Chapter One

INTRODUCTION

1.1 Background of the study The perfect coordination between theory and practice is of paramount importance in the context of the modern business world in order to resolve the dichotomy between the theoretical and practical areas. Any academic course of the study has a great value when it has particular application in the real life. Only theoretical knowledge bears little importance unless it is applicable to the practical life. When theoretical knowledge is obtained from a course study it is only the halfway of the subject matter. So we need proper application of our knowledge to get some benefits from our theoretical knowledge and to make it more fruitful. Such application is made possible through internship. For the completion of this internship program, the author of the study was placed in a bank namely, Bangladesh Development Bank Ltd.. Internship Program brings a student closer to the real life situation and thereby helps to launch a career with some prior experience. My internship is on the loan sanction & loan recovery of BDBL. 1.2 Statement of the project issue/research problem This paper has been titled as A Study on Loan Sanctions & Recovery,. The report mainly synthesizes the loan sanctions & recovery of BDBL. I have mainly tried to find out two things, such as what is the trend of loan sanction & recovery by using ten years data, sector wise analysis. Finally, some remedial measures have been suggested. 1.3 Significance and Rationale of the study Well- educated, dedicated, skilled and enterprising workforce is the sine-qua-non for the progress and development of a service oriented industry like Bank. From very first emergence and inception of modern civilization, Bank plays a pivotal role in case of overall financial and socioeconomic development of any country.

As Bangladesh is a developing country, it is very much unorganized in all the sectors. After the independence, it is trying to develop itself. To develop a country, the development of economy must be ensured. In this perspective, the economic development of our country mainly depends upon the efficiency of the banking results.

With the rapid changes of time the people of this country readily depend on the consequences of the business of foreign exchange and trade. So it is very much needed to develop the banking practices relating to foreign exchange operation in order to provide better situation to the countrymen. The people as customers favoring to a bank are being served by providing various opportunities. The government of

our country and the central bank i.e., the Bangladesh Bank has decided to extend considerable help in every respect of banking activities to concerned people. Beside other nationalized and non-nationalized commercial banks the IBBL serves the nation by providing various modern banking services and products concerning to foreign trade. So as an Internee I thought of having special knowledge on this field of increased importance.

1.4 Objectivity of the study(Major and specific objectives) The objectives of the study are mentioned as beneath: Primary objective of the report is fulfilling the course requirement for Completion of the degree of BBA program from Dhaka University The objective of the report is to do comprehensive study on Bangladesh Development Bank Ltd and to find out the problems and opportunities for the industrial development. The objective of the study is also to find out to what extent it is successful to achieve its goals. The prime objectives of this report are as follows:

To get an overview of the operation of Bangladesh Development Bank

Ltd.

To acquire practical experience about working environment, to know

discipline and behavior of an organization that will help me to buildup my career.

To evaluate the success and status of loan recovery To know the rehabilitation program taken by BDBL to rehabilitate the sick
industries

To know the firms which are rehabilitated and which are not rehabilitated.
Finally to recommend necessary steps to overcome the problems of BDBL.

1.5 Scope and limitations I have also faced some problems during my internship that can be considered as limitations of study. This internship report is my first assignment outside our course curriculum in the practical life. In performing this report my lacking of proper knowledge greatly influenced in this performance. Besides this, some limitations in preparing this report have been faced. The main limitations are as follows:

Confidentiality is the main problem; as a result some confidential facts

were not sufficiently disclosed by the respective personnel.

Lack of available up-to-date information Only few days internships experience is not enough to find out all the
pros and cons of such a vast project.

The employees of BDBL are reluctant to supply any information because

of maintaining confidentiality in their record keeping.

As Bangladesh Development Bank Ltd. is a large financial institution; it is

very difficult to understand each and every aspect of its operation within a very short period of time.

Chapter Two
METHODOLOGY

2.1 Population parameters This bank has 17 branch offices, 3 zonal offices, 5 divisions, 21 departments. All of the branches of the bank are the population.

2.2 Sampling design

I have worked on Head office as internee Student. There are few employees working in the head office. Most of them are very well traine4d and have vast knowledge on computer.

2.3 variables Covered

I have worked on the following Departments: Recovery Department Loan sanction Department Law Department Implementation Department

2.4 Methods of data collection & data collection instruments used

Correct and smooth completion of research work requires adherence to some rules and methodologies. In order to conduct the report, the decision had been taken to collect various types of primary data and secondary data. Data have been collected by oral interviewing the responsible officers. Different forms of statistical configurations such as table percentages rates and ratios have been used to make the study meaningful and realistic. After collecting data from the interview and material provided by them, data were first carefully scrutinized. Then the data were organized as required. In order to make the study effective and efficient, following two sources of data and information have been used widely.

(a) Primary information/data The primary data have been collected by oral interviewing the responsible officers and staffs of the BDBL, practical deskwork, direct observation of the functions of various departments of BDBL and relevant documents studies as provided by the officers concerned. (b) Secondary Information/data The secondary information comes from annual report of the BDBL, relevant papers/books and periodicals publication and manual of different departments.

Source of Data

Primary Sources 1. Practical desk work 2. Oral interview of the respective officers and staffs of BDBL 3. Direct observations of the functions of various departments of BDBL 4. Relevant documents studies as provided by the officers concerned 1. 2. 3. 4.

Secondary Sources Annual report of BDBL Annual budget of BDBL Various documents of BDBL Extensive literature search on the basis of these documents of publication

Chapter Three
ORGANIZATIONAL PROFILE

3.1 Background of Bangladesh Development Ltd Bank

Bangladesh Development Bank Limited (BDBL) is fully state owned Bank of Bangladesh which came to effective at 3rd January 2010. Bangladesh Shilpa Bank(BSB) and Bangladesh Shilpa Rin Songstha(BSRS)were merge into Bangladesh Development Bank Ltd(BDBL) at 16th November 2009 and come to effective at 3rd January 2010.In addition commercial banking, BDBL provides financial and technical assistance to broaden the private as well as public sector industrial base of the country. It prioritizes, especially, Export Oriented/Export Linkage industrial units, Efficient Import Substitution, Joint Ventures, Commercialization of local technology and promotion of agro-based industry. Bangladesh Shilpa Bank (BSB) and Bangladesh Shilpa Rin Songstha (BSRS), with almost similar functions, were established on 31st December, 1972 under the presidential order no. 129 to provide loans and facilities to industrial institutions, help to set up new industries and expand investment in Bangladesh. But the two companies failed to meet expectations. In 1992, the government moved to privatize BSRS, which remained unaccomplished due to some complexities. The companys board sat on December 8 to fix a vendor agreement schedule with the government, the BDBL organogram, employee pay structure and select office space for the banks headquarter. As per merger plans, the accounts of the two organizations consolidated by December 2009. The paid up capital of the merged company will amount to 400 crore. Before merged the paid-up capital of BSB was Tk. 200 crore was Tk. 70 crore for BSRS. Making adjustments to the reserve funds of the two companies will raise the capital. In the meantime, BSRS raised its funds to Tk. 200 crore. As per BDBL operational plans, the bank will operate across the country by setting up branches at district levels. At present, BSB has 15 branches while BSRS has 2.

3.2 Mission

To be competitive with other Banks and Financial Institutions in rendering services ; 9

To contribute to the countrys socio-economic development by identifying new and profitable areas for investment ;

To mobilize deposit for productive investment ; To expand branch network in commercially and geographically important places ; To employ quality human resources and enhance their capability through motivation and right type of training at home and abroad.

To delegate maximum authority ensuring proper accountability ; To maintain continuous improvement and up-gradation in business policies and procedures ;

To adopt and adapt to new technology ; To maximize profit by strong, efficient and prudent financial performance ; and To introduce new product lines according to market needs.

3.3 Vision: To emerge as the countrys prime Financial Institution for supporting private sector industrial and other projects of great significance to the countrys economic development. Also be active participant in commercial banking by introducing new lines of product and providing excellent services to the customers.

3.4 Objectives:
o

Invest in Eco friendly industries that help mitigate environmental degradation by lending more for renewable energy, and effluent treatment plants and other projects that employ energy efficient low-emission technologies including agro-based industries, small power projects, ICT, transport and infrastructure projects.

Select and invest industrial projects where location advantages like local availability of raw materials, good infrastructural facilities (road communication, transport facilities, etc.) and utilities (power, gas, water, etc.) shall be available.

Limit project loan to Tk. 15 core maximum and Tk.2 core minimum (for large projects). Arrange and participate in syndicated loan for projects above Tk. 15 core.

Identify prospective and potential entrepreneurs and investors/ clients and motivate, guide and help them select profitable industrial venture for investment.

o o

Regularly publish financial disclosures. Undertake from time to time SWOT (Strength, Weakness, Opportunity and Threats) analysis 10

for reviewing banks market position.

3.5 CORPORATE PROFILE Established: October 31, 1972 Organization: head office Division Department Zonal office Branch office Human Resource : Dhaka :5 : 21 :3 : 17 : 725

3.6 Capital Structure and Sources of Fund Authorized capital : TK 2000 million Paid up capital : TK 2000 million

The sources of Banks fund are the government, Bangladesh Bank, Commercial Banks, local/overseas Financial Institutions and Supplies Credit. 3.7 OWNERSHIP
At

least 51 per cent of the authorized capital Bangladesh Development Bank Ltd.

(BDBL) is subscribed by the government and the remaining 49 per cent are subscribed by Bangladesh nationals or by local or foreign Financial Institutions. Presently, 100 per cent ownership of the Bank belongs to the Government. 3.8 MANAGEMENT The overall policy formulation and the general direction of the banks operation vested in the Board of Directors appointed by the Government. This Board of Directors consists of 9 members including the Chairman and the Managing Director.
i

11

3.9 BDBL: At A Glance

200405

200506

2006-07 2007-08 2008-09

Number of projects Loan application receive Term loan sanctioned: New BMRE Addition Total 34 1 3 38 45 2 5 52 37 2 39 12 8 20 12 10 5 27 5183 96 51 47 36

Term loan Disbursed Working sanction Start of commercial operation Inclusion in loan portfolio Rephasment/Rescheduling Liquidation of loan liabilities Loan portfolio Write-off ledger No. of total projects Capital

23 Loan 3

43 9

53 15

45 3

40 7

7 14 23 41 166 281 308

12 23 16 20 164 283 447

8 31 13 20 179 287 477

27 14 16 21 177 321 457

12 17 14 29 175 308 498

(million Taka) Term Loan sanctioned Term loan Disbursed Working Capital Loan sanction Working disbursed Loan Recovered Rephrased/Rescheduled Loan written off 1391 259 11867 1159 790 12626 1065 280 12478 981 423 12531 908 264 12258 12 Capital 1009 144 14 1311 485 232 32 1006 534 105 196 918 384 3 33 436 616 10 22

Loan 21

3.10 Achievement of the Bank in FY 2008-09 (1) Recovery of loan Tk. 908 million (96% of the target). (2)Sanction of loan Tk. 446 million. (3) Disbursement of loan Tk. 638 million. (4) Income from purchase and sale of shares Tk. 130 million. (5) Provision of loan kept Tk. 1237 million as against required provision of Tk. 1212 million. (6) Capital surplus Tk. 917 million. (7) DSL payment Tk. 574 million in cash. (8) Liquidation of loan accounts of 29 projects. (9) Rephasement/ Rescheduling of loan accounts of 14 projects. (10) Net Asset Value Per Share Tk. 1727 (value of per share Tk. 1000. (11) Earnings Per Share (EPS) Tk. 127 (value of per share Tk. 1000.

13

3.11: Institutional Overview

Name

: Bangladesh Development Bank, a state-owned commercial Bank (formed through merger of Bangladesh Shilpa Bank & Bangladesh Shilpa Rin Sangstha)

Legal Status Date of incorporation Banking obtained Vendors Signed Formal Inauguration Registered Office Authorized Capital Paid Up Capital Reserve 01.01.2010) Total Assets (As on 01.01.2010) Total Human Resource Number of Zonal Office Number Office Membership Web Site of (As

: Public Limited Company : November 16, 2009

License : November 19, 2009 issued by Bangladesh Bank

Agreement : December 31, 2009 between the Government and Board of Directors of BDBL nominated by the Government. : January 03, 2010 : BDBL Bhaban, 8, Rajuk Avenue, Dhaka-1000 : Tk.10000 million : Tk. 4000 million on : Tk. 2270 million

Tk. 16747 million

: 781 : 3

Branch : 17

: Dhaka Stock Exchange & Chittagong Stock Exchange Ltd. : www.bdbl.com.bd

14

3.12: Activities of BDBL: The activities of Bangladesh Development Bank Limited (BDBL) is given below in figure -Activities of BDBL

Operational

Others

Profit and loss Deposit Mobilization Loan application receive Term loan sanction Commitment & disbursement of term loan Working capital sanction Other investing Project implementations Loan portfolio Loan recovery Legal action for recovery loan Loan written off

Advisory services Training Computerization Human resources Board news Annual general meeting Observance of National Days

3.13 Sources of Fund Paid up capital Loan from Government of Bangladesh Loan from Bangladesh bank Commercial Banks Local/overseas Financial Institutions Suppliers Credit

3.14 Merger of BSB & BSRS The merger of BSB and BSRS and transferring them to a government owned proposed public limited company naming Bangladesh Development Bank Ltd. (BDBL) has been approved in the meeting of Advisors Committee and passed in the first session of the 9 th 15

National Assembly held on 24-02-2009 as Bangladesh shilpa bank (amendment) bill, 2009 and published in the Bangladesh gazette as the 14th Law. The bank, among others, has been informed this by the Ministry of Finance vide its Memorandum and Articles of Association vetted by the Ministry of Law for creating BDBL as well as a draft copy of Vendors Agreement for the whole undertaking of BSB & BSRS to BDBL to be signed between the Government and the BDBL.

Besides, it has been directed, among others, to complete the following activities;-

(1) To adopt required steps for registering Bangladesh Development Bank Ltd as the public Limited Company with the office of the Register of Joint Stock Companies & Firms. (2) To take measures for getting Banking License to be issued by Bangladesh Bank in favor of this proposed company and (3) To complete Vendors Agreement between the Government and the Board of Directors of the company relating to the transferring of assets and liabilities BSB & BSRS after finalizing the process establishing the proposed company.

With a view to seeing of up of BDBL, the following work has been completed by the bank as per direction of the ministry of finance:(1) taken approval from Bangladesh bank regarding memorandum and Articles of Association vetted by ministry low; (2) collected Certificate of incorporation & certificate for commencement of Business from the joint stock companies and firms and (3) Got permission from the Securities and Exchange Commission for utilizing TK400 crore as per paid up capital. It may be mentioned that the Vendors Agreement has been signed on31-12-2009 between the company and the Board of Directors of the company. The honorable finance minister has been inaugurated the commencement journey of BDBL.

The first Board of Directors of the proposed Bangladesh Development Bank Ltd (BDBL) is composed of ten Directors appointed by the government. The time tenure 16

of the Board would be two years. The newly appointed Board would finalize the activities of setting up of BDBL by the merger of BSB & BSRS within this timetimeframe.

The preparation of vision, mission and prime goal of the Bangladesh Development Bank Ltd in line with the Business and Investment Policies of the Bank is going on.

17

ZONAL & BRANCHES OFFICES OF BDBL

18

Chapter Four
LOAN SANCTION PRACTICE OF
BDBL

19

4.1 Introduction: After appraising the project, project appraisal committee submits the project appraisal report on the basis of that a project is approved. If the project is approved, loan is sanctioned to the proposed project. During FY 2008-09, the bank sanctioned total long term loan of tk.436 million to 27 projects and FY 2007-08, sanctioned loan was tk.918 to 20 projects. 4.2 Loan sanctions procedure: First of all, a client who wants to have a loan ask for an application form, which is known as Bangladesh Standard Questionnaire form (BSQE).He has to pay one eight of one percent cash money 1/8th of 1% of the total loan amount with the filled form. The person is required to submit necessary papers and documents by the bank the information generally consists of following: Name of the product Name & designation of the entrepreneur Type of project Type of products Site of the project Amount of the project Copy of memorandum, articles of association and other papers relating to legality of the projects Site, production process flow diagram etc

When all the required papers and documents are submitted along with the fee TK.1000 plus 1/8th of 1% of total loan amount, the proposal is then under consideration of judging the project viability. 4.3 Sector-wise position of Banks Loan portfolio:

(AS ON 30-06-2009) Total Loan Sectors Food and Allied Products No. of project outstanding (In Million Taka ) 48 352 20

Jute and Allied products.. Cotton. Woolen and Synthetic Textiles. Paper, Paper Products and Printing Tannery and Leather Products Non Metallic Mineral Products. Forest & Wooden Products Rubber and Rubber Products. Basic Metal Products. Metal Products .. Electrical Machinery and Goods Machinery & spare parts Water Transport. Chemical & Pharmaceuticals. Petro Chemical Products.. Service Industries.. Miscellaneous

49

4635

6 4 3 5 1 4 4 14 3 30 3

124 79 4 19 33 20 54 228 107 196 76

4.4 Sector-wise position of Banks Loan portfolio: 1. Food & Allied products: FY No. Project Total Loan 1335 491 224.2 246.16 352 2004-05 of 46 2005-06 31 2006-07 43 2007-08 46 2008-09 48

outstanding (million Taka )

21

1400

1200

1000

800

No. of Project Total Loan outstanding (million Taka )

600

400

200

0 2004-05 2005-06 2006-07 2007-08 2008-09

Fig: Food and allied products. During FY 2008-09 total number of food and allied products projects in the loan portfolio stood at 48 with a total loan outstanding of Tk. 352 million. In the preceding year under this sector the total member of projects of the loan

Loans (Million Taka)

portfolio stood t 46 with a total loan outstanding of Tk. 1335 million. In FY 2007-08 total numbers of projects and total loan outstanding are decreased comparing to the previous FY under this Food and Allied products.

2. Jute & Allied products: FY No. Projects Total Loan 674 outstanding (million Taka) 538 535.75 1.38 1 2004-05 of 5 2005-06 3 2006-07 3 2007-08 2 2008-09 1

22

700

600

Loans (Million Taka)

500

400

No. of Projects Total Loan outstanding (million Taka)

300

200

100

0 2004-05 2005-06 2006-07 2007-08 2008-09

Year Fig: Jute & allied products. During FY 2008-09 total members of jute and Allied products projects in the loan portfolio stood at 1 with a total loan outstanding of Tk. 1 million. In the preceding year under this sector the total member of projects of the loan portfolio stood at 2 with a total loan outstanding of Tk. 1.38 million. In FY 2008-09 the member of project 1 and loan amount Tk. 0.38 million are decreased comparing to the FY 2007-08 under this jute and allied products. During FY 2004-05 to FY 2008-09 there is decreased trend from previous year. During FY 2004-05 total member of Jute and allied products projects in the loan outstanding of Tk, 674 million, total member of projects 5 and loan outstanding amount Tk. 673 million is decreased in FY 2008-09 comparing to the FY 2004-05 under this jute and allied products.

23

3. Cotton, woolen and synthetic Textiles: FY No. Projects Total Loan 4148 5304 4322.43 4401.15 4635 2004-05 of 87 2005-06 53 2006-07 53 2007-08 52 2008-09 49

outstanding (million Taka)

6000

5000

4000

Loans (Million Taka)

No. of Projects 3000 Total Loan outstanding (million Taka)

2000

1000

0 2004-05 2005-06 2006-07 2007-08 2008-09

Year Figure: Cotton, woolen and synthetic Textiles. During FY 2008-09 total members of cotton, wooden and synthetic textiles projects in the loan portfolio stood at 49 with a total loan outstanding of Tk. 4653 million. In the preceding year under this sector the total no. of projects of the loan portfolio stood at 52 with a total loan outstanding Tk. 4401.15 million. In FY 2008-09 the total member of projects 3 are decreased and loan outstanding amount Tk. 234 million are increased comparing to the financial year 2007-08 under this cotton wooden and synthetic Textiles sectors.

24

During financial year 2004-05 total number of cotton woolen and synthetic Textiles projects in the loan portfolio stood at 87 with a total loan outstanding at Tk. 4148 million. The total member of projects 38 is increased and loan outstanding Tk. 487 million is also decreased comparing to the financial year 2008-09 under this cotton woolen and authentic Textiles sectors.

4. Paper, Paper products and printing: FY No. Projects Amount of 591 total loan 177 140.02 130.31 124 2004-05 of 15 2005-06 6 2006-07 7 2007-08 6 2008-09 6

(million)

700

600

500

Loans (Million Taka)

400

No. of Projects Amount of total loan (million)

300

200

100

0 2004-05 2005-06 2006-07 2007-08 2008-09

Year Figure: Paper, Paper products and printing During FY 2008-09 total numbers of paper, paper products and printing projects in he loan portfolio stood at 6 with a total loan outstanding of Tk. 124 million. In the preceding year under this sector the total member of projects of 25

the loan portfolio stood at 6 with a total loan outstanding of Tk. 130.31 million. In FY 2008-09 the total member of projects remain unchanged and loan outstanding amount 6.31 million are decreased comparing to the financial year 2007-08 under this paper, paper products and printing sectors.

5. Tannery and leather products: FY No. Projects Amount of 333 Loan outstanding
350

2004-05 of 9

2005-06 4

2006-07 4

2007-08 4

2008-09 4

100

106

89

79

300

250

Loans (Million Taka)

200

No. of Projects Amount of Loan outstanding

150

100

50

0 2004-05 2005-06 2006-07 2007-08 2008-09

Year Figure: Tannery and leather products.

During FY 2008-09 total member of Tannery and leather products projects in the loan portfolio stood at 4 with a loan outstanding of Tk. 79 million. In the preceding year under this sector the total number of projects of the loan portfolio stood at 4 with a total loan outstanding of Tk. 89 million. In FY 2008-09 the total member of projects has no change and loan outstanding 26

amount 10 million are also decreased comparing to the FY 2007-08 under this Tannery and leather products sectors. During FY 2004-05 total member of Tannery and leather products projects in the loan portfolio stood at 9 with a total loan outstanding of Tk. 333 million. The total member of projects 5 is decreased and loan outstanding amount Tk. 254 million also decreased in FY 2008-09 comparing to the FY 2004-05 under this paper, paper products and printing sectors.

6. Non-metallic Mineral products:

FY No. Projects

2004-05 of 4

2005-06 2

2006-07 2

2007-08 3

2008-09 3

Amount of 130 loan outstanding

100

71

57

41

140

120

100

Loans (Million Taka)

80

No. of Projects Amount of loan outstanding

60

40

20

0 2004-05 2005-06 2006-07 2007-08 2008-09

27

Year Figure: Non-metallic Mineral products.

During FY 2008-09 total no. of Non-metallic Mineral products projects in the loan portfolio stood at 03 with a total loan outstanding of Tk. 41 million. In the preceding year under this sector the total number of projects of the loan portfolio stood at 3 with a total loan outstanding of Tk. 57 million. In FY 2008-09 the total number at projects has no change and loan outstanding amount Tk. 16 million are decreased comparing to the FY 2003-04 under this non-metallic Mineral products factory.

7. Forest and wooden products:

FY No. Projects Amount loan (million)

2004-05 of 2

2005-06 1

2006-07 0

2007-08 0

2008-09 0

of 10

Loans (Million Taka)

4 No. of Projects 3 Amount of loan (million)

0 2004-05 2005-06 2006-07 2007-08 2008-09

28

Year Figure: Forest and wooden products. During FY 2008-09 total member of forest and wooden products project in the loan portfolio stood at zero. In the preceding year under this sector the total no. of projects of the loan portfolio stood also zero. During FY 2004-05 total number of forest and wooden products projects in the loan portfolio stood 2 with a total loan outstanding of Tk. 10 million. The total member of projects 2 is decreased and loan outstanding amount Tk. 10 million also decreased in FY 2008-09 comparing to the FY 2004-05 under this forest and wooden products sectors.

8. Electrical Machinery and goods: FY No. Projects Loan amount (million Tk.) 354 0 16 21 33 2004-05 of 6 2005-06 0 2006-07 1 2007-08 1 2008-09 1

400 350 300

Loans (Million Taka)

250 200 150 100 50 0 2004-05 2005-06 2006-07 2007-08 2008-09 No. of Projects Loan amount (million Tk.)

29

Year Figure: Electrical Machinery and goods. During FY 2008-09 total numbers of machinery and spare parts projects in the loan portfolio stood at 1 with a total loan outstanding of Tk. 33 million. In the preceding year under this sector the total member of projects of the loan portfolio stood also 1 with a total loan outstanding of Tk. 21 million. In FY 2007-08 total numbers of projects remain unchanged but loan amount decreased comparing to the FY 2008-09 under this Machinery and spare parts sectors.

9. Machinery and spare parts: FY No. Projects Amount of 190 loan (million Tk.)
200 180 160

2004-05 of 6

2005-06 6

2006-07 7

2007-08 5

2008-09 4

45

48

25

20

Loans (Million Taka)

140 120 100 80 60 40 20 0 2004-05 2005-06 2006-07 2007-08 2008-09 No. of Projects Amount of loan (million Tk.)

Year Figure: Machinery and spare parts. 30

During FY 20084-09 total numbers of machinery and spare parts projects in the loan portfolio stood at 4 with a total loan outstanding of Tk. 20 million. In the preceding year under this sector the total member of projects of the loan portfolio stood at 5 with a total loan outstanding of Tk. 25 million. In FY 20087-09 total number of projects is decreased comparing to the FY 2007-08 under this Machinery and spare parts sectors.

10. Service Industries:

FY No. of Projects

2004-05 28

2005-06 18 204

2006-07 25 225

2007-08 27 207

2008-09 30 196

Amount of total 422 loan taka) (million

450 400 350

Loans (Million Taka)

300 250 200 150 100 50 0 2004-05 2005-06 2006-07 2007-08 2008-09 No. of Projects Amount of total loan (million taka)

Year Figure: Service Industries During FY 2008-09 total number of service industries projects in the loan portfolio stood at 30 with a total loan outstanding of Tk 196 million. In 31

preceding year under this sector the total number of projects of the loan portfolio stood at 27 with a total loan outstanding of Tk. 207 million. In FY 2008-09 the total numbers of projects 3 are increased but total loan amount Tk.11 million decreased comparing to the FY 2007-08 under this service Industries sectors.

11. Miscellaneous: FY No. of Projects 2004-05 13 2005-06 7 96 2006-07 4 96 2007-08 3 76 2008-09 3 76

Amount of loan 198 outstanding (million taka)

200 180 160

Loans (Million Taka)

140 120 No. of Projects 100 80 60 40 20 0 2004-05 2005-06 2006-07 2007-08 2008-09 Amount of loan outstanding (million taka)

Year Figure: Service Industries During FY 2008-09 total numbers of miscellaneous projects in the loan portfolio stood at 3 with a total loan outstanding of Tk. 76 million. In the preceding year number this sector the total number of projects and a total loan outstanding was also same, i.e. Tk. 76 million.

32

During FY 2004-05 total member of projects in the loan portfolio stood at 13 with a total loan outstanding of Tk. 198 million. The total number of projects 10 and loan outstanding amount Tk. 122 million is decreased in FY 2008-09 comparing to the FY 2004-05 this miscellaneous sectors.

12. Metal Products:

FY No. of Projects

2004-05 7

2005-06 5 31

2006-07 3 15

2007-08 3 14

2008-09 5 19

Amount of loan 96 outstanding (million taka)

100 90 80

Loans (Million Taka)

70 60 No. of Projects 50 40 30 20 10 0 2004-05 2005-06 2006-07 2007-08 2008-09 Amount of loan outstanding (million taka)

Year Figure: Service Industries During FY 2008-09 total number of Service Industries projects in the loan portfolio stood at 5 with a total loan outstanding of Tk. 19 million. In the preceding year under this sector the total member of projects of the loan portfolio stood 3 with a total loan outstanding of Tk. 14 million. In FY 200833

09 total numbers of projects and total loan outstanding are increased comparing to the previous FY under this Service Industries.

13. Transport and Transport Equipment:

FY No. of Projects

2004-05 5

2005-06 6 16

2006-07 7 69

2007-08 5 74

2008-09 4 54

Amount of loan 32 outstanding (million taka)

80 70 60 50 No. of Projects 40 30 20 10 0 2004-05 2005-06 2006-07 2007-08 2008-09 Amount of loan outstanding (million taka)

Loans (Million Taka)

Year Figure: Transport and Transport Equipment

34

During FY 2008-09 total numbers of Transport and Transport Equipment projects in the loan portfolio stood at 4 with a total loan outstanding of Tk. 54million. In the preceding year under this sector the total member of projects of the loan portfolio stood 5 with a total loan outstanding of Tk. 74 million. In FY 2008-09 total numbers of projects and total loan outstanding are decreased comparing to the previous FY under this Service Industries.

14. Chemical and Pharmaceuticals: FY No. of Projects 2004-05 11 2005-06 15 198 2006-07 14 230 2007-08 16 234 2008-09 14 228

Amount of loan 202 outstanding (million taka)

250

200

Loans (Million Taka)

150 No. of Projects Amount of loan outstanding (million taka)

100

50

0 2004-05 2005-06 2006-07 2007-08 2008-09

35

Year Figure: Chemical and Pharmaceuticals

During FY 2008-09 total number of Chemical and Pharmaceuticals projects in the loan portfolio stood at 14 with a total loan outstanding of Tk. 228 million. In the preceding year under this sector the total member of projects of the loan portfolio stood 16 with a total loan outstanding of Tk. 234 million. In FY 2008-09 total numbers of projects and total loan outstanding are decreased comparing to the previous FY under this Service Industries.

15. Chemical and Pharmaceuticals:

FY No. of Projects

2004-05 5

2005-06 5 133

2006-07 5 121

2007-08 4 123

2008-09 3 107

Amount of loan 102 outstanding (million taka)

140

120

Loans (Million Taka)

100

80

No. of Projects Amount of loan outstanding (million taka)

60

40

20

0 2004-05 2005-06 2006-07 2007-08 2008-09

Year Figure: Petro Chemical Products 36

During FY 2008-09 total number of Petro Chemical Products projects in the loan portfolio stood at 3 with a total loan outstanding of Tk. 107 million. In the preceding year under this sector the total member of projects of the loan portfolio stood 4 with a total loan outstanding of Tk. 123million. In FY 200809 total numbers of projects and total loan outstanding are decreased comparing to the previous FY under this Service Industries.

4.5. Loan sanction scenery of BDBL over last 10 years (Amount in thousand BDT) Here 10 years loan sanction of BSB to various sectors has been shown in the table: Table 6.3: Loan Sanction of BDBL in 10 Sectors Name of the Projects 199900 2000 -01 2001 -02 200203 2003- 2004 04 -05 2005 -06 200607

200708

200809

Textiles

2528 52

4400 93

6284 98

64562 8

6857 94

5304 00

428 690

43224 3

1303 10

47590 00

Electrical

255

365

697

5208

1009

1581

2055 0

33000

Food & Allied

1759 1 1581 8

1958 7 4038 5

2059 7 1832 4

17819

2265 0 3051 3

4910 0 5380 0

292 26 536 71 111 9

22402

2461 60 1380

35200 0

Jute & Allied Machinery & Metallic Products Petrol Chemicals

19313

53575

1000

8785

3909

4093

7101

8019

7600

1083

2526 0

20000

3711

6300

3055

3379

6226

1330 0

126 49

12084

1224 50

10700 0 37

Rubber

95

109

235

315

301

398

Service

2555 5

2059 4

2582 9

27829

3084 5

2040 0

228 38

22450

2071 10

19600 0

Tannery

1888 0

2020 0

1322 0

13441

1550 9

1000 0

109 03

10606

8933 0

79000

Water Transport

8097

5011

4525

3518

6074 5 9059 9

5028

603 0 565 126

6916

7440 0

54000

Total

3485 67

5561 93

7181 46

90076 4

5862 00

56302 0

5699 740

59650 00

Commitment & Disbursement Of Term Loan TK in Million 2007-08 No of projects Commitment Disbursement 13 45 Local Currency 403 384 Foreign Currency 403 384 Total

Commitment /Disbursement

2008-09 No of projects 8 40 Local Currency 511 616 Foreign Currency -

Total

511 616

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Sanction & Disbursement Of Term Loan And Tk. In Million

1400 1200 1000 800 Sanction 600 400 200 0 2004-05 2005-06 2006-07 2007-08 2008-09 Disbursement

Sanction Of Loan

TK in Million

Nature of the project Numbe r of the project New project Existing 12

2007-08

Tota l

2008-09

Local currenc y 538

Foreign currenc y 538

Numbe r of the project 12

Local currenc y 316

Foreign currenc y -

Tota l

316

10

46

46 39

project Additiona l loan Total 20 918 918 27 436 436 8 380 380 5 74 74

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Chapter Five
RECOVERY OF LOAN

41

5.1 Introduction Loan recovery is a crucial index to measure the success of a lending organization. The success and failure of a lending organization largely depends on its drive for realizing loans and dues from its borrowers. In 2007-08, was tk.900 million, against which actual cash recovery was tk.981.20 million constituting 100+ per cent of the target. But during the reporting year, outstanding loan of tk. 423.00 million is regularized through rescheduling and rephasement of bad and doubtful loan accounts of 16 projects. In FY year cash recovery was tk. 1065.71 million and the amount of loan regularized through rephasement was tk. 280.20 million.

5.2 RECOVERY OF LOAN

Category of loan

Loan Amount recovered (Million Taka)

2007-08 A) Long Term Loan:

2008-09

Long Term project loan Bridge Loan Staff loan Administered Loan Sub-Total B) Short Term Loan :

735 .40 48

596 .29 62 38

784

696

Working Capital Loan C) Others Debenture/ Shares/ loan against FDR Written off Loan Sub- Total: Grand Total (A+B+C)

67

58

11 120 131 981

16 138 154 908.29

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5.3. Loan Recovery Methods:

BSB usually follow a formal way to recover its loan. Normally before an installment falls due they issue many reminders to remind sponsor to prepare to pay loan. They use phone call, formal letter, and physical visiting to remind the sponsor to prepare for paying installment on due time. Formally, central recovery department perform this duty. The officers of central recovery department go for physical visit to project site twice in a year. By this visiting they try to understand the present condition of the project and predict future position of the project. By analyzing the condition of the project, they suggest sponsors to take necessary to measure to sustain project and increase the cash flow. Sometime they offer them additional credit to strengthen their cash generation, which is called cash credit. However, the recovery method of BSB is not still modern and sophisticated one like the existing private lending and financial organization.

Some Other Technique Which Are Applied by BSB to Recover the Loan and Advances are as follows. BDBL ensures regular recovery of loans as per repayment schedule BDBL reserves the right to nominate its officers to act as directors on the BOD of the company. The borrowers who pay their installments of the principal loan, interest, and other charges on or before due date as per repayment schedule may be allowed rebate at a rate of 5% on interest by BSB Board. Personal properties of directors, managing directors are attached as collateral securities and law department-1 recovers it. Visit the project personally by BSB concerned department officers. At first negotiation personally for rescheduling or others without legal action through noticing. Personal negotiation gives positive result to recover the loan then legal action. Thus it can be said that the officers of BSB try hard and fast to recover the advances in any way

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5.4. Sector-Wise Loan Recovery Over 10 Years

Here I present 10 sectors from which BSB recovered loan over 10 years. By the loan recovery table, we will better be able to understand about the performance of BSB in regarding loan collection and sector-wise performance of loan collection. From the table3.2.2, we see that in 2004-05, the highest amount of loan was collected from textile industries, and there are some sectors from which no loan was collected, because this sector has been liquidated and no new loan has been granted against it

5.4.1:

RECOVERY OF LOAN

In collection of loan money in Jute and Allied Products is remarkably upward trend except in FY2007-08. But during FY 2003-04 was recovered tk. 70272. Year 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Loan Recovery (Amount in thousands) 41458 44371 28171 26285 43001 70272 14972 10182 9170 116000

Graph: Jute and Allied Products

44

120000 100000 80000 60000 40000 20000 0

SOURCE: BSB ANNUAL REPORT & OFFICAL DATA

5.4.2: Cotton Woolen and Synthetic textiles

The highest recovery of this sector is tk. 702722 thousand in the year 2003-04 and other years are medium position. So this sector is in volatile position because increasing and decreasing pattern in existed in these sectors.

Year 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Loan Recovery (Amount in thousands) 414589 443717 281719 262854 430019 702722 811319 640390 612120 555940

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Graph: Cotton Woolen and Synthetic textiles

1000000 800000 600000 400000 200000 0

SOURCE: BSB ANNUAL REPORT & OFFICAL DATA

5.4.3: Food and Allied Products

Food and Allied sectors in respect of collection of loan money from the sponsors is positive because it is also a positive sector in our country.

Year 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Loan Recovery (Amount in thousands) 13319 17574 19270 19907 25160 25232 17809 30902 25160 32900 46

Graph: Food and Allied Products

35000 30000 25000 20000 15000 10000 5000 0

SOURCE: BSB ANNUAL REPORT & OFFICAL DATA

5.4.4: Electrical Machinery and Goods

This sector was a downward trend from FY 1998-99 to 2004-05. But from 2005-06 to 2007-08 is well recovery position.

Year 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Loan Recovery (Amount in thousands) 176 270 175 130 161 431 881 1825 2800 4552

47

Graph: Electrical Machinery and Goods

5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0

SOURCE: BSB ANNUAL REPORT & OFFICAL DATA

5.4.5: Petro-chemicals Loan recovery in these sectors is also in volatile positive. However in 2007-08 the more loans are recovered.

Year 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Loan Recovery (Amount in thousands) 2629 3101 2711 7400 2468 3561 51612 24915 17210 27310

48

Chapter Six
SWOT ANALYSIS OF BDBL
]

49

6.1. Strength of BDBL BDDL is a development finance institution. It plays significant role in the industrial development of Bangladesh. Its untiring endeavor is remarkable. As a finance institution it has both strength and weakness. All the contribution of BDBL is the consequences due to its strength. On the other hand failure of BDBL is for unconsciousness and unauthorized exercise of power. It is indeed that the contribution of BDBL is below the expectation. BDBL has some skill manpower such as Engineer, Economist, Business executives, lower and so forth. Their capabilities are deteriorating for lack of proper working environment and unexpected political pressure. In some cases they are not able to work independently. If BDBL can use his personnel sufficiently, it will be profitable in future. BDBL has greater capacity to collect money from foreign countries. It may come through loan aid, grant etc. and BDBL has many potential sectors where it can disburse more money as loan. If BDBL able to merge between two (resource mobilization and loan disburse), it will give good results for the economy as well. BDBL is only one industrial bank of our country. All industrial must have to go BDBL for industrial loan. They can take these opportunities through their willingness and service mentally. I hope that our government will help BDBL to perform his duties independently. There is no alternative way of employment generation of our country without industrialization, which is essential for poverty alleviation.

6.2. Weakness of BDBL The weaknesses that I found in the operational activities are as follows: Weak internal control and working environment. Many people are working in a big room. As a result office room has converted into a noisy place. As a big organization has limited publication even they have no particular books on BSB that may cover everything. Lack of co-ordination in the policies or directives.

50

6.3. Threats to the BDBL There are many threats to the BDBL most strong one is the rising money market of Bangladesh. There are now so many private commercial banks that provide credit of various terms to the existing and new business. That is why; the demand of BDBLs loan is decreasing over the last decade. The business people do not want to wait three to four months for taking loan. They want one sop service. So time will come when the demand of loan of BDBL would never attract the entrepreneurs. 6.4. Opportunity of BDBL The opportunity of BDBL is that it can regain its market and role by developing some remedial measures, such as making a market research cell, enabling the BOD independent. It can also reduce the processing time of loan sanction and strengthening its recover drive. However, it should diversify its products and services to compete with the ever rising private commercial bank.

51

Chapter Seven
FINDINGS

52

Findings:
5.1. Findings on Loan Sanction: BDBL grants normally four kinds of loans such as, continuous loans, demand loan, fixed term loans, and short term agriculture and micro finance credit. During 1995-96, the Bank started sanctioning working capital to the project that they financed, but in this case they incurred huge losses being unable to recover the loan. BDBL uses project appraisal technique comprising technical, market, financial, economic, and management & organization analysis. The main problems can be summarized in the following way: Sponsors always tend to overstate their future cash flow, revenue and income and understate the risk with capturing market and expenses. Market dont remain same over the years especially over the time gap between loan sanction and loan recovery. Loan sanction process is not always free from political pressure. Lengthy procedure and long time involved in the appraisal of project Sometimes, there is pressure groups involvement in sanctioning loan. Many projects are sanctioned loan due to influence of political and pressure group. Sometimes, the amount of loan sanction is more than that is required by the project because of over invoicing from the part of sponsors. Lack of eagerness to devote themselves for bank because of lower benefits is given to employees.

53

5.2: Findings about the Loan Recovery: After sanctioning loan, the implementation department recovers the first and second installments then the recovery department takes the duty of recovering the rest of the installments. The recovery process is not satisfactory because the persons involved in the recovery process show lax or laggardness. Usually they inform the borrowers before 15 days of the scheduled date of payment about his/her next upcoming installment due. Visiting to the borrowers premises is hardly done before the loan is defaulted. The recovery department makes the rephasement of loan and rescheduling of the loan when necessary. The recovery department cannot coerce or make bound to repay the loan because of pressure from political and other higher management. Every government makes impediment in their normal recovery process especially if the borrower is linked with that political party.

54

Chapter Eight
Recommendations & Conclusion

55

Recommendations
It is very difficult to give any recommendation about the operation of BDBL because I have not worked here; rather I listened to the personnel of BDBL. However, as per as I understand, I can some recommendations about loan sanction & recovery

5.2.1. Recommendations for loan sanctions Project appraisal technique should strictly be followed through the loan sanction process. Relevant and accurate data about project should be collected. Persons involved in project appraisal should have more expertise and practical knowledge. In analyzing the viability of a project, market of the products or services and management should rigorously be analyzed. The time of loan sanction should be reduced; it should not be more than 20-30 days. For reducing time, the Bank should instruct the borrower to bring all the documents needed by the documentation department and the functions of loan operation department and documentation department should simultaneously be done. Over invoicing should be checked and detected by expertise. The real price of machinery should be found out by using various sources.

5.2.2. Recommendations for Recovery department Recovery drive should be reshuffled and strengthened. At least before 30-45 days of scheduled time of installments due, the borrowers should be reminded about the installments is falling due.

56

 The defaulting borrower should be monitored so that he cannot channel his fund to other business of firms. They should assist the sponsors if he requires continuing his business operation and generating cash to repay loan. No political or other pressure should be considered for loan recovery.

Conclusion

Most of the banks of Bangladesh are offering a wide array of financial services including new types of loans and advances and some whole new services are launched every year. As a DFI, BDBL also has to discover new avenues to reach its goal. It is a state owned bank. For this reason it should go to the peoples heart through various schemes. It should follow a mix lending policies designed to improve the quality of its portfolio and reduce its risk exposure so that in near future when competition among banks will serve more it can stand with its own entity. Now BDBL is trying to operate its business successfully in this country. The success has been resulted from the prediction, commitment and dynamic leadership of its management. For success, BDBL has to consider the behavioral issues of this banks customers. By proliferation of new advance service expanding use of automated equipment and electronic transfer of financial information, BDBL can be a truly fascinating institution in the near future. The institutional future of the bank depends on its ability to achieve a substantially higher recovery ratio and profitability in future. And this achievement will help BDBL to overcome its image crisis.

57

Biiblliiography B b ography
1.Bangladesh Shilpa Bank "Annual Report 2008-2009" 2.Bangladesh Development Bank annual report , 2007/2008 3.Bangladesh Development Bank annual report , 2006/2007 4.Bangladesh Development Bank annual report , 2005/2006 5. Different Project Appraisal reports of BDBL. 6. Loan sanctioning letter of BDBL. 7. Bangladesh Shilpa Bank Ordinance 1972. 8. Manual of different departments of BDBL. 9. BDBL web site " www.BDBL.gov.bd" 10. Manual of Loan Sanction & Recovery Department. 11.Ahmed, K. (1981), The Role of Bangladesh Development Bank in Financing Private Sector Industries, The Dhaka University Studies, Part- C. Vol.2, June, PP-96-107 12. " Why institutional loans are refused to small entrepreneurs", Md. Azizur Rahman khan, vol-1, no-2, June 19801journal Dhaka university studies. 13."Industrial financing and institutional arrangement for setting up of industries in the private sector", DR. M. Habibullah, vol- 1, no-2, June 1980

58