Reaerve Management

IFICBANKLTD.
International Finance & Commercial Bank
Chapter one: Introduction

1.1 Origin of the report:
This report originates to fulfill the requirement of studying Bank Management, which is the course of
BBA Program of ASA University Bangladesh. The topic of the report is Reserve and Liquidity
Management (IFIC Bank).
1.2 Objectives of the Study

1.2.1 Broad objectives: Broad objective of this report is to meet the partial requirements for the
fulfillment of BBA program.
1.2.2 Specific objectives: In specific objective I have to prepare a sound report that must be reliable
and dependable for the Banks officials.
The specific objectives to help in explaining the broad objectives are as follows:
To know about reserve management of IFIC Bank.

To know about liquidity management of IFIC Bank.
To know about CRR and SLR Requirement of Bangladesh Bank.
To know Banking industry and their management policy.
To suggest remedial measure for the development of IFIC Bank.
Relevant rules, regulations, theories and practices for banking.
1.3 Significance
IFIC Bank Ltd. is one of leading private commercial banks of the country. Though it has 82 branches and
SME 4 branches all over the country, it is performing banking activities very successfully. To mobilize
funds from surplus units and deploy funds to deficit units, the bank is playing a great role in the economic
development of the country. IFIC Bank Ltd. is one of the key players of countrys economic development.
1.4 Scope of the Study

This report has been prepared through extensive discussion with bank employees and with the clients.
While preparing this report, we had a great opportunity to have an in depth knowledge of all the banking
activities practiced by the IFIC Bank limited. It also helped me to acquire a fast hand perspective of a
leading private bank in Bangladesh.
1.5 Methodology of the Study: we collect the data from primary and secondary data.
Reserve and liquidity management
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1.5.1 Primary Sources:

Personal Interview Face-to-face conversation and in depth interview with the respective
officers of the branch.
Personal observation Observing the procedure of banking activities followed by each
department.
Relevant documents related to the study as provided by the officers.
1.5.2 Secondary Sources
Annual report (2009) of IFIC Bank Ltd.

Periodicals Published by Bangladesh Bank.
Different publications regarding Banking functions & foreign exchange operation
Internet was also used as a theoretical source of information.
Websites and Newsletters are also used as major sources.
1.5.3 Printed Materials: This study is mostly dependent on the printed materials which may include
the newspapers, magazines, journals, directories, annual reports, Bangladesh bank publications, IFIC
Banks Annual Report etc.
1.5.4 Internet: Internet was another major secondary source that we have used to collect related
information to conduct the study.
1.6. Limitations of the Study
To prepare a report on the achieved practical experience in a short duration (only One months) is not an
easy task. In preparing this report some problems and limitation have encountered which are as follows:
The main constraint of the study was insufficiency of current information, relevant to the study.
Consolidated data related to the study were not available in the mid of the year.
All required information was not available in any specific branch of the Bank and there was also
limited opportunity to visit more than one branch.
Due to time limitation many of the aspects could not be discussed in the present report.
Chapter Two: Overview of Banking Industry Bangladesh
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The Bangladesh banking sector relative to the size of its economy is comparatively larger than many
economies of similar level of development and per capita income. The total size of the sector at 26.54%
of GDP dominates the financial system, which is proportionately large for a country with a per capita
income of only about US$370. The non-bank financial sector, including capital market institutions is only
3.22% of GDP, which is much smaller than the banking sector. The market capitalization of the Dhaka
Stock Exchange was US$1,025 million or 2.19% of GDP as at mid-June 2002. In contrast, the size of the
total financial sector in India, including banks and non-banks as well as the capital market is 150%
(March 2002) of its GDP, with commercial banks accounting for 58.3% of GDP. Access to banking
services for the population has improved during the last three decades. While population per branch was
57,700 in 1972, it was 19,800 in 1991. In 2001 it again rose to 21,300, due to winding up of a number of
branches and growth in population. Compared to Indias 15,000 persons per branch in 2000, Bangladesh
is not far behind in this regard. This indicates that access to the banking system in the country is not a
significant problem.
The finance sector remains predominantly bank-based, accounting for 96% of the sectors resources.
While there are sound banks, based on IAS, the banking sub-sector as a whole is technically insolvent.
Consolidated data reported tend to have significantly understated provisions. Adjusting partly for the
understatements, the financials of the banking sub-sector are characterized by about 32% NPL ratio,
US$720 million shortfall in provisions, US$1,106 million shortfall in provisions and capital combined,
and losses of US$685 million after adjusting for the shortfall in provisions in mid 2001. The adjustments
would possibly be larger if provisioning as followed by major international auditors were applied. Stateowned Commercial Banks (SCBs) also have disproportionately large and unexplained Other Assets that
include, in particular, jute and other subsidized credits, suspense accounts and various receivables. To
what extent these questionable assets have been provisioned remains unclear.
The ratio of bank deposits to GDP in Bangladesh has increased from 19.53% in 1990 to 32.35% at end
2001. As the private sector banks are still in a rudimentary stage, they are way behind the SCBs in terms
of deposit mobilization and asset accumulation. But classified loans of SCBs are large, constituting 3.94%
of GDP in 1990 and 8.66% in 2001. In 1990, the SCBs had 27.59% of their total outstanding loans
classified, compared to 23.73% in private commercial banks and 20.65% in foreign commercial banks.
The NPL ratio reached 44.62% in the SCBs and 25.76% in private banks, but in foreign commercial
banks, it came down to 3.74% in 2001. The banks achieved some success in reducing the percentage of
non-performing assets by 3.31% of cumulative total loans, although in absolute figures it aggravated by
3.32% between 2000 and 2001. NPLs came down from 34.92% (of total loans and advances) in 2000 to
31.61% in 2001. About 86.60% or Tk204.35 billion in the total classified loans of Tk235.99 billion in
2001 have been
Chapter Three: Overview of IFIC Bank Limited
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3.1. Introduction
International Finance Investment and Commerce Bank Limited IFIC Bank came into existence in 1976
as a joint venture between the Government of Bangladesh and sponsors in the private sectors with an
objective of working as a finance company within the country and setting up joint venture bank / financial
institutions in abroad. IFIC Bank was a public limited company with an authorized capital of 20 crore
and paid up capital of 5 crore. IFIC bank commenced its operation in February 28, 1977 with a subscribed
capital of tk. 5 crore contributed by leading private sector in the country. In the country the government
held 49% shares and the 51% shares were held by the sponsors and the general public. But in 1983, when
the government allowed banks in the private sectors, the IFIC bank was converted a full-fledge
commercial bank. The investment company has transformed into company in June 13, 1893 and started
activities in June 24, 1983 through its Motijheel branch. The sponsors are reputed personalities in the
field of trade and commerce and their stake ranges from shipping to textile and finance to energy etc.
As a fully licensed commercial bank, IFIC Bank Ltd. is being managed by a highly professional and
dedicated team with long experience in banking. They constantly focus on understanding and anticipating
customer needs. As the banking scenario undergoes changes so is the bank and it repositions itself in the
changed market condition.
IFIC Bank Ltd. has already made significant progress within a very short period of its existence. The bank
has been graded as a top class bank in the country through internationally accepted CAMEL rating. The
bank has already occupied an enviable position among its competitors after achieving success in all areas
of business operation.
IFIC Bank Ltd. offers all kinds of Commercial Corporate and Personal Banking services covering all
segments of society within the framework of Banking Company Act and rules and regulations laid down
by our central bank. Diversification of products and services include Corporate Banking, Retail Banking
and Consumer Banking right from industry to agriculture, and real state to software.
IFIC Bank Ltd., since its beginning has attached more importance in technology integration. In order to
retain competitive edge, investment in technology is always a top agenda and under constant focus.
Keeping the network within a reasonable limit, our strategy is to serve the customers through capacity
building across multi delivery channels. Our past performance gives an indication of our strength. We are
better placed and poised to take our customers through fast changing times and enable them compete
more effectively in the market they operate.
3.2. Goals and Objectives of IFIC Bank

To build up strong pillar of capital.
To promote trade, commerce and industry.
To discover strategies for achieving systematic growth.
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To improve and broaden the range of product and services.

To develop human resource by increasing employment opportunities.
To enhance asset of shareholders.
To offer standard financial services to the people.
To create congenial atmosphere so that the client becomes interested to deal with the IFIC bank
limited.
To keep business morality.
To develop welfare oriented banking service.
To offer highest possible benefit to customers.
As to its position among its counterparts is held high to let the viewers cast their very first look at
it.
To carry on the business of discounting and dealing in exchange of specie and securities and all
kinds of mercantile banking.
To provide for safe-deposit vaults and the safe custody of valuables of all kinds.
To carry on business as financiers, promoters, capitalists, financial and monitory agents,
concessionaires and brokers.
To act as agents for sale and purchase of any stock, shares or securities or for any other
momentary or mercantile transaction.
To establish and open offices and branches to carry on all or any of the business abroad and
within the country provided prior permission is obtained from Bangladesh bank.
3.3. Vision, Mission, Strategic Priority and Core Values

3.3.1. Vision: To be best private commercial Bank in Bangladesh in terms of efficiency, capital
adequacy, asset quality, sound management and profitability having strong liquidity.
3.3.2. Mission: To build IFIC Bank Limited into efficient, market driven, customer focused institution
with good corporate governance structure. To provide service to our clients with the help of a skilled and
dedicated workforce whose creative talents, innovative actions and competitive edge make our position
unique in giving quality service to all institutions and individuals that we care for.
Strategic Priority: To have sustained growth, broaden and improve range of products and services in all
areas of banking activities with the aim to add increased value to shareholders investment and offer
highest possible benefits to our customer.
3.3.3. Core Values

For our customers: To become most caring bank-by proving the most courteous and
efficient service in every area of our business.
For our Employees: Promoting the well being of the members of the staff.
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For our Shareholders: Ensuring fair return on their investment through generating stable
profit
For our Community: Assuming our role as a socially responsible corporate entity in a
tangible manner through close adherence to national policies and objectives and
upholding ethical values.
3.4. Credit Policy and Portfolio

IFIC Bank follows the credit policy within the framework of three main objectives namely, maintenance
and improvement of quality assets, recovery on time and building up an efficient customer oriented credit
delivery system...
The portfolio includes working capital financing, project financing, and import-export financing and
domestic trade financing etc. the continued to extend working capital facilities to customers to ensure
smooth and uninterrupted operation of their business. At the same time, it expanded project financing
portfolio to meet the growth demands of the economy for long term finance in a depressed capital market.
Total outstanding loans and advances of the bank stood at tk 33018.40 million at the end of December as
against Tk 28361.50 million in December 2010.
3.5. New Products

IFIC Bank has been successfully providing in the recent years a good number of new products besides so
called traditional services to meet the increasing demands of the clients and the members of the public.
Some of them are: Visa Credit cards, ATMs, Phone Banking, Pension Saving Scheme, Death Risk Benefit
Scheme, Consumer Credit Scheme, and Education Plan.
3.6 Joint Venture Abroad

3.6.1 Bank of Maldives limited (BML)
IFIC Bank limited has established a joint venture in the name of Bank of Maldives limited at Male in the
republic of Maldives right in 1983 i.e. 20 years ago. This is the first National Bank of Maldives. The
ownership composition is 60:40 percent. The Government of Maldives own 60% sharer and the 40%
sharer are owned by IFIC Bank limited.
3.6.2 Oman-Bangladesh exchange company (LLC)
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To help remittance of more the 30,000 Bangladesh wage Earners living in Omen. The bank has
established an exchange house-OMAN BANGLADESH EXCHANGE COMPANY (LLC) in the
Sultanate of Oman in collaboration with Omani nationals OBEC has seven branches.
3.6.3 Nepal Bangladesh bank Ltd.

This is the first joint venture bank between two countries. In December 1993 the bank establish a joint
venture with 50% equity in Nepal. The bank comes into operation in June 1994.
3.6.4 Overseas Branch

The bank has a branch in Karachi in Pakistan which has started operations in early 1987. Within the short
span of its operations the branch procured sizeable business subsequently. The bank opened its second
branch at Lahore in 1993. Bath the branches enjoy reputation and good will in Pakistan and have been
operating profitably.
3.6.5 Branch Network (Domestic)

The branches of the Bank cover all the important trading and commercial centers in Bangladesh. As of
date, it has 62 branches within Bangladesh. All the branches are equipped with computers in addition to
modern facilities, logistics and professionally competent manpower.
3.7. Services Provide

Deposit Scheme
Loan Scheme
Islamic Banking
3.7.1. Deposit Scheme

Savings is considered the very basis of prosperity of the country. The more the growth of savings, the
more will be the prosperity of the nation.
The savings rate in Bangladesh is one of the lowest in the world. In order to improve the savings rate,
Financial Institutions responsible for mobilization of savings should offer attractive Savings Schemes so
that the marginal propensity to save increases. The savings do not, of course, depend only on the quantum
of income but largely depend on the habit of savings of the people.
We have formulated the following Savings Schemes
Contributory Savings Scheme
Monthly Benefit Deposit Scheme
Education Savings Scheme

Fixed Deposit Scheme
Short Term Deposit
Lakhopati Deposit Scheme

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Double Benefit Deposit Scheme
Foreign Currency Account
Resident Foreign Currency Deposit

Account
Non-resident Foreign Currency
Deposit Account
Non-resident Taka Account
Non-resident
Investors
Taka
Account
House Building Deposit Scheme
Prime Millionaire Scheme
IFICBANKLTD.
3.7.2 Loan Scheme: We have formulated the following Loan Schemes
General Loan Scheme

Corporate Finance
SME and Lease Financing
Trade Financing
Projects Loans for new projects and BMRE of the existing projects
Working Capital Financing
Besides, the Bank is financing the need of individual borrowers under consumer financing scheme. The
Bank is gradually increasing its financing in agriculture sector as per directives of Bangladesh Bank.
3.7.3. Product Range

Consumer Financing Products: Within the purview of Central Bank prudential Regulations for
consumer financing, IIFIC Bank offers 13 different consumers financing products. The products are given
below:
Easy loan (Secured personal Loan)

Consumer durable loan
Parua (Education loan)
Thikana (House Building loan)
Marriage loan
CNG conversion loan
Home renovation / interior decorator loan
Medical loan
Peshajebi loan (loan for professional)
Auto loan
Festival loan
And any purposes loan
3.7.4. SME Financing Products: IFIC Bank offers 19 different products for facilitating small
enterprise financing. The SME products of IFIC Bank are:
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Easy commercial loan

Retailers Loan
Transport Loan
Commercial House Building Loan
Possetion right loan
Contractors loan
Bidders loan
Working capital loan
Project loan
Letter of guarantee
Letter of credit
Loan against imported merchandize (LIM)
Loan against trust receipt (LTR)
Muldhan
women Entrepreneurs loan (Protyasha)
krishi shoronjam loan(for agricultural equipments)
shech saronjam Rin (for irrigation equipments)
poshupakhi & motsho khamar rin (for Livestock & fish culture)
pholphasali Rin (for fruit Orchard
3.7.5. Islamic Mode of Operation:

IFIC Bank Limited has started its operation as a Conventional Bank in April 1995. But pretty soon
afterwards, within few months, the Bank has taken up the Challenge to start Islami Banking Operations.
The Challenge is not so much as in operating Islamic Banking but in maintaining both the forms in
Parallel. From its inception as an Islami Bank the bank has proven itself to be worthy of its slogan of
Bank with a Difference, through successful operation of Islami Banking.
Following are the salient features of Islamic Banking, as is practiced in IFIC Bank Limited:
All activities are conducted according to Islamic Shariah.

Interest free monetary operations.
Building partnership relation between the Bank and its customers.
Following Islamic principles in its investment portfolio.
While investing special consideration to social needs is given.
Through small and long term deposit schemes providing hope to the poor income group
of the society.
Client service centric banking, through which make the clients feel special.
Conduct welfare activates etc.
3.8. Service Portfolio: IFIC Bank provides following services under Islami Banking:
Deposit
Investment
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Foreign Trade
Remittance and Fund Transfer
3.9. Specialized Areas & Major Highlights of the Company

3.9.1. VISA Card
IFIC Bank VISA Credit has been launched in June 2007. The bank successfully launched VISA
Card-Credit Card which created a new dimension in its customer service and consumer
financing. It can be used for withdrawal of cash from ATM or purchase of goods and services
from any point of sales (POS) displaying VISA Logo.
Recently the bank launched VISA Debit Card and Prepaid Card. The Debit Cards are issued to
the customers who have been maintaining Savings/Current account with our online branches.
Prepaid cards are issued by the branches instantly. For Prepaid cards, it is not necessary to
maintain any account with the bank. Bank POS has been installed at all the branches which will
facilitate the card holders for withdrawal of cash from any branch of IFIC Bank.
Your Satisfaction is First Slogan
Like any other country of the world, the people living in the urban areas of our country lead a
very busy life. Time is very valuable to them. Despite this, they are to waste their valuable time
at the counter of different Banks and other Institutions for payment of their monthly bills of
different utility services like Electricity, Telephone, Water, Gas etc. They, as such, face enormous
difficulties for payment of their monthly bills in time. Such inconveniences of the urban people
can be removed by making an arrangement to collect all the bills of various utility services at
One Point.
With this end in view, IFIC Bank Limited has introduced a slogan entitled YOUR
SATISFACTION IS FIRST. The slogan is designed to provide all the required services to the
customer in making payment of their various bills on their behalf from the counter of the Bank
irrespective of location.
3.10. Information and Communication Technology

Banks are constantly upgrading their technological platform to enhance customer value management
capability for profit maximization. Accordingly, Real Time Online Banking, ATM, Credit Card, Debit
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Card / Prepaid Card, POS, SMS Banking; KIOSK etc. have been introduced in the domestic Banking
Arena. IFIC Bank has introduced the following updated technology for the valued clients:
Introduction of Real Time Online Banking System in 56 branches out of total 74

Branches and up gradation of Head Office with Misys Online Banking Solution.
Establishment of ATM interface with core Banking solution.
Credit Card, Debit card / Prepaid Card and POS.
3.11. Corporate Social Responsibility (CSR)

Globally, the notion of Corporate Social Responsibility (CSR) is fast gaining acceptance. IFIC Bank
manages its business in a responsible way and contributes to the society and environment in which it
operates.
As per CSR guidelines of Bangladesh Bank, IFIC Bank has undertaken various programs for
social/community development. Some of the proposed projects of CSR program of IFIC Bank are:
Vocational training program for migrant workers

Education for life program
IFIC school/orphanage
Education program for tokai/street children
Medical training for midwives
IFIC health care centre
Eye camp
And other related programs.
3.12. Human Resource Development

Human Resources Development (HRD) activities aim at fulfilling the Bank's Mission. One of our four
major missions of IFIC is to: "Provide service to their clients with the help of a skilled and dedicated
workforce whose creative talents, innovative actions and competitive edge make their position unique in
giving quality service to all institutions and individuals that they care for."Skilled and dedicated
workforce with creative talents, innovative actions are not always readily available. Appreciating the
scarcity of such manpower, the Bank /Tom the very beginning laid importance to HRD that conceptually
includes activities like: pre-recruitment drill, recruitment, induction training in the Academy, job rotation,
placement and posting, reward and promotion. All these activities are planned by the Bank in an
integrated way aiming at manpower with required technical, managerial, human and conceptual skills.
Chapter Four: Reserve Management of IFIC Bank Limited

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4.1. Definition of Reserve:

The Portion of deposit that commercial bank must maintain in the central Bank as per requirement is
generally called reserve. As stated earlier, this reserve is kept in the form of cash or cash equivalent assets
in order to maintain liquidity of the commercial banks.
According to dictionary of banking and finance:
A portion of bank funds which has been set aside for the purpose of assuring its ability to meet its
liability to depositors in cash. Minimum reserve is to be maintained against demand and time deposits are
usually specialized banking law.
Central bank can issue a circular and thus it can increase or decrease the reserve rate/ratio as it thinks fit
for the economy at a particular points of time .If central bank increase this rate ,commercial bank have to
maintain more resources in reserve whether in cash or in near cash assets .At this amount available to
commercial bank will shrink .But when the central banks adopt s the reverse action and decrease this rate
,cash amount available to commercial banks will increase raising the loanable funds at the disposal of the
banks.
Types of reserve
There are two types of reserve
Primary reserve
Secondary reserve
4.2. Primary Reserve:

Generally primary reserve is related with central bank .Commercial banks keep certain portion of their
time deposit to central bank. Central bank warns, punishes and fines such banks if they do not maintain
this amount of money of the central bank .In exchange of maintaining the reserve at the central bank
,commercial banks enjoy loan advantage as lender of the last report ,advice and other opportunities from
central bank .Sometimes banks can keep this money in its own vault on the approval of central bank
hence primary reserve can be defined as
Aggregate of cash holding by commercial banks with itself and with the central bank is designated as
primary reserve.
Primary reserve refers to absolutely non-earning liquid assets held by a central bank
According to Dictionary of banking and finance
Those balances on deposit with other banks, which are immediately available for the payment of a bank
consisting of cash liabilities.
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4.2.1. Constituents of Primary reserve:

Primary reserve is not kept only as cash form of central bank .It can be kept in various forms.
Constituents of primary reserve are as follows:
Cash in Hand: cash in hand constituents all the paper currencies and coins stored in the vault of
a commercial bank on a particular date.
Balance With Central Bank: The money lying in the central bank on a particular date as the
balance of reserve account is called balance with central bank.
Demand Deposit With Other Bank: Most often a bank keeps money in the form current
deposit in another commercial bank in any arrangement of mutual benefit with the purpose of
maintaining liquidity. The balance lying in other sister banks as demand deposit on a particular
date falls in this category.
4.2.2. Function of primary reserve

There are some unique functions of primary reserve which make it different from other types of reserve.
These functions are indicated below:
Protect from possible liquidity crisis

Plays the role of the first line of defense
Enables the bank to satisfy depositors claims instantaneously
Enables to perform the expected function of the community
Enables the bank to meet the establishment expense
4.3. Secondary Reserve

For maintaining normal banking operation, working reserve is mandatory but not sufficient. To continue
normal operation, all bank regulatory committees suggest to keep adequate amount of the secondary
reserve to avoid liquidity problem. In a simple sense, the assets or securities kept in near cash form by the
bank to maintain liquidity and which are not included in statutory or primary reserve are called secondary
reserves.
Grady and Spencer defined secondary reserves as-Reserve that provides protective liquidity for stable
cash needs as well as more remote contingencies. Typically they include treasury bills and other
government short term securities.
According to peter S Rose, A second line of defense to meet demand for cash and serve as quick source
of fund is the banks liquid security holding called secondary reserves.
Another banking specialist said, Aggregate of highly liquid earning assets is designated as secondary
reserve assets in the banking circle.
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An anonymous banking specialist said, An asset is said to be highly liquid if it can be converted into
cash very quickly without any material loss.
According to Dictionary of Banking and Finance, secondary reserve is Those assets of a
bank that are convertible into cash on short notice by sale in the open market or by rediscount.
4.3.1. Conditions of Secondary Reserve Assets

It has been said earlier that secondary reserve is not kept in cash form. Rather, they are kept in such assets
which have the easy convertibility into cash in order to meet the liquidity demand as and when the
necessity arises. They are some conditions, which must be satisfied to be considered as secondary reserve
assets. These condition are given below:
Convertibility
Low risk
Yield
Secondary reserve assets must be eligible to be converted into cash within a very short period of time
without any material loss. Conversion time and the risk of losses from invested money through
conversion must be very minimum.
There are two types of risks associated at the time of conversion of these assets___
reduce in price, and

interested buyer for conversion
the above mentioned limitations should be carefully avoided at the time of conversion. It is logical that
investors will expect at least some income from their investments. So, it is necessary that the assets kept
as secondary reserve will be eligible to earn some profit.
4.3.2. Functions of Secondary Reserve

Functions of secondary reserve of a commercial bank are described below:
To avoid liquidity crisis

To earn moderate income, and
To trade off between liquidity and profitability
Primary reserve of a commercial bank is used to meet the withdrawal needs of the depositors,
entertainment expenses for the clients and also to meet various types of recurring intrnal expenses. When
primary reserve has surplus amount, banks invest that in secondary reserve assets.
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Liquidity can be define as the ability to satisfy the deman for cash of the depositors, installments of the
committed loans, repayment to borrowers and others short term payments. Primary reserve is the first line
of defense of liquidity and secondary reserve is the second and reliable line defense. Well managed
secondary reserve assets protect the banks from liquidity crisis. Secondary reserve kept in the high quality
liquid blue chips like treasury bills, bond, debenture, etc. Secondary reserve assets gives the first priority
to meeting the liquidity needs through convertibility feature of the assets and the second priority to some
moderate income towards profitability. Thus secondary reserve maintains reasonable balance between
liquidity and profitability.
4.3.3. Secondary Reserve Assets

After keeping the reasonable amount of money for the depositors in the primary reserve as liquidity,
banks invest the excess amount in different assets as secondary reserve. The most common types of
secondary reserve assets that is highly convertible with ability to make moderate yield include, among
others, the following:
Call loans to stock brokers and commercial banks

Short- term loans to commercial banks
Short-term loans secured against self-liquidating assets or blue chips
Investment in treasury bills
Promissory notes of short period maturity
Discounting of usance bills eligible for rediscounting from the central bank
Short period debentures of companies of unimpeachable credit standing
Certificates of deposits [CDs]
Government notes and bonds
Bonds and securities of govt. Agencies
Bonds and securities of govt. unit
4.4. Statement of primary and secondary reserve

A. Cash in hand
31-Dec-2010
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31-Dec-2009
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Local currency in hand

966,338,449
Foreign currencies in hand
20,194,059
Cash with ATM
2,148,700
Sub total
988,681,208
B. Balance with Bangladesh Bank and its agents bank
Balance with Bangladesh Bank:
Local currency
2,715,133,050
Foreign currencies
415,636,794
total
3,130,769,844
Balance with Sonali Bank:
As agent of Bangladesh Bank
Other than agent
450,719,695
Total
450,719,695
Sub total
3,581,489,539
Grand total
4,570,170,747
46,688,105
23,130,992
879,400
670,698,496
2,567,986,611
851,759,506
3,419,746,117
543,535,466
543,535,466
3,963,281,583
4,633,980,079
4.4.1. Cash Reserve Requirement (CRR):

Cash Reserve Requirement (CRR) and Statutory Liquidity Ratio (SLR) have been calculated and
maintained in accordance with section 33 of Bank Companies Act 1991 and BCD circular no. 13 dated
May 24, 1992 BRPD circular no. 12 dated Sep 02, 1999 and BRPD circular no. 22 dated Nov 6, 2003 and
BRPD circular no. 12 dated August 25, 2005, MPD circular no. 04 dated December 01, 2010, MPD
circular no. 05 dated
Cash Reserve Requirement (CRR): 6%
Required reserve in amount
Percentage (%)
Average reserve held in amount (Bangladesh
Bank)
Percentage (%)
Surplus
31-Dec-2010
3,419,055,390
6.00%
3,547,061,235
31-Dec-2009
2,408,226,000
5.00%
2,512,908,750
6.22%
0.22%
5.22%
0.22%
4.4.2. Statutory Liquidity Ratio (SLR):

Statutory Liquidity Ratio (SLR) 19% of average time and
demand Liabilities (includes CRR)
Required reserve in amount
Percentage (%)
Average reserve held in amount
Percentage (%)
Surplus / (Deficit)
31-Dec-2010
31-Dec-2009
10,827,008,735
19%
11,422,013,111
20.04%
1.04%
8,669,614,000
18%
11,630,765,061
24.15%
6.15%
4.4.3. Balance with other Banks and Financial Institutions:
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31-Dec-2010
1,410,699,425
1,645,065,580
3,055,765,005
In Bangladesh
Outside Bangladesh
Total
31-Dec-2009
7,203,872,949
951,775,805
8,155,648,754
4.4.4. Secondary reserve:

Money at call on short notice
Delta Brac Housing Ltd.
Lanka Bangla Finance & Investment Ltd.
31-Dec-2010
-
31-Dec-2009
100,000,000
100,000,000
200,000,000
4.4.5. Investments In Bangladesh:

Government Securities
3 year Bangladesh T & T Board treasury bond
Investment Corporation of Bangladesh debenture
House Building Finance Corporation debenture
National prize bond
5 years government treasury bill
364 days government treasury bill
5 years government treasury bond
Other Investments
Total investment
6,896,030,860
29,000,000
30,000,000
4,747,300
1,939,590,038
3,582,468,902
1,048,629,820
261,594,800
2,320,638,431
9,216,669,291
7,848,544,488
47,000,000
35,000,000
5,019,600
129,828,011
2,161,764,213
3,651,239,392
1,004,503,272
814,190,000
831,389,483
8,679,933,971
4.4.6 Credit Risk Management (CRM)

The IFIC Bank introduced Credit Risk Management in the year 2004, as suggested by the Bangladesh
Bank through introduction of Credit Risk Management (CRM) Policy Guidelines along with
implementation of Credit Risk Grading Manual in the year 2006. The CRM Policy is reviewed from time
to time for adoption of new techniques/policies in line with the economic, political, socio-economic
scenario of the country and investment environment. The Bank has also reviewed Lending Cap, Credit
Risk Grading Manual, Business Discretionary Authority and Orgonogram of the CRM Division. Loan
processing and sanction unit has been separated from the disbursement unit as per CRM Policy
Guidelines. Moreover, segregation of Micro and SME Finance from Corporate Finance and Cluster
Finance in SME and Agriculture Segment has also been introduced by the Bank. The Bank has some
internal control mechanisms for early detection of possible delinquent borrowers as measure of control
over credit risks.
4.4.7. Capital structure:
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IFICBANKLTD.
Paid-up Capital of the Bank is already above minimum requirement of Tk. 200.00 crore to be raised
before August, 2011 as per the directives of Bangladesh Bank. Government of Bangladesh holds about
32.75% of the shareholdings, Directors and sponsors hold 8.37% and the rest is held by general public.
The Bank has the option of raising capital by issuing Right Shares or Subordinate Bonds.
4.4.8. Capital Adequacy:
According to BB Guidelines IFIC Bank is assessing Risk Based Capital Adequacy under Basel-II from
1st January, 2010. Under Basel-II framework the capital requirement is determined for Credit Risk and
Market Risk under Standardized Approach and Operational Risk under Basic Indicator Approach and
summed-up to determine total Risk Weighted Assets and thereafter the Minimum Capital Requirement
(MCR). IFIC Bank has maintained Capital Adequacy Ratio of 9.78% as on December 31, 2010, whereas
Minimum Capital Requirement (MCR) is 9% as per BRPD circular No.10 dated March 10, 2010. The
Bank has thus maintained some excess capital than the minimum requirement of 9%. However, the Bank
is continuously evaluating its capital position in comparison to its risk weighted assets position and
exploring ways and means to raise capital both internally and externally.
Particulars
Capital requirement for Credit Risk
Capital requirement for Market Risk
Capital requirement for Operational Risk
Total and Tier 1 capital ratio:
For the consolidated group; and
For stand alone
4.4.9. Operational risk
Amount in Crore Tk.

474.74
70.28
72.64
Particulars
Claim on Corporate
Claims on Banks and NBFIs
Claims fully secured by Commercial real estate
Claims fully secured by residential property
Claims categorized as retail portfolio & SME
Claims on Bangladesh Government and Bangladesh Bank
All other assets
Claims under Credit Risk Mitigation
Past Due Claims
Investments in premises, plant and equipment and all other
fixed assets
Capital Market Exposure
Cash
Claims on all fixed assets under operating lease
Consumer Loan
Claims on Public Sector Entities
Total:
Amount in Crore Tk.

1,690.43
678.41
582.49
581.50
557.00
539.24
380.48
254.12
225.68
206.08
N/A
85.46%
Page 18
164.11
99.47
96.78
67.89
7.90
6,131.59
IFICBANKLTD.
Chapter Five: Liquidity Management of IFIC Bank Limited
5.1. Liquidity Vs Profitability

Liquidity and Profitability are two contradictory concepts. One cannot be effective without other. But
excess of one may slowdown the other. Too much squeezing of any of the one of the two can also
aggravate the situation.
Consideration for profitability: Depositors are the main sources of banks fund. By safe keeping their
deposits, bank cannot make profit other than earning service charges. But banks need to spend huge
amount as transaction cost for maintaining these deposits. If a bank only maintains deposits, the
profitability cannot be achieved. So, grant credits at a higher rate of interest from the borrowers then the
interest banks pay to depositors. The difference between interest received from the borrowers and the
interest given to the depositors is known as spread. The higher the spread, the higher the profit banks can
earn after can meeting expenses pertaining transaction and other related expenses. Other than loan
activities, bank invests a portion of their fund in money market instruments and earns interest or dividend
income. The more a bank could extend as loans and invest through money and capital market instrument,
the more profit it can earn.
Consideration for liquidity: Banks have to keep a portion of bank funds as liquidity to fulfill short term
liability. Otherwise, in the time to liquidity crisis, any delay in making payments as and when required
can dissatisfy the depositors or potential receivers of loan installments. If the liquidity crisis repeatedly
occurs, clients will switch their deposits to other banks. Clients, other than depositors also search for new
banks. Finally, the bank considered as a problem bank. As such maintaining adequate liquidity is of
foremost importance to keep the confidence of people at satisfactory level.
5.2. Definition of Liquidity

In ordinary sense, generally liquid assets mean cash in hands.though assets and establishments
can be purchased by cash but these assets are not easy to convert into cash. According to the
convertibility into cash, asset can be divided into
1.
2.
3.
4.
Near cash asset

Convertible within short-notice-financial assets
Convertible within reasonable longer time-non financial movable & immovable property
Unconvertible into cash example-preliminary expenses
So, by the term liquidity, we mean the ability of the bank to maintain the necessary cash amount
for fulfilling the promise and the ability to satisfy the clients withdrawal requests whenever they
demand.
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IFICBANKLTD.
5.3. Types of liquidity

Different
liquidity analysts and bank managers classify the types of liquidity in different ways.
Generally, there are four types of liquidity1
2
3
4
Immediate
Short-term
Long-term
Contingent
Besides these, there are more types of liquidity

(5) Seasonal liquidity
(6) Economic cyclical liquidity
Lets discuss all these types in the following order
5.3.1 Immediate liquidity: Immediate liquidity is necessary for payment of the cheques written by the
depositors for withdrawals. This liquidity is also requiring meeting the other daily payable.
Short term liquidity: Short term liquidity is utilized to meet the monthly liquidity requirements. Based on
the types of clients and on the seasonal variability, the necessity of these types of liquidity can vary. For
example, the season of seed sowing by farmers, condition of the export-import business, cultural and
religilious festivals affect this amount of liquidity. The range of such liquidity varies from three to four
months.
5.3.2 Long term liquidity: generally the necessity of this types liquidity arises for some specific
projects. The demand for this liquidity can be forecasted before some months or some ago. long term
liquidity is required to meet the cash demand for replacement of fixed assets retirement of the redeemable
preferred share / debentures and to acquire new fixed assets and technical know-how.
5.3.3. Contingent liquidity: contingent liquidity arises depending on the happening of some
unexpected events. It is difficult to guess this unexpected situation but no impossible though the amount
cannot be exactly predicted. this types of liquidity often arises to compensate any loss consequent upon
adverse verdicts of any pending lawsuits, to meet the gap due to sudden transfer of large sized deposits
and unexpected large amount of loan demand or in case of large volume of deposits withdrawals due to
panic for loss of public confidence and the like. Contingent liquidity is also required to face the adverse
situation created by big bank robbery fraud, arson or other accidents.
Besides the above four types of liquidity, additional two types of liquidity are hinted below;
5.3.4.
Economic Cyclical liquidity: based on good or bad economic situation. The supply of bank
deposit and the demand for loan varies. Due to this variation, the liquidity demand also varies.
But it is very difficult to identify the extend of such variation. Generally, different national and
international events, such as political instability, war, and pressure created by the different.
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IFICBANKLTD.
interest groups relating to the banking activities are the causes of economic cyclical liquidity
needs.
5.4. Demand for and supply of Bank liquidity
Demand for cash money first arises with the withdrawal notice of depositors. In addition to this,
bank does not create money but performs multifaceted monetary transaction with money
originated from other sources.
The nature of demand for and supply of liquidity of bank is
Nature of demand for and supply of liquidity of bank :
Supply of liquidity asset
Increase in depositors
Income from services other than
deposits
Recovery of loan/ loan installment/
interest income from the borrower
Proceeds from the sale of assets, if any
Borrowings from money market
Borrowings from the central bank
Demand for liquidity asset
1.withdrawals of deposits
2.disbursement of loan installment
3. repayment of the borrowings
repayment of other short term
liability
payment of expenses for preparing
and delivering bank services
6.cash dividend paid to the bank
owner
Operational processes of the demand for supply of liquidity are determined by:
Net liquidity
Deficit liquidity
Surplus liquidity
If the supply of liquidity is denoted as s and the demand for liquidity is denoted in d then the determinants
of liquidity stands as follows:
Liquidity Situation
N
D
S
Condition of S & D
S-D=N
S<D
S>D
Pros and cons of the three liquidity condition

If the net liquidity becomes balanced, there is no reason for the bank to be apprehended, bank will
have to take no action with regard to liquidity
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IFICBANKLTD.
But if liquidity deficit situation arises, banks have to be caution and take timely appropriate steps
to collect additional cash to meet the liquidity gap
On the other hand, in case of the possibility of surplus liquidity situation, bank will have to find
out relatively most profitable sources of investment in order to avoid idle cash remaining in the
banks
5.5. Handling bank liquidity crisis

Sensitive problems relating to banks liquidity
Liquidity management is an important problem of commercial bank. There are many
possible reasons which may cause such problem. Some of the reasons of liquidity crisis are:
Short term fund used in long term investment: experienced bank manager never use short term
fund for long term loan & investments whether there is enough possibility of profit or not. After
analyzing the primary liquidity crisis of many banks, which faced bankruptcy due to liquidity
crisis, we find that bank fund managers practiced such wrong loan and or investment policy just
to get the cheap compliment of senior management.
Large proportion of liabilities is repaid in short time period: Efficient bank officers should
keep the liabilities in a balanced composition of different term, sorces, and instruments.
Arrangement be made to make repayment of liabilities not in bulk but in installments. It lowers
the banks risk in liability repayment and need to make a large single repayment will not arise at a
time
Over sensitiveness to the rate of interest: Interest rate is an important for banking business, but
being excessively enthusiastic to give excessive loan or collect too much deposits at the time of
decrease or increase in the rate of interest in an unplanned way will most likely create imbalance
in fund management
Indifference and lack of close observation of the deposits and loan behavior of the prime
corporate customers and institutional customers: In many bank or branches, there are some
individual or institutional client who are known as corporate customers and these clients usually
transact in large denomination. The experienced bankers should maintain close contact with such
clients who are large depositors and holders of large credit lines in order to determine the timing
and pattern of withdrawals of deposit by them.
Inefficient counter service: this is about immediate liquidity problem, very often, observed in
some branches. If counter service is provided by efficient, skilled and well-behaved persons, then
the clients mainly depositors and installment takers of borrowers, will patiently wait without any
objection and do not complain to the higher authority about the unavailability of money.
Absence of maintaining linkage with the bank rating agencies: Government bank regulatory
authority, private bank rating agencies and information selling institutions collect necessary
information about the banks from direct or indirect sources and ultimately they provide in-depth
high class professional analysis and evaluation about the financial condition of the bank including
liquidity position.
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IFICBANKLTD.
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IFICBANKLTD.
Chapter Six: SWOT Analysis
During the period in IFIC Bank at we found some aspects relating to the Banks strength, opportunity,
weakness and threats which are more or less present in almost every branch, we think affecting the Banks
performance in total. Which are explained through SWOT analysis below?
Strength:
Adequate reserve to meet liability

Adequate asset to meet the liability
Maintain CRR and SLR
Create good image in the country and abroad
Found that a good image about the Bank has been created among the
Skilled and excellent management staffs are its focal strength.
Quality services through modern sophisticated automated system.
Qualified and Skilled Human Resources.
Weakness:
In complete Internet banking. All branches are not online.

Insufficient ATM Booth
Lack of Islamic Banking Branch.
Decoration should not be sophisticated.
Opportunity:
Vast opportunity for expansion and customer finance
Potentials for investment in different sectors increasing rapidly in Bangladesh.
Opportunity to serve quality service through the usage of updated technology.
Threats:
Few non-baking organization snatching away few banking services like- some transport
authorities are engaged in money transportation.
Stepping of new banking organization with highly updated sophisticated automated servicing
system and products.
Introduction of certain harder banking rules and regulation.
Customer awareness of pricing and services
Chapter Seven: Recommendation and Calculation
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IFICBANKLTD.
7.1. Recommendation
After analysis of all gathered information and other relevant documents, IFIC Bank should carefully
consider following matters:
IFIC Bank should maintain the banking rules and regulation perfectly
IFIC Bank should maintain the adequate reserve and liquidity.
The customers of IFIC Bank who have continuous interaction with the bank and have
sound deposits in their accounts should be given value and due importance. This would
greatly help in saving the time of both the bank and the customer.
Qualified and skilled staff should be promoted based on their performance level.
IFIC Bank Ltd. should give proper attention on staff training and should provide enough facilities
to encourage their participation.
Employees should be provided more opportunities to attend and participate in seminars and
lectures on banking.
The overall customer services should be improved more and the customers need to be
accommodated in a more courteous and friendly manner.
There should be separate counter with well-mannered trained employees for providing guidance
and every kind of information to customers.
Customer should be more facilitated at the time of payment of utility bills to avoid rush and
mismanagement.
7.2. Conclusion:
IFIC Bank is a progressive, established and popular Commercial Bank in Bangladesh. As an organization,
the IFIC Bank has earned the reputation of top banking operation in Bangladesh. The organization is
much more structured compared to any other bank operating local or foreign in Bangladesh. It is
relentless in pursuit of business innovation and improvement. It has a reputation as a partner of consumer
growth.
With a bulk of qualified and experienced human resource, IFIC Bank can exploit any opportunity in the
banking sector. It is pioneer in introducing many new products and services in the banking sector of the
country.
From the study on reserve and liquidity management we know that IFIC bank maintain CRR, SLR
according to their banking rule and regulation of Bangladesh. IFIC Bank have enough liquid asset to meet
liabilities.
Bibliography
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IFICBANKLTD.
Books:
Bank Management Dr. A.R Khan- First Edition

Commercial Bank Management Peter S. Rose
Website:
www.ific.bd.com
www.banking industey.bd.com
Www.Banking in Bangladesh - Wikipedia, the free encyclopedia.mht
Annual Report: 2009, 2010
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IFICBANKLTD.

International Finance & Commercial Bank

Chapter one: Introduction

1.2 Objectives of the Study

To know about reserve management of IFIC Bank.

1.4 Scope of the Study

1.5.1 Primary Sources:

1.5.2 Secondary Sources

Annual report (2009) of IFIC Bank Ltd.

Chapter Two: Overview of Banking Industry Bangladesh

Reserve and liquidity management

Chapter Three: Overview of IFIC Bank Limited

Reserve and liquidity management

3.2. Goals and Objectives of IFIC Bank

To improve and broaden the range of product and services.

3.3. Vision, Mission, Strategic Priority and Core Values

3.3.3. Core Values

3.4. Credit Policy and Portfolio

3.5. New Products

3.6 Joint Venture Abroad

3.6.2 Oman-Bangladesh exchange company (LLC)

Reserve and liquidity management

3.6.3 Nepal Bangladesh bank Ltd.

3.6.4 Overseas Branch

3.6.5 Branch Network (Domestic)

3.7. Services Provide

3.7.1. Deposit Scheme

Monthly Benefit Deposit Scheme

Education Savings Scheme

Short Term Deposit

Lakhopati Deposit Scheme

Foreign Currency Account

Resident Foreign Currency Deposit

3.7.2 Loan Scheme: We have formulated the following Loan Schemes

General Loan Scheme

3.7.3. Product Range

Easy loan (Secured personal Loan)

Easy commercial loan

3.7.5. Islamic Mode of Operation:

All activities are conducted according to Islamic Shariah.

3.9. Specialized Areas & Major Highlights of the Company

3.10. Information and Communication Technology

Introduction of Real Time Online Banking System in 56 branches out of total 74

3.11. Corporate Social Responsibility (CSR)

Vocational training program for migrant workers

3.12. Human Resource Development

Chapter Four: Reserve Management of IFIC Bank Limited

4.1. Definition of Reserve:

4.2. Primary Reserve:

4.2.1. Constituents of Primary reserve:

4.2.2. Function of primary reserve

Protect from possible liquidity crisis

4.3. Secondary Reserve

4.3.1. Conditions of Secondary Reserve Assets

reduce in price, and

4.3.2. Functions of Secondary Reserve

To avoid liquidity crisis

4.3.3. Secondary Reserve Assets

Call loans to stock brokers and commercial banks

4.4. Statement of primary and secondary reserve

Local currency in hand

4.4.1. Cash Reserve Requirement (CRR):

4.4.2. Statutory Liquidity Ratio (SLR):

4.4.3. Balance with other Banks and Financial Institutions: