) Outstanding 84.02 (lac) Overdue of CCS 12.51 (lac) % 10.3 % 55
Table 8.8 Disbursement

Total Disbursement 21070.48 (lac) Disbursement of CCS 321.25 (lac) % 1.5
Table 8.9 Classified Amount

Total Clasified 188 (thu.) Classified of CCS 790 (thu.) % 41.8
Source: Record Book (sample is taken from IBBL, Dhaka)

60 50 40 30 20 10 0 Series1
Outstanding
Overdue of CCS
Disbursement Classified of of CCS CCS
Chart 8.5
8.1.6 Survey Result Form Questionnaire on Customers Point of View For comparing CCS of PBL with other banks and why consumers come to this bank, I found that 70% consumers did not like Uttara Bank, Islamic Bank Bangladesh Ltd. etc.
SWOT Analysis
Chapter Nine
In the strength, weakness, opportunity and threat analysis, I analyze these four factors of Prime Bank Ltd. with respect to Consumer Credit Scheme.
9.1.1 Strength
1. Prime Bank Ltd. has strong liquidity position. The bank has strong capital adequacy ratio of 17.50, which is an important factor for the bank to extend consumer credit. 2. Prime Bank Ltd. has managed to achieve high profitability, which will help the bank to make its position strong in CCS. 3. The number of cases is significantly high in consumer credit scheme for Prime Bank Ltd. than the other competitive bank. With this higher number of cases Prime Bank Ltd. can dominate the market with new and better policy. 4. Prime Bank Ltd. has given high quality service to the customer in CCS, which makes the bank attractive to the customer. 5. Recovery rate is significantly high for Prime Bank Ltd. 6. The increasing trend of total deposits will definitely give the bank a strong position to extend Consumer Credit Scheme. At the same time 61% of the total deposits is time deposit, which is very much significant to extend credit.
9.1.2 Weakness
1. Deposit growth rate has decreased than the other competitive banks. 2. At the moment only one person is engaged in doing an kinds of survey to decide to which person bank should extend credit and when bank must take actions to send warning to the credit holder. Bank has to employ more staffs or agents to verify each applicant efficiently and to take better actions in the event of defalcation by the client.
9.1.3 Opportunity
1. Prime Bank Ltd. can extend its Consumer Credit Scheme (CCS) to travelling, and marriage occasion. 2. It can extend its CCS to agricultural sector. 3. More and more people are now getting interest in consumer credit scheme. Prime Bank Ltd. can attract more consumers through its quality services. 4. High capital adequacy rate of Prime Bank Ltd. will definitely help the bank to open new branches allover Bangladesh.
9.1.4 Threats
1. Other banks are already participating in CCS and new banks are coming in this sector. In today's competitive world banks will definitely try to increase their efficiency and effort in CCS. So, it is an important factor for Prime Bank Ltd. to think about the competitive situation in consumer credit scheme and take all the necessary steps to remain competitive in the market.
2. Economy of Bangladesh is now facing recession and for this purchasing power of the people decrease. This is a great threat for the banks to extend its service in consumer credit scheme. 3. Other banks are also organizing training program to improve the efficiency level of its staffs and this will definitely help the banks to improve its quality of services.
Findings & Suggestion of C.C.S
Chapter Ten
10.1 Findings
1. Service holders both private and government, well-established businessmen, professional avail themselves of this loan facility most. But the people who are not in service, business or profession do not get this loan. 2. Maximum consumed item is computer that effects on the education. Other items are color Television, Freeze, Washing Machine, Air Conditioner, Furniture VCD etc. 3. Real position of defaulter is very dissatisfactory. It is really high (51.08% at IBB Dhaka.) 4. Defaulters are Businessmen (who are not well established), Private service holders (who are in ordinary organization) defense service holders, Insurance service holders and contractors. 5. Though the disbursement of CCS is smaller in comparison to total investment, the defaulter rate is very high. 6. Disbursement has increased form January 2000. 7. Recovery percentage was lower at the end of the last year. But form beginning of this year it has been increased which is acceptable but not at satisfactory level. 8. Size of manpower of CCS is smaller in comparison to total manpower but very high involvement of public dealings related to CCS. 9. Only 8 branches have classified loan that is (23.01) very high. But other 12 branches operate this scheme successfully. So total is low classified amount (11.59%). 10. Down payment in computer is very high (40%). 11. Stamp charge is very much high so it is burden for the customer.
12. Goods should be observed by Bank. But it dose not occur in reality. 13. Excess of stamping demoralizes the parties. 14. Letter of assurance is the major problem, because of difficulties of managers. 15. Sometimes, relatives of Borrower take loan. So, Borrower fells less accountability to repay the installment. So, the real taker delays to repay. 16. Generally there is cash disbursement or pay order disbursement. So, purchasing of goods depends on borrower. So, the real objectives are not fulfilled always. 17. Loan is given around the branch area. So, the people out of the city or coverage area are small. For female applicant husbands guarantee is need. 18. The guarantors guarantee is the additional bindings for the customer. 19. The scheme is fully supervision and monitoring oriented scheme. So, for proper monitoring adequate manpower is required. But there is lacking of manpower for CCS. 20. Installment system through cheques creates extra trouble. Because most of the cheques are bounced for insufficient fund. One cheque needs to be placed several times. 21. Customers have lack of knowledge about the installment calculation or annuity. 22. Most of the bank disburse through cash or pay order bout only IBB, Dhaka give goods delivery. Officers present physically when a good is delivered. So the objectives are fulfilled properly by these Branches. There are some problems also. The customer fell botheration for its procedure. Sometimes the customers fell trouble whose mentality is to take cash not goods. 23. 70% customers did not go to another bank for CCS. They come to this bank for first time. 24. About 60% consumers said that the rate of interest was excess.
25. Procurement of loan, amount of loan, loan repayment method (monthly installment), way of receiving good is easy. 26. About 45% consumers said that loan repayment period was appropriate and 55% said that it was not appropriate. According to their opinion its period should be longer than one (1) year or more. 27. Most of the consumers, (65%) said that deposit of down payment was excess, and rest said, that was appropriate. 10.2 Recommendation Banks should take the following steps to solve the above-mentioned problems. 1. Manpower of consumer Credit scheme should be increased for increasing the disbursement and continuous supervision of the credit. 2. Number of items should be increased; especially medical equipment and machinery, personal research equipment, ornament for wedding purpose etc. 3. Continuous supervision is needed for recovery properly. 4. Inspection should be adopted for appropriateness of loan. 5. Avoidance of the most defaulter group businessmen (who are not well established),. private organization service holder (who are in ordinary organization, artist, defense service holders and contractor and impose restriction on these groups. 6. Reduction of stamp charge is necessary for increasing customer. 7. More sales promotion is required through newspapers, personal contract, or advertisement on the signboard. 8. If period of loan is more than 1 or 2 years, then installment size will be small and it will be easier for the consumer. 9. rate of interest is higher so it should be reduced. 10. Bank may appoint technically skilled persons to supervise consumed goods.
11. For the consumers who are paying their installment regularly they may get interest rebate facilities. 12. Calculation of interest on this scheme should be simple. 10.3 Conclusion Consumer lending is different from commercial and real estate loans in some respects such as purposes, size of loan, collateral free loan, financial charges etc. Financial charges of Consumer Credit Scheme include interest, service charges, origination fees etc. it is estimated in different types of method. And to minimize credit risk commercial banks credit decisions must be based on the credit worthiness of the borrower. This may be determined by judgment or a credit scoring system. Despite banks efforts some customers will default and some will go bankrupt. In a developing country like Bangladesh people of middle and lower class especially service holders with limited income find it difficult to purchase valuable but essential articles, which are part of modern and decent living. Consumer credit scheme helps them to purchase these goods and raising their standard of living. Consumer credit scheme in one of the small size credits of commercial banks, which provides for helping the fixed income group i.e., middle class group, growing up family in raising their standard of living. Generally Government and Semi-Government employees are more preferable to the banks. A great advantage for granting the credit is that there is no need for any security, which tends the credit more popular to the customer. But it becomes a disadvantage to the banks, because it created an opportunity for the customer to be a defaulter. So, continuous monitoring and supervision is the success of the scheme. A large number of banks are engaged in this scheme in our country that cannot meet the demand.
Islami Bank Bangladesh Ltd. is the first introducer of this credit scheme in our country. The started to provide the credit from 1993. After that Pubali Bank Ltd IFIC Bank Ltd. Prime Bank Ltd., Mercantile Bank ltd. and Al-Barak Bank Ltd. etc. come in this credit sector due to grater demand. Among these banks Islami Bank Bangladesh ltd. shows better performance in this avenues. Their number of customers, number of branches handling the scheme, disbursement, and recovery position is good than other three banks studied in this paper i.e. Prime Bank ltd., Publi Bank Ltd., Uttara Bank Ltd. From 1997 to 2001, as a new bank, Prime Bank Ltd. Shows good performance in our banking industry. But in 2000 and 2001 their recovery position has reduced than previous year and their classified position has increased in last year due to proper supervision and monitoring and lack of adequate personnel handling the scheme. In 2001 Publi Bank Ltd. disbursed huge amount credit by increasing the number of branches handling the scheme than previous year. As well as the classified position has seen that was not in prior years. The reason is lack of proper selection of customers, monitoring and supervision. And Uttara Bank Ltd. though handles the scheme by its 79 branches but their disbursement is poor because of insufficient advertisement, and the overdue position is not good compared to prime Bank Ltd. and Islami Bank Bangladesh ltd. The sequence of the analysis suggests that consumer credit has great potential in our country. We have observed several limitations of this program. If these problems are properly addressed this sector may be one of the profitable investment avenues for the banks in the years ahead.
Analysis Analysis Observation Observation & & Questionnaire Questionnaire Survey Survey
Questionnaire on Bankers
Q-1. The identify of the Bank Q-2. Can you please specify the following features of Consumers Credit Scheme. Items Period Interest rate (%) Down payment (%)
Q-3. Please mention the amount of----# Risk fund # Service Charge... # Stamp Charge. # Other Charge.. Q-4. What is the system of disbursement? # Cash # Goods
Q-5. Please provide the following information. A/C continue.. Defaulter rate.. Suit rate Recovery rate...
Q-6. Among defaulter which category of people most? . Q- 7. Who gets the top priority for loan? Service (govt.) Service (Private) Business Q-8. What is the system of payment? Cash Cheque (received in beginning) Both Q-9. What steps are taken against defaulters? * * * *
Q-10. If any restriction of area coverage, mention that. Q-11. What are problems you are facing at present regarding CCS? Management Financing. Marketing. Default.. Other.
Q-12. To your opinion what are the prospects of CCS in Commercial Q-13. Mention the attitude of guarantor in case of default loan? * Help * No Help
Q-14. Would you please provide the statistics of CCS of the last 5 years Account 1997 Number of Account Number of A/C (Commutative) disabled Disbursement 1997 Amount disbursed Cumulative amount Disbursed Target Disbursement
1998
1999
2000
2001
2002
1998
1999
2000
2001
2002
Recovery 1997 Amount Disbursed Amount Recovered Cumulative Amount Recovered % of Recovery Outstanding 1997 Amount of Outstanding Overdue 1997 Amount of Overdue Number of overdue Customer Classified SS No. of Amt. A/C 1997 1998 1999 2000 2001 2002 DF No. of Amt. A/C BL No. of Amt. A/C Total No. of Amt. A/C % of classif ication 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002
Questionnaire on Customers
Q.1. Are you aware of the CCS of Prime Bank Ltd. or any other Bank'? Yes
No Q-2. How did you aware about the scheme'? Personal TV Newspaper Other Q-3. Did you take loan from Prime Bank Ltd. or any other Bank'? Yes No Q-4. Do know the terms and conditions'? Yes No Q-5. When you choose a bank for this loan the most important consideration is Q-6. Why you come to prime Bank Ltd. not to go other bank'? Q- 7. What facilities did you get prime Bank Ltd. rather then other Bank'? Q-8. Reark about the services of Prime Bank Ltd.?
Q-9. Comments about the procedure of loan'? Easy Not easy

Q-10. Comments about the way of receiving goods'? Q-11. Is it appropriate the period of loan repayment and down payment'? Appropriate Not appropriate Q-12. Is there proper Supervision of goods? Yes Results:
Have you gone to other Banks for CCS Response Yes No Total Percentage 30% 70% 1000%
Not
In also found that the customer come for taking loan to the bank for good quality of the bank management. High loan amount, good reputation of this bank and so on. Reasons For Taking CCS From PBL Factors Financial Quality of the bank management Location of the bank management Reputation Interest rate loan amount is high Ranking 6 1 4 3 5 2
For knowing about the procedure of CCS is easy or not and also the problems of CCS of this bank, I asked some questions to consumers and got positive response in most of the cases, which is given in the table.
Procedure of Loan Comment Easy Note easy Total Way of receiving Goods Comment Easy Note easy Total Period of Loan Repayment Comment Appropriate Note Appropriate Total Deposit of Down Payment Comment Excessive Appropriate Total Amount of Equity Comment Excessive Appropriate Total % Figure 45% 55% 100% % Figure 65% 35% 100% % Figure 48% 52% 100% % Figure 80% 20% 100% % Figure 90% 10% 100%
Proper Supervision of Goods According to Banks & Regulation response % Figure Yes 5% No 95% Total 100% Source: All the data of the above tables are imported form the questionnaire of the customers.
Bibliography Bibliography
Bibliography
1. Annual Report (1997-2001): Prime Bank Ltd. Islami Bank Bangladesh Ltd. Uttara Bank Ltd. Pubali Bank Ltd.
2. Chowdhury, A.A. Mahboob Uddin, "Co-Operative Credit Administration: A Case Study of Sonali Bank", Dhaka University Journal of Business Studies, Part- C, Volume-VIII, No. 1, Page 35-52, 1987. 3. Fraser, D, Gup, B, Kolari, J, Commercial Banking West Publishing Company, 1995. 5. Ison, Terence G. Credit Marketing and Consumer Protection, Croom Helm Ltd. London, 1979.
6. Rose, P, Bank Management Irwin Mc Graw-Hill Publishing Company, International Edition 1999.
7. Profile ApnI18, 2000. Deposit Scheme Brochure PBL, 1995. 8. Credit Profile, The Daly Star, April 18,2000. 9. Performance of PBL, Annual Report, 1999, PBL. 10. Risk Grading System, An officer of Head Office, PBL, Mimeograph. 11. Hierarchy Organization, Provided by Principal, Training Institute, PBL, Mimeograph.
12. Manpower positions, Organogram, an officer of Head office, PBL Mimeograph. 13. Kotler, Philip, marketing Management, analysis, Planning, Implementation and control, Ninth Edition, New delhi: Prentice Hall of India Pvt. Ltd. 1997, 14. Kotler C.R., Research Methodology methods & Techniques, Second Edition, New Delhi: Wishwa Prakashani,1989. 15. Circular, Head office, PBL. 16. Yearly position, An officer of CCS Cell, Head Office, PBL, Mimeograph. 17. Classified position, An officer of CCS Cell, Head Office, PBL, Mimeograph. 18. Monthly position, An officer of CCS Cell, HEAD Office, PBL Mimeograph. 19. Branch wise Position, An officer of CCS Cell, Head Office, PBL, mimeograph. 20. Comparative study of different Banks, Questionnaire of respective Banks, Mimeograph. 21. Analysis of CCS, Record Books, IBB, PBL. 22. Households Durable investment Scheme, Brochure, IBBL, 1993. 23. Consumers credit Scheme, Brochure, Pubali Bank, 1996. 24. Consumers Credit Scheme, Brochure, PBL, 1995. 25. Uttaran consumers Credit Scheme, brochure, UBL, 1996. 26. Consumers Credit Scheme, brochure, ABBL, 1997. 27. Consumers Credit Scheme, brochure, Mercantile Bank Ltd., 1999.
28. Official website of Prime Bank Limited: www.primebank.org

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Consumer Credit Scheme a Comparable Study to Other Commercial Banks With Prime Bank

Report on Prime Bank Limited

Date of Submission: December 29, 2004

Report on Prime Bank Limited

December 29, 2004

With best regards. Sincerely yours.

Report on Prime Bank Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

Background of the Report

Report on Prime Bank Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

Theoretical Review of Consumer Credit Scheme

Report on Prime Bank Limited

Report on Prime Bank Limited

: Maximum Tk.2, 50,000/-

: 01(one) year. Maximum 05(five) years.

Prime Bank Limited: at a glance

Report on Prime Bank Limited

Prime Bank Limited

Efforts Are Focused

Report on Prime Bank Limited

Highlights Highlightsof ofPrime PrimeBank BankLimited Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

No. of Foreign Correspondents : 422

Report on Prime Bank Limited

Concept of Consumer Credit Scheme

Report on Prime Bank Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

Full Limit Full Limit Full Limit

2 Years 2 Years 1 Years

Report on Prime Bank Limited

Report on Prime Bank Limited

Overview of Consumer Credit Scheme of Prime Bank Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

1999 1999 1999

Report on Prime Bank Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

Here, r = Interest rate (p.a.)

Report on Prime Bank Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

Report on Prime Bank Limited

Car (4 lac) Household (1 lac) Other (0.5 lac)