This Report covers the details of Bangladesh Krishi Banks practices about analysis of

loan disbursement & recovery status. The report consists of the writers observation
and on the job experiences during the internship period in the credit department of
Siddirgonj Branch, Narayangonj, Bangladesh Krishi Bank. The report mainly
emphasizes the sequential activities involved in credit approval process, analytical
techniques used by BKB for credit analysis as an integral part of the credit approval
process. The report also focuses on the loan recovery by BKB both in pre-sanction
and post-sanction period of a credit. Finally the report incorporates an evaluation of
the different aspects of the lending process and risk management techniques and
makes some recommendations.
Loan is the primary financial activities in the banking system. The report provides a
detailed discussion about how Bangladesh Krishi Bank manages its loan activities. In
doing so, the standard operating procedures of the bank have been delineated in
details. The report also discusses banks procedures for managing its non-performing
loans. Loan classification procedures have also been discussed in the report. The bank
is recognized as one of pioneers in maintaining compliance with the Bangladesh bank
directives. The report provides a detailed discussion of some the crucial issues of
credit risk management and tries to focus on the practice of Bangladesh Krishi Bank
Limited in this regard under the regulatory framework prevailing in the country. The
findings and their implementations are delineated adequately for the reader to enable
them to get the gist of the core idea behind the study.
BKB follows some specific principals for its loan activities, which involve Know
Your Customer (KYC), safety, liquidity, profitability, purpose and spread.
The lending procedure followed by BKB consists of a set of sequential activities. In
these sequential activities, both bank officials and potential borrowers play significant
role.
Loan analysis if the borrower is found sound for lending, the bank proceeds to prepare
the credit proposal. The credit proposal consists mainly of a brief description of the
borrower, purpose of the loan, collateral, and expiry of the credit line, amount, interest
rate and the result of the credit analysis. The credit proposal is prepared to facilitate
the approval of that particular loan either by Corporate Office credit committee or by
the Board of Directors.
www.AssignmentPoint.com

BKB does not have any fixed time duration to complete lending process for a
particular loan proposal. The total duration of the time required to complete the
lending process varies with the nature of credit, collection of information, nature of
information, analysis of information, preparation of the proposal, corporate office
scrutiny, board approval, preparation of sanction advice, creation and collection of
charges documents and actual disbursement of loan.
BKB must try to reduce the time required by a particular lending process to be
completed. The Higher the duration, the higher the loan processing cost.
Number of banks operating in the market is more but number of potential and good
borrower is less. The bank must find unexpected but profitable sector for financing.
Along side, to expedite the lending process right borrower has to be selected with
strict adherence to KYC, relevant information has to be collected quickly, analysis
must be done precisely and faster, credit proposal has to be prepared in a way that will
represent a transparent picture of the borrowers financial strength and business
potential and finally to reduce the time involved in the lending process.
Lending is the main income generating activity for all banks including Bangladesh
Krishi Bank. Lending involves both risk and profit. But a sound lending process
supported by quantitative analysis, qualitative judgment and a separate credit
monitoring cell can reduce the risk to a certain extent.

Acronyms
Acronyms

Elaborations

BKB

: Bangladesh Krishi Bank

KYC

: Know Your Customer

SLR

: Statutory Liquidity Reserve

GDP

: Gross Domestic Product

SWOT

: Strengths, Weaknesses, Opportunities and Threats.

ATM

: Automated Taller Machine.

SME

: Small & Medium Enterprise.

SND

: Short Notice Deposit

BB

: Bangladesh Bank

FDR

: Fixed Deposit Receipt

LC

: Letter of Credit

TABLE OF CONTENTS
No. of contents

Name of contents

Page no

Student Declaration
Official Certification
Acknowledgment
Executive Summary
Acronyms

Chapter : 1

4
5
6
7-8
9
13
14
14-15
15-16
17-18
18
18
19
20

Introduction
Introduction
Origin of the report
Objectives of the report
Methodology
Limitations
Scope of the study
Time schedule

Chapter : 2

Organizational
Profile
Introduction

&

Background of BKB
Principle activities
BKB at a glance
Objectives of BKB
Features of BKB
Performance of BKB
Auditors of the bank
Corporate governance &
regulatory compliance
Branch information
SWOT analysis

Chapter : 3

Literature Review
Loan management
Loan management policy
Types of loan
management
Guidelines
Loan assessment & risk
grading
Approval authority
Segregation of duties

Chapter : 4

Analysis & Findings

Introduction
Types of credit facility by

21
21-22
22
22-23
23
24-28
28
28
28-29
29-32
33
34
34
34-35
36
37
37
37
38
39
39-48
4

BKB
Loan disbursement by

49-52

BKB
Corporate financing
Credit program
Deposit scheme
Poverty alleviation
An overview of credit

52
52
53
53-54
54

policies & activities of

BKB
Credit policy of BKB
Disbursement year by

54-55
55

year
Loan lending planning of

55-56

BKB
Principles of lending
Strategies

of

56-57
57-58

lending

procedure
Classification of loans &

58-59

provisioning
Evaluation of the BKBs

60-62

loan products, principals

& strategies
Recovery status of BKB
Recovery data

Chapter : 5

Conclusions &

62-69
69-70
71

Recommendations
Recommendations
Conclusion
References

72
72-73
74

CHAPTER 1
INTRODUCTION

1.01. INTRODUCTION:
Bank is committed to provide high quality financial services/products to contribute to
the growth of the country through stimulating trade and commerce, accelerating the
pace of industrialization, boosting up export, creating employment opportunity for the
youth, poverty alleviation, raising standard of living of limited income group and
overall sustainable socio-economic development of the country. In achieving the
aforesaid objectives of the Bank, Credit Operation of the Bank is of paramount
importance as the greatest share of total revenue of the Bank is generated from it,
maximum risk is centered in it and even the very existence of Bank depends on
prudent management of its credit portfolio. The failure of a Bank is usually associated
with the problem in credit portfolio and its less often the result of shrinkage in the
value of other assets. As such, credit portfolio not only features dominant in the assets
structure of the Bank, it is crucially importance to the success of the Bank also.
The major occupation of the people of Bangladesh is "Krishi". Krishi is a Bengali
word which means "Agriculture". About 73% of the population depends directly or
indirectly on agriculture which contributes a significant portion to GDP.
Bangladesh Krishi Bank (BKB) has been established under the Bangladesh Krishi
Bank order 1973 (President's Order No 27 of 1973). BKB is Banking Company under
the Banking Company Act-1991. Its Head Office is located at Krishi Bank Bhaban,
83-85 Motijheel Commercial Area, Dhaka-1000, and Bangladesh. Krishi bank has
started commercial functioning since 1977 to generate more loan able fund from the
idle rural and urban savings and invest them for the betterment of our economy.

1.02. ORIGIN OF THE REPORT:

After completion of 11 semesters in the BBA Program at department of Business
Administration, in Bangladesh Islami University, a student is required to undertake an
internship program. For this purpose each of them is attached with an institution.

The basic purpose of this attachment is to expose the students to real situation and
acquaint them with practice of modern business world. This exposure is helpful to
know how things move and to find the gap as well as similarly between
theoretical knowledge and practical operation.
The internship is designed to bridge the gulf between the theoretical knowledge and
real life experience as a part of Bachelor of Business Administration (BBA)
program. It is designed to have a practical experience while passing through the
theoretical understanding. The main objective of doing an internship report is to have
a practical experience of the real life aspects of the management that we have studied
in the academic course.
To prepare a report, I have selected and got opportunity to work as an intern in
Bangladesh Krishi Bank, Siddirgonj Branch. I have prepared my internship report on
Loan Disbursement & Recovery Status of Bangladesh Krishi Bank. The topic
is assigned by Sultan Ahmed, Associate professor, Bangladesh Islami University.
In the report I have tried my level best to make the reader understandable about the
general banking procedures followed by Bangladesh Krishi Bank. As my report is
mainly focused on Credit policy of Bangladesh Krishi Bank. So in my report it has
gone through the standard operating procedures carried out by the bank and
understood them well. Project paper has tried to understand the regulatory compliance
issues proposed by Bangladesh Bank (BB) regarding credit management practices.

1.03. OBJECTIVES OF THE REPORT:

To provide a thorough understanding of the Credit Risk Management Practice
followed by Shiddirgonj Branch of BANGLADESH KRISHI BANK for credits. The
report attempts to show whether the Credit Risk Management Practice followed by
BKB is in compliance with Bangladesh Bank guidelines. Some core issues like
Classification procedures and Non-performing Loan handling procedures will also be
discussed thoroughly. Credit Risk grading procedure proposed by Bangladesh Bank
has also been intended to be scrutinized in the report with the existing risk rating
system followed by BANGLADESH KRISHI BANK.
8

So I can categorize my study objectives in two types. They are1. Broad objectives.
2. Specific objectives.
These are objectives of the study are described as follows:

1. Broad Objective:

The broad objective of the report is to have an overview on

Loan Disbursement & Recovery Status by BKB.

2. Specific Objectives:

To develop knowledge about Loan Disbursement & Recovery

in BKB.

To identify the strengths and weaknesses of the loan approval

and monitoring process in BKB.

To make recommendations regarding the Banks loan activities.

To understand the loan disbursement and recovery the bank

follows in the competitive market.

To provide brief description about different operations areas of

Bangladesh Krishi Bank Limited.

Prudential Guidelines on Loan Disbursement & Recovery

issued by Bangladesh Bank.

1.04. METHODOLOGY:

SOURCES OF DATA
To complete my internship report I have used information collected from two
sources .They are-

1. Primary sources.
2. Secondary sources.

1. Primary sources: Primary sources of the information are the information

Collected by the practical office desk work, direct conversations with the employees
of the bank, direct observations of the functions, relevant document studies provided
by the concerned officers.
2. Secondary sources:

Majority of the information were collected from the

secondary sources, which include books, publications, reading materials and various
circulars and reporters, published by Bangladesh Krishi Bank. I have also collected
information from various websites. For the analysis part I have collected data from the
loan proposal and from other documents.

DATA ANALYSIS
This is a descriptive report mainly aiming to depict the loan approval process and
monitoring techniques of BKB. The data gathered from both primary and secondary
sources were arranged orderly to get a clear picture of the BKBs loan management

10

regarding lending process and monitoring. The study includes both qualitative and
quantitative analysis of loan approval process and monitoring tools. Based on the
observational information I have also tried to evaluate and analyze the problems
involved in various phases of the loan disbursement & recovery status.

Presentation of Results and Recommendations

After the data analysis, recommendations are made based on the critical evaluation of
the different phases of process and techniques involved in loan approval and
monitoring.

1.05. LIMITATIONS:
There are some limitations of the study. These limitations are mentioned below:
Bank is a sophisticate business sector. So bank do not interested to
provide me confidential data.
Time is one of the important limitations of this report.
Sometimes collection of primary data is not easy enough or time
consuming.
Another limitation of this report is Banks policy of not disclosing
some data and information for obvious reason, which could have
been very much useful.
Sometimes employees were very busy to give their valuable time.
Lack of experience of making internship report is one of the
limitations of my study.
Sufficient records & publications as well as up to date information
are not readily available.

1.06. SCOPE OF THE STUDY:

The scope of the organizational part covers the organizational structure, background
& objectives, functional experimentation & business performance of Bangladesh
Krishi Bank (BKB) as whole and the main part covers operational scenario of

11

Bangladesh Krishi Bank. It focuses on loans and recovery status of Bangladesh

Krishi Bank.

1.07. TIME SCHEDULE:

For completing the report the time schedule was as follows:
Serial No.

PARTICULARS

DURATION

01

Data collection

35 Days

analyzing &
consultation with
the supervisor
02

Data observation

30 Days

03

Data input to

5 Days

computer, setting
processing, &
preparing the report
04

Make out as a book

15 Days

& shown to the

supervisor for
correcting then
submitted to him
finally
TOTAL

90 Days

12

CHAPTER-02
ORGANIZATIONAL PROFILE

13

2.01. INTRODUCTION AND BACKGROUND OF BKB:

Bangladesh Krishi Bank is 100% govt. owned specialized bank in Bangladesh.
KRISHI means agriculture in Bangladesh. Since its inception Bangladesh Krishi Bank
(BKB) is financing in the agricultural sector remarkably. BKB also performs
commercial banking. People work abroad can easily send home through our TAKA
DRAWING arrangement. The major occupation of Bangladeshi people is KRISHI
which means agriculture. About 85% of our people depend on the agriculture which
contributes a significant portion to our GDP. And BKB is working to improve
agricultural sector of the Bangladesh.
Bangladesh Krishi Bank has been established as a full Government owned bank under
Presidential Order 27 of 1973. BKB is a Financing company under Banking Company
Act-1991. Now it has 948 branches all over Bangladesh. Objectives of BKB is to
provide credit facilities to the farmer for the development of agriculture and
entrepreneurs engaged in development of agro-based as well as Cottage industries.
The bank is guided in accordance with the policies and principles of the Government
of the Peoples Republic of Bangladesh. In providing loan bank always give priority to
the poor farmers and SME loans for the small entrepreneurs. It is somewhat different
in some respects of risks because the loan risk is higher in this bank. And it also takes
an essential part in the national development process.

2.02. PRINCIPLE ACTIVITIES:

The bank provides all kinds of commercial banking services to its customers through
its branches in Bangladesh. Generally it provides loan to individuals and corporate
bodies related to:

Production of Crops.

Purchase of Irrigation Machinery and Equipment

Development of Horticulture

Pisciculture and finally

Animal Husbandry.

14

The bank gives emphasis to establish small agro-based cottage industries at both
urban and rural areas by way providing technical and financial supports. The Bank,
within its constitutions put priority as far as possible and extend loan to small and
marginal farmers. The bank as such is discharging its duty to the society side by side
its responsibility as a financial institution.

2.03. BKB AT A GLANCE:

Name

Bangladesh Krishi Bank (BKB).

Status

Specialized Bank

Established

1973 (Presidents order 27 of 1973)

Starts of Commercial Banking :

1977

Authorized Capital

15000000000

Paid up Capital

9000000000

Reserve

No. of Branches

952

No. of Employees

10272

EMAIL

bkb@citechco.net

WEBSITE

www.krishibank.org.bd

CHAIRMAN

2059927847

Khandakar Ibrahim Khaled

Although manpower needed in BKB is 13680 but there is lack of manpower more
than three thousand.

2.04. OBJECTIVES OF BKB:

Bangladesh is mainly an agricultural country. The infrastructures of the country are
mainly based on agriculture. More than 60% of our labor force is related with
agriculture or agriculture based industries. As its name suggest, Bangladesh Krishi
Bank is mainly established for the development of the agricultural sector. If it can be
possible to make the agricultural sector of a country as one of the profitable sector
than it would also be possible to reduce the poverty level of Bangladesh. So the main
objective of BKB is to make the agricultural sector as one of the profitable sector of
the country. And to increase the standard of the living of the people. Agriculture is one

15

of the most uncertain and risky sector to finance. But BKB is financing in the
agricultural sector. The main objectives of BKB are as follows:

Development of the agricultural sector and the agricultural

based activities of the country.

Help to make the agro-based product marketable.

To strengthen the rural economy.

To ensure proper economical development of Agro-based

industries and small entrepreneurs by providing loans.

To select the new sectors of agro-based products and take

initiatives to develop the sector by providing loans and
marketing support.

BKB provides financial support to the entrepreneurs of the

products which have enough probability to export.

Financing the marginal farmers is one of the important

objectives of BKB.

These are the prime objectives of Bangladesh Krishi Bank. Besides BKB also
provides financial help to the poor farmers after every calamity to cope up with the
situation.

2.05. FEATURES OF BKB:

BKB has an authorized capital of tk. 15000 Million only and paid up capital
tk. 9000 Million only which is fully paid by the government.
Bank has started commercial functioning since 1977.
The bank operates its function through 952 branches (Rajshahi Division) of
which 822 (86%) rural and 130 (14%) are Urban.
It has 14 Foreign exchange (Authorized Dealer) branches.
In the field level the bank has 8 divisional and 51 regional offices for close
supervision of the branch activities.

16

 For smooth working bank has also 56 field level audit offices at divisional
and regional levels.
Among the 952 branches 212 branches have already been computerized.

2.06. PERFORMANCE OF BKB:

As on 30th June, 2011 total assets (including contingencies) went up to Taka 140815
million from Taka 117823 million of 2010. During the same period operating profit
has increased to Taka 3304 million from Taka 1787 million of 2010.

2.06.01. TREND OF BRANCH EXPANSION:

Urban

Rural

Year

Branches

Branches

2006-2007

128

803

2007-2008

129

810

2008-2009

129

811

2009-2010

130

817

2010-2011

130

822

17

2.06.02. DEPOSITS:
Deposit is the largest source of bank funds. It is assumed that a medium size bank
collects 85%-90% of its bank fund through deposits. To strengthen the base of the
banks fund BKB emphasizes of collecting deposits. There are mainly four types of
deposits. They are given below:
1. Fixed deposits.
2. Savings deposits.
3. Current deposits.
4. Short Notice Deposit (SND)
The year wise deposit mixes are given below:
(Figures are in Core TK)
TYPES OF DEPOSITS
FIXED DEPOSITS
SAVINGS DEPOSITS
CURRENT DEPOSITS
SND & OTHERS
TOTAL

30-06-2009
2789.23
2351.67
493.27
1227.60
6861.77

30-06-2010
3638.74
2421.85
549.34
1341.77
7951.70

30-06-2011
4553.11
2724.04
603.62
1517.57
9398.34

The graphical presentations of the deposits of BKB for the three years are given
below:

18

Deposit mix is the combination of various types of deposits of Bangladesh Krishi

Bank. These deposits are consists of Fixed, Savings, Current deposits and others type
of deposits. For the year 2011 the DEPOSIT MIX of BKB, Fixed are 48% of the total,
Savings are 29%, Current deposits are 7% and others are 16% of the total deposit.
This can be graphically shown as follows

2.06.03. PROFIT AND OPERATING RESULT:

The Bank earned as operating profit Tk. 3304,001,494tk during 2011.And the amount
of provisions for the year is 125,215,275tk Provision for income tax .Provision for tax
was nil for the year. There was no profit no loss situation and in the previous year net
loss was (1,966,375,453). So the performance of the bank is better than the previous
year.

2.06.04. LOAN AND ADVANCES:

Bangladesh Krishi Bank is following the PONCHO BARSHIKI NITIMALA of the
government from the year 2007-08.And working for the establishment of these
planning. BKB has provided 4003.20 cores Taka as loan and advance in the year
19

2011. And in the year 2010 it was 3441.56 cores. Which are approximately 561.64
cores more than the previous year. The lion portions of the loans provided by BKB are
provided to the agricultural sector and in the agro-based industry. And which is also
an indicator of banks dedication towards the development of the agricultural sector of
the country.

2.06.05. INVESTMENT
BKB also does the work of investments. Investment is one of the major sources of the
uses of fund. BKB mainly invests on various Bonds, Debentures and shares. In the
year 2011 the total amount invested by BKB was 1,511,989,500 Taka. Of which Share
was 34,439,000 Taka and Bond was 1,477,550,500 and in the previous year it was
about 1,491,694,500 taka.

2.06.06. EXPORT BUSINESS

The total quantum of Export business handled by the Bank in 2011 stood at
Tk.1346.70 core Taka as compared to the volume of Tk.1084.45 in 2010 registering
an increase of 262.25 cores Taka.

2.06.07. IMPORT BUSINESS

Import business handled by the Bank during the year 2011 amounted to Tk. 2297.94
core Taka as against Tk.1813.00 core Taka of the preceding year registering an
increase of 484.94 cores Taka.

2.06.08. REMITTANCE
There are two types of remittances, one is the inward remittance and another one is
the outward remittances. In the year 2010 total inward remittances were 687.78 cores
but in the year 2011 it is 951.27 cores. Which were 263.49 cores higher than the
previous year. And the outward remittance was 9.46 in 2010 and in 2011 it is 17.21.
We can see the foreign trade business of BKB graphically as follows:

20

2.06.09. MODERNIZATION OF THE BRANCHES

To ensure quality of services to the customers BKB is computerizing its branches. At
present regional office, Head office and other Divisional Branches are computerized.
In 2010-11 fiscal years there 162 branches have been computerized. And to ensure
quality and quick service there has been opened one stop services in this branches.
Providing online Banking service is under processing in some important branches.

2.07. AUDITORS OF THE BANK

The Audit Firms M/s. Zoha Zaman Kabir Rashid & Co and Kazi Zahir & co. jointly
has done audit and Inspection of the Books of Accounts of the Bank for the
accounting year ended 30th June 2011 jointly.

2.08.

CORPORATE

GOVERNANCE

&

REGULATORY

COMPLIANCE
Eastern Bank Limited practiced the principles of good corporate governance over the
years that covered compliance of regulatory requirements, responsive to various
stakeholders. Spirit of corporate governance also included practicing of the corporate
culture within the organization and shared this by the employees.
21

Eastern Bank Limited complied with all the regulatory guidelines prescribed by the
Banking Companies Act, Bangladesh Bank, National Board of Revenue and
Securities & Exchange Commission, International Accounting Standards, etc.

2.09. BRANCH INFORMATION:

I got chance to work as an internee in the Shiddirgonj Branch of Bangladesh Krishi
Bank. The bank is located at Chittagong Highway Road, Shiddirgonj, and
Narayangonj. There I obtained practical knowledge of working at various
departments.

(Amounts are in Taka)

Branch Name

Bangladesh

Krishi

Bank,

Shiddirgonj branch.
Location

Shiddirgonj, Narayangonj.

Number of Office Staffs

17 ( 1 A.G.M, 1 S.P.O, 4 P.O, 3 S.O,

3 Officer, 1 supervisor, 2 cashier, 2
GO)

Name of the Branch Manager

Md. Mobarak Hossain.

Total Loan Disbursement

816,45,000

Loan Recovery

7,63,88,000

Total Deposits

45,27,16,000

Total Expenses
Total Revenue

3,07,41,000
5,24,12,000

Total Profit

2,16,71,000

Total Assets

2,38,39,59,000

2.10. SWOT ANALYSIS

SWOT analysis is the detailed study of an organizations exposure and potential in
perspective of its strength, weakness, opportunity and threat. This facilitates the

22

organization to make their existing line of performance and also foresee the future to
improve their performance in comparison to their competitors. As though this tool, an
organization can also study its current position, it can also be considered as an
important tool for making changes in the strategic management of the organization.

Strengths:

Bangladesh Krishi Bank has already established a favorable reputation

amongst the people in the banking industry of the country. It is one of the
leading specialized banks in Bangladesh.

Bangladesh Krishi Bank has provided its banking service with a top leadership
and management position.

Bangladesh Krishi Bank has gained enough confidence of the poorer section
of the country. They feel quite comfortable to make any transaction with the
bank as it is fully Government owned specialized bank.

Bangladesh Krishi BANK has an interactive corporate culture. The working

environment is very friendly, interactive and informal. And, there are no
hidden barriers or boundaries while communicate between the superior and the
employees. This corporate culture provides as a great motivation factor among
the employees.

Bangladesh Krishi Bank has 952 branches across the whole country. This is
considered as one of the strengths of BKB.

Bangladesh Krishi Bank has some definite objectives. So it can conduct its
activities towards its objectives.

BKB is fully a government company. BKB is financially strong as result

customers feel comfortable in dealing with the company.

BKBs lending rate is lower than any other private commercial banks.

Weaknesses:

23

Bangladesh Krishi Bank has less manpower than needed. BKB has 10272
employees. But manpower needed 13680.

The bank failed to provide a strong quality-recruitment policy in the lower and
some mid level position. As a result the services of the bank seem to be Deus
in the present days.

The poor service quality has become a major problem for the bank. The
quality of the service at BKB is lower than the other private commercial
banks.

Profit making is not the prime objective of BKB. So in some sector of BKB
there is no or slow growth.

In terms of promotional sector, BKB has to more emphasize on that. They

have to follow aggressive marketing campaign.

The bank is not fully computerized so the banking procedure is time

consuming.

BKB can not provide enough customer satisfaction.

As previously mentioned, the world is advancing e-technology very rapidly. Though

Bank Asia has taken effort to join the stream of information technology, it is not
possible to complete the mission due to poor technology and infrastructure of our
country.

Opportunities:
In order to reduce the business risk, BKB has to expand their business
portfolio. The management can consider options of starting merchant banking or
diversify into leasing and insurance sector.

BKB can improve the quality of service by introducing automation and online
banking.

Opportunity in retail banking lies in the fact that the countrys increased
population is gradually learning to adopt consumer finance. The bulk of our
24

population is lower class and middle class. Different types of retail lending
products have great appeal to this class. So a wide variety of retail lending
products has a very large and easily pregnable market.

A large number of private banks coming into the market in the recent time. In
this competitive environment BKB must expand its product line to enhance its
sustainable competitive advantage. In that product line, they can introduce the
ATM to compete with the local and the foreign bank. They can introduce
credit card and debit card system for their potential customer.

BKB can use the customer confidence and expand its activities towards the
development of the country by providing quality services and customer
satisfaction.

BKB have to identify the emerging agricultural sector and finance the sector
to make the sector more profitable.

If BKB can be able to establish agricultural sector as one of the profitable

sector than people will get interest more in agricultural sector and agro based
industries. Thus the rural poverty can be eradicated.

Threats:
BKB performs commercial banking activities. So all sustaining multinational
banks and upcoming foreign and private banks pose significant threats to BKB
Limited. If that happens the intensity of competition will rise further and
banks will have to develop strategies to compete against these local and
foreign banks.

If BKB can not provide sufficient help and support to the poorer section and
the marginal farmers than the development of agricultural will not be possible.

BKB is financing in the development of agricultural sector of the country. And

we all know that Agricultural sector is one of the most uncertain and risky

25

sector to invest. These uncertainties are considered as one of the major threats
for BKB.

26

CHAPTER 3
LITERATURE REVIEW

27

3.01. LOAN MANAGEMENT:

Loan management is the process for controlling and collecting payments from your
customers. A good loan management system will help you reduce the amount of
capital tide up with debtors (people who owe you money) and minimize your
exposure to bad debts.
Good loan management is vital to cash flow. It is possible to be profitable on paper
and but lack the cash to continue operating in business.

3.02. LOAN MANAGEMENT POLICY:

Loan management policies help the loan department operate more efficiently. Loan
management policies are rural & guidelines established by top management that
govern the companys loan department and its performance in the extension of loan
privileges. Loan procedures are employed to achieve the goals of loan management
policies.

3.03. TYPES OF LOAN MANAGEMENT:

Significance:
Loan management policies allow the loan department to operate more efficiently.
Ambiguity is reduced over how to proceed when policies are clearly-defined. Loan
management policies can offer specifies rules in regard to the loan amounts, type of
customers, debt-to-income ratio, collateral requirement, payment terms and interest
rates.

Types:
There are several types of loan management policies. They are based on the industry,
lending activities and top managements business style or approach to lending.

28

Automotive, academic, home, retail, wholesale and credit card lending all may have
different loan management policies. A tight loan management policy to conservative
and restrictive guidelines for the extension of credit. A loose policy allows for more
flexibility and may focus more on simply making sure debt is repaid instead of credit
analysis and review.

Procedures:
Loan procedures are the specific ways in which top management requires the loan
department to achieve loan management policies. They can include instructions on
what data is to be used for the loan investigation and analysis process and other
procedures. Loan procedures can also provide information for the loan approval
process, account suspension and instances requiring management notification.

Cash Flow:
A major influence on loan management policies is cash flow. Cash flow requirements
describe the amount of money a business needs to meet its financial obligations or pay
its bills. A loose loan policy in which little customer loan investigation is performed
can lead to higher default rates and slower repayment of debt. This can have a
significant impact on a companys cash flow. Companies with small cash reserves or
other sources of capital may be inclined to adopt tighter loan management policies.

Communication:
Part of a good loan management policy should stress communication with other
departments. Communication with the sales department can reduce conflict
sometimes occurs when a sale is declined or affected because the loan department
determines there is high level of risk involved in doing business with a particular
customer. Communication with the collections department can provide warning signs
of loan or credit default.

29

3.04. Guidelines:
The purpose of this document is to provide directional guidelines that will improve
the risk management culture, establish minimum standards for segregation of duties
and responsibilities, and assist in the ongoing improvement of BKB.
The guidelines have been organized into the followings:

Policy guidelines:
o Lending Guidelines.
o Credit Assessment & Risk Grading.
o Approval Authority.
o Segregation of Duties.
o Internal Audit.

Management structure & responsibility.

Procedural guidelines:
o Approval Process.
o Credit Administration.
o Credit Monitoring.
o Credit Recovery.

Lending guidelines:
The lending guidelines include the following:
o Industry and business segment focus.
o Types of loan facilities.
o Single borrowers/group limits/syndication.
o Lending caps.

3.05. Loan assessment & risk grading:

30

Loan applications should summarize the result of the risk assessment & include, as a
minimum, the following details:
o Environment or social risk inputs.
o Amount and type of loan (s) proposed.
o Purpose of loans.
o Loan structure (Tenor, Covenants, Repayment schedule, Interest).
o Security arrangements.
o Any other risks or issue.
o Risk triggers & action plan-condition prudent, etc.

3.06: Approval Authority:

Loan approval authority has been delegated to Branch Manager, loan Committee
by the MD/Board.
Delegated approval authorities shall be reviewed annually by MD/Board.
Approvals must be evidenced in writing. Approval records must be kept on file
with the loan application.
The aggregate exposure to any borrower or borrowing group must be used to
determine the approval authority required.
Any loan proposal that does not comply with lending guidelines, regardless of
amount, should be referred to Head Office for Approval.

3.07. Segregation of Duties:

Bank will aim at segregating the following lending function:
Loan approval/Risk management.
Relationship management/marketing.
Loan administration.

31

CHAPTER 4
ANALYSIS AND FINDINGS

32

4.01. Introduction
Loan facilities, principals, procedures and lending guidelines should provide a clear
and consistent point of reference for all employees and prevent misunderstanding,
confusion or omission by personal dealing with loan issues. Additionally, loan
policies help prevent deviation from the overall lending principles and loan culture.
Loan procedures support the delivery of loan products, help to avoid undue process
and serve as an efficient mechanism in granting of facilities and the administration of
the risk asset portfolio.

4.02. Types of Credit Facility by BKB

The total loan disbursement of BKB can be classified into three major groups these
are:
1. Short term loan
2. Medium term loan and
3. Long term loan
BKB offers both funded and non-funded loan facilities. Among all the funded and non
funded facilities BKB does not provide all but those, which are commensurate with
the Banks policy and strategy. The various funded and non funded loan facilities that
BKB provides to its borrowers are:

Funded Facilities:
The funded loan facilities are those, which involve direct cash. In other words any
type of loan facility, which involves direct outflow of Banks fund on account of
borrower is termed as, funded loan facility. The following funded loan facilities are
provided by BKB.
Bangladesh Krishi Bank provides different kinds funded loan especially in
Agriculture sector of our country. These loans have low interest rate which facilitates
our people who involve in agriculture. In this section of report we will discuss about
the different types of loan that BKB offer.

33

BKB finances the following seven sectors, which are given below:
1. Crop
2. Fisheries
3. Live Stock
4. Agro-equipment and farm machineries
5. Agro processing industries
6. Continuous Loan
7. Poverty Alleviation and Micro Credit Programs
8. Special Recovery Activities/ program
9. SME
10.

Others

CROP:
Crop is one of the important sectors of Bangladesh agriculture. In this sector the
total number of manpower involved are more than 57% of the total. And in the
national GDP the portion of the CROP sector is approximately 11.7%. So 60% of
the total allocation of loan of Bangladesh Krishi Bank is reserved for crop alone.
This program attends all the seasonal crops and the target people are land owners,
share cultivators, and marginal farmers. Rate of interest is very much within the
reach of these people around 8%. The important sectors of Crop sector are:
1. Loans in the food crops. (Rice, Jute, Wheat
etc.)
2. Cash crops.
3. Horticulture.
4. Loan for gardening and nursery.
5. Tea state.

34

6.

Small Holding Tea State in Chittagong Hill

Tracts.

7. Loan in the emerging sectors of agriculture.

FISHERIES:
In development of Bangladeshs economy it is one of the important sectors. This
sector can create the employment of people, meets the local demand for fish and also
can earn foreign currency through exports of fish. BKB disburses loan for fish culture
and fish hatcheries. Cultivation of sweet water fish and Shrimp gets loan. Hatcheries
for fish and Shrimps are considered for BKBs loan. The loan disbursed in this year in
this sector is 296.47 cores.

LIVE STOCK:
In our country Livestock sector has enough importance for the development of our
economy. In our country this sector can meet the local demand for meat, milk, skin,
bones etc. And this sector can earn foreign currency also. To reduce the dependence of
import and increase the export of child food, meat and skin. BKB provides loan in this
sector. Aim of the project is to create self employment. BKB provides loan for:
1. Buying cows.
2. Beef fattening.
3. Dairy farm.
4. In Poultry farming.
5. In goat farming.

CULTIVATION & IRRIGATION:

Bangladesh Krishi Bank presents loan for mechanizing cultivation and irrigation.
People are interested now to switch over from traditional machinery system to modern
one. So this a timely approaches to provide loan in this sector. BKB also patronize

35

manufacture and marketing of farm equipment. Besides the bank offers credit for
poultry and dairy firms and for export oriented food and fish processing plants.

POVERTY ALLEVATION PROGRAM:

BKB is working to ensure the development of the rural and poor people. BKB is
providing loan in this sector to make the proper use of the rural manpower towards
the development of the country. BKB is providing loan in the13 sector under this
program. They are:
1. Loan to the landless and marginal farmers.
2. Joint lending for poverty eradication.
3. Self are sustaining lending.
4. Improvement of the labor force.
5. South Asian Poverty Eradication Program.
6. United Nations farmers development program.
7. BKB-NGO micro credit program.
8. Cow farming for the women.
9. Autistic development program.
10. SME development for Manipuri.
11. Development program for Rakhains.
12. Special loan for Manipuri people in Shylet.
13. Working facility for the rural women.

SME LOAN:
SME plays a vital role in our economy. SME is one the major source of self
employment. To make skilled entrepreneur BKB finance in this sector. To establish
the Brain Resource as an important alternative to Venture capital SME loan is
provided. BKB logically imposes sufficient emphasis on it. Major Fields for banks
interest are1.

Electrical and electronics.

2. Software.
36

3. Light engineering.
4. Agro-based all fields.
5. Leather and leather goods.
6. Garments.
7. Plastic and synthetics.
8. Health care.
9. Education.
10. Pharmaceuticals.
11. Faison goods.
The credit range in this sector is taka 2.0 lac to taka 500.00 lac. The interest rate is
quite logical and viable.

Corporate Finance and Other Project Loans

Project loan normally has fixed maturity and it relates to term investment. As such it
requires appraisals of those proposals to have a rational decision. Appraisal may be
termed as assessment of viability over a period of time.
These loans are usually made for:

Setting up of industries and to meet working capital

Balancing, Modernization, Replacement and Expansion (BMRE) of

existing industries.

OTHERS TYPES OF LOANS BY BKB:

Over Draft
Over draft facility is also a continuous loan arrangement on a customers current
account permitting him/her to overdraw up to a certain approved limit for an agreed
period. Here the withdrawal of deposits can be made any number of times at the
convenience of the borrower, provided that the total overdrawn amount does not
exceed the agreed limit. Customer can return any amount at any time within the prefixed time of the facility. Turn over of an Over Draft facility is the most important
phenomenon on which renewal of the facility depends. Over Draft facility is given to

37

the businessmen for financing working capital requirement and high net worth
individual to overcome temporary liquidity crisis.

Secured Over Draft

This is a type of over draft facility given to the borrowers keeping sufficient collateral
from the customer in the most liquid form. This facility provides specific right to a
client to overdraw within a pre fixed limit for a certain period of time. Secured over
Draft is normally granted against the security of tangible asset such as lien of Fixed
Deposit Receipt (FDR), Bonds, Sanchaya Patra but currently Secured Over Draft is
given only against Fixed Deposit Receipt because Bangladesh Bank has recently
prohibited Secured Over Draft against Bonds and Sanchaya Patra. Interest charged on
the Secured over Draft is calculated on the basis of the security lined.

Term Loan
Terms loans are given to finance the acquisition of capital assets. Loan agreements
often contain restrictive covenant and loan is repayable in accordance to amortization
schedule. Collateral is must for term loan. Under term loan there are three categories:
Short term Agricultural loan- loans having maturity less than one year falls
under this category. The loan items under this category are:
1. General short term loan.
2. Special lending activities of 100 core Taka.
3. Loan in the disastrous region.
4. Lending activities with Bangladesh Mission.
5. Lending activities for the process and marketing of
agricultural products.
Midterm Agricultural loan- this loan facility is extended for loans having
maturity more than one year but less than three years. The loan under this
category are:
1. Mid-term general loan activities.
2. Mid term Loan in the disastrous region.
3. I.D.B.I loan 1&2.
38

4. A.D.B loan 1&2.

5. USAID IRI cultivation program.
6. Ret culture.
Long term Agricultural loan- tenure of long term loans is more than three
years. The loans under this types are:
1. A.D.B loan 1&2.
2. USAID IRI cultivation program.
3. Japan assistance.
4. Improvement of tea sector.
5. Ret culture.

Syndicate Loan
A Bank can lend up to 15% of its paid up capital without any approval by Bangladesh
Bank. If the loan amount exceeds 50% of the paid up capital then Bank goes for
Syndicate loan. Lead Bank makes the arrangement and Head Office makes the facility
agreement by the Banks lawyer. All terms and conditions such as security sharing,
mode of creating charges, mode of repayment, covenants of the loan are written on
the facility agreement.

Cash Credit
BKB also offers personal cash credit facility to its customers for buying household
appliances, agricultural machineries, for business. Securities are kept for such type of
credit facility but a guarantee from third party is required who ought to be a
prominent person or government service holder. Anyone with continuous employment
for a reasonable length of time in an organization is entitled to enjoy this facility. A
quotation needs to be submitted on the office pad from where the goods will be
purchased. Limit of personal credit ranges varies with the financial strength of the
mortgage. And interest rate is 15.00%, which is subject to change.
The objective of this loan is to provide cash credit durables to the fixed income group
(Service holders) and other eligible borrowers under the scheme for following
business area.
39

Items of Investment under Cash Credit:

1. Refrigerator / Deep Freeze
2. Television / VCR / VCP / Dish Antenna
3. Buying cows.
4. Beef fattening.
5. Dairy farm.
6. In Poultry farming.
7. In goat farming.
8. Music Center
9. Motor Car / Motor Cycle
10. Air Cooler / Air Conditioner
11. Personal computer
12. Washing Machine
13. Household Furniture & Fixtures
14. Sewing Machine
15. Kitchen appliances like Oven, Toaster, Pressure Cooker, Blender etc.
16. Any other item not specified above but considered essential.

Non funded facilities:

Non funded facilities are also known, as contingent facilities are those where banks
fund is not required directly. A non-funded facility can be turned to a funded facility
as per situation creates. Bank receives commission rather than interest income by
providing non-funded facilities. Following non-funded facilities are provided by
BKB:

Letter of Credit (L/C)

A letter of credit can be defined as a Credit Contract whereby the buyers bank is
committed (on behalf of the buyer) to place an agreed amount of money at the sellers
disposal under some agreed upon conditions. Since the agreed upon conditions
include, amongst other things, the presentation of some specified documents, the letter

40

of credit is called Documentary Letter of Credit. The Uniform Customs & Practices
for Documentary Credit (UCPDC) published by International Chamber of Commerce
(ICC, 1993) Revision, Publication No. 500 defines Documentary Credit.
Any arrangement however named or described, whereby a bank (the issuing bank),
acting at the request and on the instructions of a customer (the applicant) or on its
own behalf,
1) Is to make a payment or to the order of third party (the Beneficiary), or is to
accept and pay bills of exchange (Drafts) drawn by the Beneficiary, or
2) Authorized another bank to effect such payment, or to accept and pay such
bills of exchange (Drafts),
3) Authorizes another bank to negotiate, against stipulated document (s),
provided that the terms and conditions are complied with.
BKB provides only irrevocable letter of credit (L/C) facility.

41

Classification of Credit

Short term

Crops
loan

Medium term

Fisheries
loan (digging
ponds, lake)

Working capital
Loan

White fish
loan

Poultry
firm

Live stock
loan

Long term

Socio economic
activities

Irrigation and farm

machinery loan
Example: Tractor

Shrimp culture
(Marine, sweet water
culture

Dairy
firm

Agro based Industries

Fish & shrimp

hatchery

Food
processin
g

Exportabl
e items

Import
substitute

FIGURE: TYPES OF CREDIT OF BKB

42

4.03. LOAN DISBURSEMENT BY BKB:

The amount of money disbursed by BKB in the year 2010-11 is given below:

Serial No. SECTORS OF LOAN 2009-10

DISBURSEMENT
1
CROP
1431.38
2
3
4

Fisheries
282.85
Live Stock
226.30
Agro-equipment and 28.74

(Figures in core TK)

2010-11
2011-12
1488.40

1778. 22

296.47
229.83
28.93

494. 39
337.00
39.87

179.64

187.77

1462.34
47.82

1636.27
86.03

76.00
193.73
4003.20

131.33
331.25
5222.13

farm machineries
5

Agro-processing

6
7

industries
Continuous Loan
948.83
Poverty
Alleviation 53.43
and

8
9

Micro

Programs
SME.
Others
TOTAL

181.85

Credit
288.48
3441.56

Loan disbursement trend in BKB for the last three years are given below:
43

Sector wise loan disbursement in 2011-12

Bangladesh Krishi Bank has been engaged in foreign exchange business since 1980. It
deals with all kinds of export, import, remittance and other sorts of foreign exchange
business.BKB has got 200 major correspondent banks globally and maintain
sufficient number of Nostro Accounts in various foreign currencies with different
leading banks in the important business centre of the world. BKB has taken massive

44

foreign exchange programmers to increase business. Import of capital machinery and

raw materials for agro processing industries and export of agricultural products,
foreign remittance and all sorts of foreign exchange transactions and services
provided by BKB. Products and services in case of international banking are given
below:

Letter of Credit. (LC)

Bill purchase/ Discount.

Export Credit. (Pre shipment and Post shipment).

Remittance (Inward/ Outward)

Collection, purchase and sale of foreign currencies and

Travelers cheque.

Maintenance of student education file.\

Guarantees in foreign currencies.

Foreign Currency accounts.

NFCD (Non-resident Foreign Currency Deposit) A/c.

RFCD (Resident Foreign Currency Deposit) A/c.

Forward Contracts.

Correspondent Banking Relations.

Taka Drawing Arrangement.

Dealing room.

S.W.I.F.T (Society for Worldwide Inter bank Financial

Telecommunication.)

PRODUCTS AND SERVICES OF BKB:

Although the central attention of BKB is agriculture. It doesnt abandon other fields
of the economy at all. All the businesses of the bank may be defined as follows:

Corporate Financing.

Credit Program.

Deposit scheme

International Banking.

Loan services of BKB.

45

Poverty Alleviation.

Micro-credit program.

4.04. CORPORATE FINANCING

The Bank has started financing to renowned corporate bodies of the country for the
last 2/3 years. This has opened a new arena of utilizing Agri-product marketing
channel of the companies in easy terms and at a lower interest rate. Such companies
are:

1. PRAN GROUP (Agriculture Marketing Company Ltd.)

2. SQUARE GROUP (Square Consumer Products Ltd.)
3. PARTEX GROUP (Partex Furniture Ltd.)
4. SUPREME SEEDS
5. PADMA GROUP
6. P.H.P GROUP
7. T.K. GROUP
8. ISPAHANI GROUP
9. SA GROUP
10. K.D.S GROUP
11. CITY GROUP
12. S. ALAM GROUP
13. MEGHNA GROUP
14. National Pharmaceutical Co. ltd. (NPCL)

4.05. CREDIT PROGRAM:

Credit program may be called the prime function of the bank. This program includes
the loans provided for crops, fisheries, livestock, farm and irrigation, agro based
industries project, SME, Micro credit. More about credit program will be discussed in
the credit section of the project part.

4.06. DEPOSIT SCHEME:

46

As a commercial bank BKB offers some well designed deposit scheme for the
customer. These are Special Notice Deposit (SND), Fixed Deposit, Time deposit,
Savings scheme, Educational Savings, etc. Under time deposits there are sub head like
DPS,SPS, Teachers Savings, Hajj Deposit and Krishan-Krishani,
Types of deposits and interest rate related with particular deposits are given below:

Name of the Account

Period

Rate of Interest

Savings Bank Account

---Short Term Deposit (STD) ---Account
Current Deposit Account

5.00%
3.50%

----

0.00%

FIXED DEPOSITS
FDR 1
FDR 2
FDR 3
FDR 4

3 months and above but less

then 6 months
6 months and above but less
then 1 year
1 year and above but less
then 2 years
2
years

and

(Maximum 4 years)

above

7.00%
7.50%
7.75%
8.00%

4.07. POVERTY ALLEVIATION:

Bangladesh Krishi Bank has taken up poverty alleviation as one of the fundamental
jobs. It extends Micro Credit services for the people below the poverty level. Some of
these services arranged by BKB alone and some are joint efforts. Local and
international agencies collaborate in some cases. The international organization like
United Nations, Asian Development Bank, SAARC are working with BKB in some
projects.
It is now possible to say that BKB is performing its duties efficiently in developing
the agricultural sector of the country. And at the same time helping the down trodden
millions to come up above the poverty level through sustainable growth.

47

4.08.

AN

OVERVIEW

OF

CREDIT

POLICIES

AND

ACTIVITIES OF BKB
Agriculture is the most important and profitable sector in Bangladesh. All of our
economic activities have been developed based on agriculture. In this case
Bangladesh Krishi bank is the leading financial institution for financing in agriculture.
Bangladesh Krishi Bank strictly adheres to the regulatory policies, rules etc as regard
to credit
Management and is in compliance with regulatory requirements as stipulated by
Bangladesh Bank from time to time.

4.09. CREDIT POLICY OF BKB:

Bangladesh Krishi bank in fiscal year 2011-2012 decided to prepare a five years
plan to disburse loan in different sector. The key point of their planning is given
below:

To develop and expansion of agriculture the bank will provide loan to all agro-

based sector which involve in Agriculture.

To facilitate, modernized, profitable of and to improve the life style of rural

people BKB will pay special attention to the 7 sector such as: Crops, Fisheries, Live
stock, Agro-equipment and firm machineries, Agro based industries, Continuous loan,
Poverty alleviation and Micro-credit program.
To identify different sector which increase the price of agro product and
distribution BKB work for those sector and give loan to improve the situation.
To face the growing amount of loan demand in every year BKB will increase the
amount of loan disburse in the agricultural sector. To reduce the use of traditional
systems in agriculture.
Using advanced scientific technologies.
Exporting agricultural food products.
To change the current cropping pattern and increase the cropping intensity.

48

4.10. DISBURSEMENT YEAR BY YEAR

Year

Loan

Changes in Core

Disbursement(Amount

Taka

in Core Taka)

2005-06
2006-07
2007-08
2009-10
2010-2011
2011-2012

Source of
Agriculture

2668.67
2964.14
3279.64
3441.56
4003.20
5222.13

295.47
315.50
161.92
561.64
1218.93

4.11. LOAN LENDING PLANING OF BKB:

Bangladesh Krishi Bank declares theirs loan disbursement goal for the upcoming
fiscal year in the last week of the month June. For the 2012-13 fiscal years the 6000
core Taka will be disbursed. Special features of lending procedure for the year 201213 are

To reduce the use of traditional systems in agriculture.

Using advanced scientific technologies.

Exporting agricultural food products.

To change the current cropping pattern and increase the

cropping intensity.

Loan disbursement target of BKB for the year 2012-13 is given below:
Serial No.

SECTORS OF LOAN

2012-13

DISBURSEMENT
CROP

(Core Tk)
2600.00

2
3

Fisheries
Live Stock

500.00
470.00

49

Agro-equipment and farm machineries

80

5
6
7

Agro-processing industries
400
Continuous Loan
1000
Poverty Alleviation and Micro Credit 100
Programs

8
9

SME.
Others
TOTAL

500
850
6000

4.12. PRINCIPLES OF LENDING:

Banks are profit oriented organization for which a bank invests its funds in many
ways to earn income. At the same time bank runs the risk of default in repayment. As
such the banks are required to follow certain basic principles of lending. The lending
principles of BKB govern its extension of credit facilities. These principles are strictly
followed to shape and define the acceptable risk profile of Bank Asia. These
principles are:
Know Your Customer: Know Your Customer (KYC) is the most important
guiding principle of BKB for extending credit facilities to its prospective
borrowers. Complying with this principle helps the bank to avoid money
laundering crime and adverse selection of borrowers.
Safety: Safety depends first upon (i) the security and its value offered by the
borrower and (ii) the repaying capacity and willingness of the borrower to
repay the loan with interest.
Liquidity: It refers to the ability of an asset to be converted into cash without
loss and within a short time to meet depositors demand for cash.
Profitability: BKB must employ its fund in such a way that they will bring
adequate return for the bank, which should be more than cost of the funds.
Purpose: The purpose for which BKB will provide loan should be productive
so that the money not only safe but also provides a definite source of
repayment.
Spread: It refers to the diversification of advance. BKB always provide loans
at a lower rate than the other commercial banks. Though profit is not the main

50

aim of lending of BKB but So far BKB could maintain considerable margin
on its disbursed loan. Recently Bangladesh Bank has imposed restriction on
lending rate and to comply with Bangladesh Bank policy guidelines, BKB
always follows lending guidelines of Bangladesh Bank.

4.13. STRATEGIES OF LENDING PROCEDURE:

A loan policy gives loan officers, relationship managers and the Banks management
specific guidelines in making individual loan decisions and in shaping the Banks
overall loan portfolio. One of most important ways a Bank can make sure its loans
meet regulatory standard and are profitable is to establish a written loan policy.

BKB also has a good loan policy and the most important elements of the policy are
stated below:

A goal statement for the Banks loan portfolio (in terms of types, maturities,
sizes, and quality of loans).

Specification of the lending authority given to each loan officer and loan
committee (measuring the maximum amount and types of loan that each
person and committee can approve).

Lines of responsibility in making assignments and reporting information

within the loan department.

Operating procedures for soliciting, reviewing, evaluating, and making

decisions on customer loan applications.

The required documentation that is to accompany each loan application and

what must be kept in the Banks credit files (required financial statements,
security agreements etc).

Lines of authority within the bank regarding who is responsible for

maintaining and reviewing the Banks credit files.

Guidelines for taking, evaluating and perfecting loan collateral.

51

A presentation of policies and procedures for setting loan interest rates and
fees and the terms for repayment of loans.

A statement of quality standards applicable to all loans.

A statement of the preferred upper limit for total loans outstanding (i.e. the
maximum ratio to total loans to total assets allowed).

A description of the Banks principal trade area, from which most loans
should come.

A discussion of the preferred procedures for detecting, analyzing and working

out problem loan situations.

A written loan policy statement carries a number of advantages for the bank adopting
it. It communicates to employees working in the loan department what procedures
they must follow and what their responsibilities are. It helps the Bank moves forward
a loan portfolio that can successfully blend multiple objectives such as promoting the
banks profitability, controlling its exposure and satisfying regulatory requirements.

4.14.

CLASSIFICATION

OF

LOANS

AND

PROVISIONING
Loan classification is a process by which the risk or loss potential associated with the
loan accounts of the Bank on a particular date is identified and quantified. It is done to
determine the level of reserves to be maintained by the Bank for the probable loss on
that risky loan account.

Loan

Unclassified
Classified

52

Figure 4.2 Classifications of Loans

4.14.1. Unclassified Loans

An unclassified loan or commitment is one that is set by Bangladesh Bank or the
Head Office of the Bank. Unclassified loans are those loans in which repayment is
regular.

4.14.2. Classified Loans

A classified loan or commitment is one that is classified as substandard, Doubtful or
Loss as per policy of loan classification set by Bangladesh Bank or Head Office of the
bank.
Loan Classification means to categorize the debt information in a systematic manner.
But in true sense it is defined in terms of degree of risk associated with these loans.
The objectives/importance of loan classification is:
To find out Net Worth of a bank;

To assess financial soundness of a bank;

To calculate the required provision and the amount of interest suspense;

Strengthen credit discipline;

To improve loan recovery position and

To put the bank on sound footing in order to develop sound banking practice in
Bangladesh.

Position of classified loans and advances and other assets should be placed before the
Board of directors of the bank.

4.15.

EVALUATION

OF

THE

BKBS

LOAN

PRODUCTS, PRINCIPALS AND STRATEGIES

4.15.1. LOAN PRODUCTS EVALUATION
Bangladesh Krishi Bank was established due to work for the development of the
agricultural sector of the country. It was established in 1973 but started its commercial

53

banking activities in the year 1976. Now is the period of innovations. There are 52
commercial banks operating in the country excluding other non banking financial
institutions. In this competitive banking arena a bank must come up with new and
easily accessible customer focused loan products. BKB offers a limited number of
loan products to its customers. As BKBs targeted customer is the poor and minor
people. BKB also helps in the foreign business for the businessman. And for helping
the international business of agricultural products and development of agro-based
industries.
The loan mix of the bank is very conventional. It has been observed that the existing
loan products are insufficient to meet up the existing borrowers need. The bank has
no loan products for the religious Muslim borrowers. It has caused the bank to lose a
large segment of the potential borrowers. The bank has yet to establish credit card
facility which could pull a large number of borrowers because due to safety need,
increasing number of people are being interested in having this facility. BKB is still
lagging behind the other commercial banks in terms of product diversity in credit.
But BKB has promised to incorporate new loan products in its loan mix portfolio. The
bank is trying to computerize all its branches. BKB is planning to start online banking
for providing good services to its customers.

4.15.2. EVALUATION OF LENDING PRINCIPLES

Bank Asia follows well constructed lending principles starting with KYC or Know
Your Customer and ending with Spread. KYC is getting increasing emphasis in the
banking arena because loan default rate is high in our country. Proper compliance
with KYC can help the banks to avoid bad loans. The BKB still maintains adequate
safety in its loan portfolio, which is reflected in its low default rate. The bank was
able to establish confidence in the minds of the customers regarding maintaining
adequate liquidity to meet up the borrowers requirement.
At the same time the bank was able to remain profitable in terms of interest income
maintaining a higher spread. So far BKB was able to perform well in its loan portfolio
but the scenario is changing very rapidly. Lending rate is lower than any other banks
of Bangladesh. The bank has to adopt necessary strategy to maintain its profitability

54

from the loan portfolio. And also BKB should follow their existing lending principle
towards the development of the agriculture of our country.

4.15.3. STRATEGY EVALUATION

Strategy provides guidelines to BKB to device a smooth lending procedure. As
mentioned earlier, BKB does not have a very diverse loan products but it provides
short term, mid term and long term loans. Size of the credit varies from fifty thousand
taka for personal credit to several cores for syndicated loans. BKB has a preference
for rural farmers, minor people development of the women.
BKB also finances SME (Small and Medium Enterprise), provides personal credit,
export and import finance. BKB finances in the corporate sector mainly agricultural
based industries. But BKB is in constant search of profitable business sector for
extending credit line. Bank has also taken safe guard against predicted alteration in
the world trade policy. As MFA (Multi Fiber Agreement) was phased out from
December 2004, many of the countrys garments factories were under the threat of lay
off. The experts of the bank are anticipating that the situation after last year were
seriously jeopardize the banking sector because most of the banks have heavily
financed in the export oriented RMG (Ready Made Garments) sector.
BKBs main motto is to ensure the proper development of agriculture by modernizing,
marketing and improving the standard of living of the rural and urban people. Thats
why BKB is not confining their lending activities in limited sectors. Rather providing
loan to ten sectors. BKB has ensured the quality of loan by proper mortgage loan in
different sector.
Agriculture is the most uncertain sector to finance but BKB is financing successfully
in this sector. Agro-based industrys improvement is dependent to the loan provided
by BKB.

Recovery Status of BKB

55

The perspective of the Basel 2 implementation has encouraged bank to conduct a

number of studies on the impact that new rules will have on credit management,
according to the specific characteristics of the lender. With regard to BKB, studies
tend to highlight the opportunities related to the use of complex credit management
tools for internal management purposes, as well as the limitations related to the
assessment of the value of the relationship between customer and bank.
Available studies on credit management for BKB focus on the characteristics of this
type of bank, such as size, type of customer base and field of activity, showing how its
specificity can affect the riskiness of its loan portfolio. In detail, the evidence
provided attempts to prove the greater capacity of this bank to select and monitor their
borrowers,

compared

to

the

banking

system

as

whole.

This paper focuses on the phase subsequent to borrower default, with the aim of
assessing whether the special nature of these banks is also reflected in the
effectiveness of the loan recovery process. Therefore, the analysis is aimed at
assessing the significance of the characteristics of the BKB, with respect to another
driver of the expected credit loss, with a view to highlighting if the differences
proposed in the relevant literature--in terms of the probability of insolvency--are
consistent with the differences reported in terms of the effectiveness of the recovery
process, or if the two risk factors offset each other.

Internal controls of loan recovery:

An area that plays a crucial role in the control of loan recovery is its system of
internal controls. Effective internal controls enhance the safeguards against system
malfunctions, errors in judgment and fraud. Without proper controls in place,
management will not be able to identify and track its exposure to risk. Controls are
also essential to enable management to ensure that operating units are acting within
the parameters established by the board of directors and senior management.
Seven aspects of internal controls deserve special attention:

56

1. Information Systems. It is crucial that effective controls are in place to

ensure the integrity, security, and privacy of information contained on the
credit union's computer systems. In addition, the loan recovery should have a
tested contingency plan in place for the possible failure of its computer
systems.
2. Segregation of Duties. The loan recovery should have adequate segregation
of duties and professional resources in every area of operation. Segregation of
duties may be limited by the number of employees in smaller loan recovery.
3. Audit Program. The effectiveness of the loan recoverys audit program in
determining compliance with policy should be reviewed. An effective audit
function and process should be independent, reporting to the Supervisory
Committee without conflict or interference with management. An annual audit
plan is necessary to ensure that all risk areas are examined, and that those
areas of greatest risk receive priority. Reports should be issued to management
for comment and action and forwarded to the board of directors with
management's response. Follow-up of any unresolved issues is essential, e.g.,
examination exceptions, and should be covered in subsequent reports. In
addition, a verification of members' accounts needs to be performed at least
once every two years.
4. Record Keeping. The books of every loan recovery should be kept in
accordance with well-established accounting principles. In each instance, a
loan recovery records and accounts should reflect its actual financial condition
and accurate results of operations. Records should be current and provide an
audit trail. The audit trail should include sufficient documentation to follow a
transaction from its inception through to its completion. Subsidiary records
should be kept in balance with general ledger control figures.
5. Protection of Physical Assets. A principal method of safeguarding assets is to
limit access by authorized personnel. Protection of assets can be accomplished
by developing operating policies and procedures for cash control, joint
custody (dual control), teller operations, and physical security of the computer.
6. Education of Staff. Loan recovery staff should be thoroughly trained in
specific daily operations. A training program tailored to meet management
needs should be in place and cross-training programs for office staff should be
57

present. Risk is controlled when the loan recovery is able to maintain

continuity of operations and service to members.
7. Succession Planning. The ongoing success of any loan recovery will be
greatly impacted by the ability to fill key management positions in the event of
resignation or retirement. The existence of a detailed succession plan that
provides trained management personnel to step in at a moment's notice is
essential to the long-term stability of a loan recovery. A succession plan should
address the Chief Executive Officer (or equivalent) and other senior
management positions (manager, assistant manager, etc.).

LOAN-PRICING METHOD:
In pricing a business loan, Bank management must consider the cost of raising loan
able funds and the operating costs of running the Bank. This means that Banks must
know what their costs are in order to consistently make profitable, correctly priced
loans of any type. There is no substitute for a well-designed management information
system when it comes to pricing loans.
The BKB is generally used the simplest loan-pricing model which assumes that the
rate of interest charged on any loan includes four components: (1) the cost to the Bank
of raising adequate funds to lend, (2) the Banks non-funding operating costs
(including wages and salaries of loan personnel and the cost of materials and physical
facilities used in granting and administering a loan), (3) necessary compensation paid
to the Bank for the degree of default risk inherent in a loan request, (4) Banks desired
profit margin.

Interest rate of BKB for Lending

Loan

Interest

SECURED OVER DRAFT (SOD)

13.5%

SECURED OVER DRAFT

16%

TEMPORARY OVERDRAFT

16%

CASH CREDIT

16%

58

CASH CREDIT

16%

OVER DRAFT

16%

OVER DRAFT (WORKING CAPITAL)

16%

OVER DRAFT A/C (ATM CARD)

16%

MARRIAGE LOAN SCHEME

12%

LOANS AGT.TRUST RECEIPT(LTR)

16%

HOUSE BUILDING LOAN (HBL) AGAINST COMMUTATION BENEFIT

11%

HOUSE BUILDING LOAN(HBL) RESIDENTIAL

11%

HOUSE BUILDING LOAN(HBL) COMMERCIAL

16%

HOUSE BUILDING LOAN(HBL) MORTGAGE

11%

CONSUMER DURABLE SCHEME

17%

PACKING CREDITS(PC)

13%

LOAN OTHER

16%

GENERAL LOAN(SATTLEMENT A/C)

16%

CONSUMER DURABLE SCHEME (CDS)

17%

MICRO CREDIT(RECONST & REPAIRING OF DWELLINGG HOUSE)

12%

LOAN AGT.CASH COLLATERAL

13.50%

TRUST MONEY MAKING SCHEME(TMMS) LOAN

13%

TERM LOAN(GENERAL)

16%

TERM LOAN(COMMERCIAL)

16%

TERM LOAN(INDUSTRIAL)

16%

TIME LOAN

16%

SMALL LOAN

16%

LOAN AGT.IMPORTED MERCHANDISH(LIM)

16%

EXPORT CASH CREDIT

16%

CAR LOAN(OTHERS)

16%

CREDIT CARD OUTSTANDING(LOCAL)

16%

CAR LOAN(NEW)

16%

CAR LOAN(RECOND)

16%

CAR LOAN(MINIBUS,TRUCK)

16%

HOUSEHOLD DURABLE LOAN

16%

DOCTORS LOAN

16%

ADVANCE AGAINST SALARY

16%

ANY PURPOSE LOAN(OTHERS)

17%

59

HOSPITALIZATION LOAN

16%

EDUCATION LOAN

16%

TRAVEL LOAN

17%

CNG CONVERSION LOAN

17%

APON NIBASH LOAN

16%

PAYMENT AGAINST DOCUMENT

15%

FOREIGN DOCUMENTARY BILL PURCHASED(FDBP)

1%

LOCAL DOCUMENTARY BILL PURCHASED(LDBP)

15%

INLAND BILLS PURCHASED(IBP)

16%

These sector-wise interest rates have been introduced by the Head Office of the BKB.
They use cost-plus pricing method in case of pricing the loans. The fourteen branches
of the Trust Bank Limited have maintained these rates strictly except in case of some
quality and credit-worthy lenders. After judging the lenders credit-worthiness, the
BKB gives some beneficiary to this kind of lenders. They can enjoy a decreasing
interest rate, which maintained by the BKB branches internally. Other wise, the
scheduled rates are maintained by all the BKB branches. In case of Micro Credit, as
the loan amount is not so large thats why the scheduled rate is maintained by the
Bank. Actually, the Lending rate is based on the prescription, which is given by
Bangladesh Bank.
The recovery performance of the bank was not so good during the period 1999-2002.
The credit administration and monitoring of this bank was inexperienced. This bank is
monitoring and all the loans are sanction by the high authority whose are high
officials of Bangladesh Army. This Bank has a common thinking that the people who
taking loan from this bank always think that this is an army bank so if I failed to pay
then it will be a very big problem for me. But this thinking did not work properly.
Thats why the management has to think about a well-designed Recovery Policy.
BKBS Recovery Probability Categories to Be Assigned to All Classified Loans
Category
Loans determined to have high probability of recovery within 6 months; recovery
efforts to continue on an on-going basis.

60

Loans determined to have moderate probability of recovery within 1 year; review

recovery efforts on a 3 months basis.
Loans determined to have low and remote probability of recovery; review case on a 6
months basis.
Loans determined to have virtually no chance of recovery: charge-off the books.
However in this situation proper approval from the appropriate approving authorities
should be obtained and also shall be guided by Bangladesh Bank instructions and
subject to complete analysis of:
Banking practice.
Legal and tax implication and
Status of each individual credit.
Notes for assessment of category
Estimate the cost of continued collection efforts against any money, which can be
reasonably expected to be recovered. Include in the cost (1) employee man-hour, (2)
legal expenses, (3) charge of any external collection agency if used.
Why Recovery takes so much time
Only because of existing rules and regulation recovery is a time consuming
procedure. I think an example will make this thing clear. Let, Mr. X took loan from Y
bank by giving a land as registered mortgage and become bad. Now bank cannot sell
the land without the permission of court though the land was as registered mortgage to
bank. So bank has to sue against Mr. X and court send notice to Mr. X. But Mr. X can
delay his coming by saying he is sick and asking for more time. Court gives new date
to settle the matter. Then on new date a person came to the court saying that he is the
brother of the client and the land is their fathers property. And most importantly,
client didnt notify him before give the land to the bank. So court asks him to prove
his claim. Finally, if court gives injunction in favor of bank, they face problem to sell

the land. Because client put mussel-men protect the land from bank. Moreover people
are not interested buy land on occasion from court. Finally the interesting thing is
most of the time the same client but the land in another name.

61

Criteria of loan:
Type of loan

Schedule of time up

Criteria

1) Current loan & Long

Less than 2 months

US (Standard)

2 months but less than 3

SMA

months
Up 3 months but less than

SS

term loan

6 months
Up 6 months but less than

DF

9 months
9 months or up

BL

Still of 12 months

US

Up 12 months & still of

SS

2) Short term loan &

micro credit

36 months
Up 36 months & still of

DF

60 months
Up 60 months

BL

Source of BKB

Recovery Data (for 2012):

Recovery of Classified Loan
Target

Recovery of

Recovery of

Recovery of

Recovery of

141.00

current week
0

current year
121.74

percentage
86%

2011
135.37

62

Target

Recovery of

Recovery of

Recovery of

Recovery of

375.00

current week
27.00

current year
410.00

percentage
109%

2011
385.45

Recovery of Unclassified Loan

Bad Loan (for 2012)

Title of loan
Classified loan
Unclassified loan

Target

Recovery of

Bad loan

141.00
375.00

current year
121.74
410.00

19.26
35

Source of annual report of BKB 2012.

63

CHAPTER 5
CONCLUSIONS AND RECOMMENDATIONS

64

5.1. Recommendations:
Based on the evaluation of different aspects of the loan process of Bangladesh Krishi
Bank, the following recommendations have been made:

To combat the problem of mobilizing deposit in the form of loan, Bangladesh

Krishi Bank should focus on intensive marketing effort.

Entrepreneurship lending should be given due emphasis.

As borrower selection is the key to successful lending, BKB should focus on
the selection of true borrower.

Care should also be taken so that good borrowers are not discarded due to
strict adherence to the lending policy.

Monitoring of a loan should be conducted at regular interval to enhance the

borrower is properly maintaining the mortgage property and utilizing the
borrowing money.

In case of mortgage, care must be taken to accept collateral on second charge.

In case of assignment the bank must ensure that the assignment debtor has
given undertaking.

Reporting of all loans should be periodically made to Bangladesh Bank.

Loan monitoring is a continuous task and requires expert manpower.

5.2. CONCLUTION:
Most of the Banks in Bangladesh are offering a wide array of financial services
including new types of loans and advances and some whole new services are being
launched every year. BKB, a bank of difference, also has discovered new avenues to
reach its goals. For the brand name, it is gone to peoples heart through updating
various services. Bank BKB should diversify its credit portfolio BKB so that in near

65

future when competition among Banks will serve, it can stand with its own identity.
The Credit Risk Management method that may seem fit today may not work
tomorrow. So all the Financial Institutions must find their own method in order to
sustain in the changing world. Central focus in this regard would be to have a
comprehensive Information Technology system, sufficient expertise and above all
very relaxed management to adopt new idea to update Credit Risk Management
method. Now BKB is continuing business operation successfully in Bangladesh
through developing an image and goodwill among its clientele by offering its
excellent services. The success has been resulted from the dedication, commitment
and dynamic leadership of its management. During the short span of time of its
operation, BKB has successfully grabbed a position as a highly progressive and
dynamic financial institution in the country. By proliferation of new advance services,
expanding use of automated equipment and electronic transfer of financial inform
BKB action, will be the countrys first largest institution in the near future.

66