Working capital financing of

United Commercial Bank Limited

 A REPORT ON

WORKING CAPITAL FINANCING OF UNITED

COMMERCIAL BANK LIMITED

Course Title: Working Capital Management

Course Code: F-405

Submitted To:
M. Shahjahan Mina
Professor
Department of Finance
Faculty of Business Studies
University of Dhaka

Submitted By:
Group:15
Section: A
BBA 19th Batch
Department of Finance
Faculty of Business Studies
University of Dhaka

Date of Submission: 16th June, 2016

 Group Profile

Sl. No. Name ID No. Remarks

1 Sibiya Zaman 19-019

2 Kaida Azam 19-037

3 Syed Shadab Mahbub 19-097

4 MD. Asif Islam Shuvo 19-181

5 Sheikh Nahian Wahid 19-187

 ACKNOWLEDGEMENT

First of all we express our gratitude from heart to the Beneficent, the Merciful & Almighty Allah
for giving us the strength and patience to prepare this term paper within the programmed time.

We are deeply indebted to our honorable course teacher M. Shahjahan Mina, Professor,
Department of Finance who was our supervisor. He was always ready to help us by giving
necessary advices and support for the preparation of this report.

We would like to thank all the group members and also our classmates who helped us sincerely
in every aspect. We are indebted to a number of persons for their kind recommendation,
suggestions, direction, co-operation and collaboration.

This report suffers from many shortcomings; nevertheless we have exerted our best efforts in
preparing this report. We seek excuse for the errors that might have occurred in spite of our best
effort.

So lastly we would like to express our heart full thanks to our course teacher for providing the
theoretical knowledge and valuable guidelines related to report.
 Letter of Transmittal
16th June, 2016

M. Shahjahan Mina
Professor
Department of Finance
Faculty of Business Studies
University of Dhaka

Subject: Submission of Term Paper.

Dear Sir

It is an immense pleasure for us to submit the Term Paper on Working capital financing of
United Commercial Bank Limited which is prepared as a partial requirement of the course
named Working capital management (F-405) of BBA program under Department of
Finance of the Faculty of Business Studies, University of Dhaka. The experience that we
gathered through this study will help us in our career indeed. It was an opportunity of
rediscovering our potentials. It was of excitements too.

We would like to convey our special thanks and gratitude to you for patronizing our effort and
for giving us proper guidance and valuable advice. We have tried our best to cover all the
relevant fields. We have tried our best to make this report a fault free one and we hope that you
will take any unintentional mistake with kind consideration.

We thank you and look forward to receiving your cordial approval of our submission.

Sincerely Yours,

Sibiya Zaman

On behalf of the group

BBA 19th Batch
Section: A
Group No# 15
Department of Finance
Faculty of Business Studies
University of Dhaka
 EXECUTIVE SUMMARY

Working capital is just like a heart of a firm and if it is weak; the business cannot prosper and
survive, although there is a large body (investment) of fixed assets. So working capital decisions
constitute a major share of a firms management concern. Determination of source of finance of
that capital captivates a bulk share of that concern. This study attempts to view Dutch Bangla
Bank Limited as a source of working capital financing. Throughout the study it is attempted to
analyze the prime aspects of UCBLs working capital financing facilities in a qualitative
approach. The report is formally initiated with a brief yet comprehensive understanding of some
major issues regarding working capital and the importance of such kind of financing in a
business arena. In the next step of the report the bank is formally introduced as a second
generation bank that is also a financier of working capital for business firm. In the very next
stance the working capital financing guidelines are introduced. The guidelines appeared to do
well responsive to the present context. The study then puts focus on the financing tools the firm
adopts to provide fund for working capital purposes. It was understood that the accommodated
working capital through cash credit, overdraft, letter of credit , revolving credit, loan against trust
receipt and factoring. Then it was understood that the firm manage the loanable fund from
deposit and arrangement from other bank. The bank prefers manufacturing concerns for loan
advancing. In the next move it was discussed that the bank employs separate approach for
assessing loan application for existing and new clients. It was also discussed that the loan amount
to be advanced to a certain client depends on the borrowers need, the amount sought, borrowers
integrity and risk factor. It was then discovered in the report that banks existing clients get some
additional advantage over the new applicants which includes interest rate concessions. The
report then revels that the bank has an excellent recover rate of over 97%. The report formally
ends with the indication of repayment schedule from where it was found out that loans are
recovered generally through equal installments with adjustments for unpaid fraction in the last
month.
 Table of Content

Particulars Page No.

What is Working Capital 1

Needs for Working capital 2
Importance of working capital 3
Working capital financing in Bangladesh 4
Brief History of United Commercial Bank Limited 5
(UCBL)
Working Capital finance of UCBL 6
Working capital financing policy guidelines of UCBL 6
Sources of loans 7
Modes of working capital financing facilitated by UCBL 7-9
Which industry sector the bank finance most 10
Types of organization to be financed 11
Application assessment Mechanism 12
Loan amount determination: 12
Credit monitoring Policy 13
On Site Monitoring 14
Collateral 14
Valuation of Collateral 14
Interest rate structure 15
Additional Facility for existing clients 15
Other charges 16
Recovery rate: 16
Repayment schedule 17
Conclusion 18
Bibliography 19
Working Capital:
The funds invested in current assets are termed as working capital. It is the fund that is needed to
run the day-to-day operations. It circulates in the business like the blood circulates in a living
body. Generally, working capital refers to the current assets of a company that are changed from
one form to another in the ordinary course of business, i.e. from cash to inventory, inventory to
work in progress (WIP), WIP to finished goods, finished goods to receivables and from
receivables to cash.

There are two concepts in respect of working capital:

(i) Gross working capital and

(ii) Networking capital.

Gross Working Capital:

The sum total of all current assets of a business concern is termed as gross working capital.

Net Working Capital:

The difference between current assets and current liabilities of a business concern is termed as
the Net working capital.

Nature of Working Capital:

The nature of working capital is as discussed below:

i. It is used for purchase of raw materials, payment of wages and expenses.

ii. It changes form constantly to keep the wheels of business moving.

iii. Working capital enhances liquidity, solvency, creditworthiness and reputation of the
enterprise.

iv. It generates the elements of cost namely: Materials, wages and expenses.

v. It enables the enterprise to avail the cash discount facilities offered by its suppliers.

vi. It helps improve the morale of business executives and their efficiency reaches at the highest
climax.

vii. It facilitates expansion programs of the enterprise and helps in maintaining operational effi-
ciency of fixed assets.

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NEED FOR WORKING CAPITAL:

Working capital plays a vital role in business. This capital remains blocked in raw materials,
work in progress, finished products and with customers.

The needs for working capital are as given below:

i. Adequate working capital is needed to maintain a regular supply of raw materials, which in
turn facilitates smoother running of production process.

ii. Working capital ensures the regular and timely payment of wages and salaries, thereby
improving the morale and efficiency of employees.

iii. Working capital is needed for the efficient use of fixed assets.

iv. In order to enhance goodwill a healthy level of working capital is needed. It is necessary to
build a good reputation and to make payments to creditors in time.

v. Working capital helps avoid the possibility of under-capitalization.

vi. It is needed to pick up stock of raw materials even during economic depression.

vii. Working capital is needed in order to pay fair rate of dividend and interest in time, which
increases the confidence of the investors in the firm.

WORKING CAPITAL POLICY:

There are three working capital policies in working capital management:

1. Aggressive Policy: In case of aggressive policy, the finance manager is more interested
in profitability. Under this policy, fixed asset, some part of permanent current asset
should be financed by LTC, the remaining part of permanent current asset and temporary
current asset should be financed by STC.

2. Conservative Policy: Under this policy, fixed asset, permanent current asset and a part
of temporary current asset should be financed by LTC. The remaining part of temporary
current asset should be financed by short-term sources of capital.

3. Matching Policy: Under this policy, fixed assets and permanent current assets should be
financed by long-term capital. Only the fluctuating part of current asset should be
financed by short-term sources of capital. In this policy, the finance manager makes a
trade-off between liquidity and profitability.
IMPORTANCE OF WORKING CAPITAL:

It is said that working capital is the lifeblood of a business. Every business needs funds in order
to run its day-to-day activities.

The importance of working capital can be better understood by the following:

i. It helps measure profitability of an enterprise. In its absence, there would be neither production
nor profit.

ii. Without adequate working capital an entity cannot meet its short-term liabilities in time.

iii. A firm having a healthy working capital position can get loans easily from the market due to
its high reputation or goodwill.

iv. Sufficient working capital helps maintain an uninterrupted flow of production by supplying
raw materials and payment of wages.

v. Sound working capital helps maintain optimum level of investment in current assets.

vi. It enhances liquidity, solvency, credit worthiness and reputation of enterprise.

vii. It provides necessary funds to meet unforeseen contingencies and thus helps the enterprise
run successfully during periods of crisis.

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 WORKING CAPITAL FINANCING IN BANGLADESH

Working capital is the fund invested in current assets and is needed for meeting day to day
expenses. Working capital is the fund invested in current assets. It occupies an important place in
a firms Balance Sheet. Working capital financing is a specialized area and is designed to meet
the working requirements of a business. The main sources of working capital financing are trade
credit, bank credit, factoring and commercial paper. Out of all these, this paper is related only to
bank credit which represents the most important source for financing of current assets. The firms
generally enjoy easy access to the bank finance for meeting their working capital needs.

Methods of financing:

Working capital financing is done by various modes such as trade credit, cash credit bank
overdraft, working capital loan, purchase of bills / discount of bills, bank guarantee, letter of
credit, factoring, commercial paper, inter-corporate deposits etc. The arrangement of working
capital financing forms a major part of the day to day activities of a finance manager. It is a very
crucial activity and requires continuous attention because working capital is the money which
keeps the day to day business operations smooth. Without appropriate and sufficient working
capital financing, a firm may get into troubles. Insufficient working capital may result into
nonpayment of certain dues on time. Inappropriate mode of financing would result in loss of
interest which directly hits the profits of the firm.
Brief History of United Commercial Bank (UCB)

With a firm commitment of the economic and social development of Bangladesh, United
Commercial Bank (UCB) started its journey in mid 1983 and has since been able to establish
itself as one of the largest first generation banks in the country. With a vast network of 158
branches the Bank has already made a distinct mark in the realm of Private Sector Banking
through personalized service, innovative practices, dynamic approach and efficient Management.

The Bank has expanded its arena in different and diverse segments of banking like Retail
Banking, SME Banking, Corporate Banking, Off-shore Banking, and Remittance etc. Besides
various deposit and loan products of Retail Banking, the Bank caters export and import loan to
deserving candidates which in turn helps the overall economy of the country through increased
earning of foreign exchange. Other consumer products like UCB Cards have been showing
tremendous success and growth since its inception in 2006 and soon became the leader in local
market with around 40000 card holders.

The Bank also provides its clients with both incoming and outgoing remittance services. Thus
the expatriates find an easy way to send money through proper channel.

With a firm commitment to promote SME sector, the Bank is also assessing and monitoring
business loans, managing business financing risks, pricing products and working for further
development of SME. Its Corporate banking service consists of simple business of issuing loans
to more complex matters, such as helping minimize taxes paid by overseas subsidiaries,
managing changes in foreign exchange rates or working out the details of financing packages
necessary for the construction of a new office, plant or other facility. Its area of expertise is in-
depth knowledge in financial analysis with analytical capability of financing large project
including RMG and infrastructure development projects.

The Bank, aiming to play a leading role in the economic activities of the country, is firmly
engaged in the development of trade, commerce and industry by investing in network expansion
and new technology adoption to have competitive advantage.

5
Working Capital finance of UCBL

United Commercial Bank Limited (UCBL) considers lending short term working capital
finance to entities engaged in manufacturing, assembling, processing, re-packaging of goods and
commodities for domestic consumption or export market. However, unsecured loans (not
collateralized) for working capital without justification or purpose is not considered.

Working capital financing policy guidelines of UCBL

All credit extension must comply with the requirements of Banks Memorandum
& Articles of Association, Banking companies Act 1991 as amended from time to time,
Bangladesh Banks instruction & other applicable rules and regulations.

Credit facilities in aggregate extended to any one customer group shall not normally
exceed 15% of the capital Fund or Taka 16.50 crore whichever is lower. However, Board
of Directors may relax this limit in deserving cases. All proposals submitted to Head
Office will also be required to indicate the extent of the Banks global exposure to that
customer group.

Aggregate long term facilities shall not exceed 20% of the total credit portfolio. Facilities
shall not be allowed for a period exceeding 5 year. Any exceptions will require the
approval of the Board of Directors.

Sector wise allocation of Credit shall be made annually with the approval of Executive
Committee /Board of Directors. This will be reviewed from time to time.

For an unsecured credit facilities extended to a business dominated by one or two

individuals, the bank shall insist on taking Life insurance Policies by the principals which
is sufficient to repay the loan in the event of death or injury of any one key individual.

It is recognized that there will be exceptions to the stated policy which can be justified.
However, these should be approved by the Executive Committee or by the Board and the
circumstances must be fully documented in the credit file.
Sources of loans
Fixed term Loans: These are the non-revolving loans made by the Bank with fixed
repayment schedules. This loan is given for a specific term and usually repaid in Equal
Installment either of monthly or quarterly. The interest may be paid quarterly or along
with the installment. Fixed term loans are categorized into three categories based upon its
tenure which is defined as follows:

i) Short term Loan: less than one year

ii) Mid term Loan: The tenor of this loan is between one to five years. This
type of loan is most preferred by both bank and the borrower. This loan is
comprises with consumer credit, Agro credit, Micro Credit etc.
iii) Long term Loan: The tenor of this loan is more than five years. Here the
fund is locked up for a long period and hence risk exposure is higher than
other term loans.

Continuous Loan: These are the revolving loans having no fixed repayment schedule,
but have an expiry date at which it is renewable on satisfactory performance of the
customer. Here the customer avail the loan facility continuously for a specific time
period. And the customer can enjoy the facility at any time with in the period. And also
noted here that within stipulated limit he can enjoys the facility as much as he desires.
Thats why this loan arrangement is also termed as revolving loan. This is a very much
popular form of loan facility in the business community.

Modes of working capital financing facilitated by UCBL

Cash credit: This is an arrangement for meeting the firms working capital needs. Usually this
loan is provided to procure raw materials and to complete it in finished goods. Therefore usually
the security of this loan is the subject matter for which the loan is arranged for i.e. the finished
goods stock. Some other collateral securities are also may be kept for this facility. Cash credit
depending on its nature classified in the following types:

i) CC Hypothecation: In this arrangement the possession of goods (subject matter of

the loan) goes with the client or borrower but the ownership is in banks hand. And
client repays loan from the sales proceeds by turn. Here primary security is the goods
purchased by the sanctioned loan and secondary security may be cash equivalent
instrument or any mortgage property.

7
 ii) CC pledge: Here ownership and possession of the goods, subject matter of the loan,
lies with the bank. And upon prior payment the client release goods from banks
custody and sale accordingly.

Overdraft: This is a loan arrangement between bank and customers by which the customer
can draw money from his account up to a certain limit as approved by the bank. This loan is
usually for one year time and renewable upon maturity.

i) Secured Overdraft (SOD): Overdraft which is normally granted against the security
of tangible assets such as pledge/lien of FDR, bonds ICB unit certificate etc. are
called SOD. Description of overdraft will depend upon the nature and types of
security charged to the bank.

ii) Temporary Overdraft (TO): Customers who maintain satisfactory conducted

account may be accommodated at their specific request to overdraw their balance in
the current account to meet unexpected and urgent requirements for credit facilities.
The amount up to which overdrawing is permitted is dependent on the need of
customer.

Bills Financing: This facility enables a borrower to obtain credit from a bank against its bills.
The bank purchases or discounts the bills of exchange and provisionary notes of the borrower
and credits the amount in his account after deducting discount. Under this facility, the amount
provided is covered by cash credit and overdraft limit. Before purchasing or discounting the bills,
the bank satisfies itself about the creditworthiness of the drawer and genuineness of the bill.

Letter of Credit:
Under this arrangement the bank undertakes on behalf of a constituent to pay to a third party
against compliance of stipulated conditions. UCBL sought to enable exporters to procure raw
materials for the manufacture of finished goods for export. The facility is available both in
Domestic currency and in major foreign currencies to Exporters, enabling the exporters to
compete in global market against others.
Documents needed for letter of credit:

Trade License
VAT Registration certificate
TIN certificate
Valid IRC/ERC (where applicable)
CIB report
PI/Indent duly accepted by the importer
Satisfactory credit report of the supplier, where applicable
Adequate insurance coverage of relevant risk.

Letter of credit can be classified into different types:

Revocable L/C: it can be cancelled or modified by the issuance bank usually at the will of
the buyer without prior approval of the exporter at any time before the document have
been paid or accepted.

Irrevocable L/C: it cannot be modified or rescinded by the opening bank without express
permission of all parties, including importer, exporter & intermediary banks.

Confirmed L/C: represent the obligation of confirming bank in the exporters locality,
usually the advising bank. It means the seller who has little confidence in or does not
know the financial strength of the foreign opening bank often request the confirming bank
guarantees payment if the issuing bank in exporters country is often.

Unconfirmed L/C: means that LC does not have any payment guarantee by the bank in
the exporters country.

Working Capital Loan: Sometimes a borrower may require additional credit in excess of
sanctioned credit limit to meet unforeseen contingencies. Banks provide such credit through a
Working Capital Demand Loan (WCDL) account or a separate nonoperable cash credit
account. The minimum period of WCDL keeps on changing. WCDL is granted for a fixed term
on maturity of which it has to be liquidated, renewed or rolled over. On such additional credit,
the borrower has to pay a higher rate of interest more than the normal rate of interest.

9
LTR (Loan against trust receipt)

This is a loan against a Trust Receipt provided to the client when the documents covering an
import shipment are given without payment. Under this system, the client will hold the goods of
their sale proceeds in trust for the bank, until the loan allowed against the Trust Receipt is fully
paid.

United Commercial Banks working capital financing for the quarter of 2016 and for 2015 are
given as follow:

31-03-2016 31-12-2015
(taka) (taka)
Loans 127,978,072,869 116,215,286,786
Cash Credits 33,269,276,071 33,380,881,557

Overdrafts 34,523,125,207 35,760,911,866

Letter of Credit 13,615,871,885 12,181,136,598

Inland Bill Purchased and 2,374,528,581 2,229,409,263

discounted
Foreign Bill purchased and 11,317,631,854 9,827,148,487
discounted

The overall chart shows a comparison for both years, where the amount of loans, letter of credit,
bills purchased and discounted have been increased in 2016 comparing to the amount of 2015s,
again cash credits have decreased a little bit in 2016.

Which industry sector the bank finance most

UCBL prefers manufacturing concerns mostly for working capital financing purposes. The
reason is, according to a senior loan officer, manufacturing concerns are most unlikely to default
in loan repayment and they have concrete collateral to hedge for. UCBL advances a lesser
amount to enterprises engaged in trading activities. The bank puts the least amount of their
loanable funds in financing for service rendering concerns. Reliable service providing concerns
especially banks known clientele get preference in this case.
Types of organization to be financed

UCBL basically considers corporations for working capital financing. It usually leaves sole
proprietorships and partnership firm ineligible as those are attributed with much higher risks.

Application assessment Mechanism

UCBL believes credit should be allowed in manner which will no way compromise the banks
standards of excellence and customers who will complement such standards. It is very much
careful in choosing its loan holders. They believe a bulk of loan default could be avoided if the
loaners could be selected id a systematic way .keeping that in mind the bank pursues alternative
policy for assessing loan seekers. In this case, existing customers and new applicants are treated
in a separate way.

Existing Customers:

Existing customers are judged by their corporate culture, relationship with the bank, previous
track record on loan dealings, past experience with the bank, and obviously repayments rate of
prior loans. They maintain separate Trust Sheet for individual client which contains all relevant
information about him. Naturally the existing customers get some advantages over the new
applicants. UCBL has a policy to cultivate potential customers.

New Applicants of loans

UCBL is too meticulous in judging new loan applicants. The bank carefully analyzes reports
from Credit Analysis Bureau (CIB) of potential loan applicants. For new client they meticulously
judge 5 Cs.

Character

Bank wants to put their money with clients who have the best credentials and references. The
character of a potential borrower goes a long way in determining his loan eligibility. The bank
relies on CIB report and industry knowledge to justify a loan applicant.

11
Capacity

What is the company's borrowing history and track record of repayment? How much debt can
company handle? Will the company be able to honor the obligation and repay the debt? UCBL
scrutinizes financial benchmarks such as liquidity ratio, internal solvency ratio, profitability ratio
and debt and liquidity ratios before advancing funds.

Capital

UCBL wants to see that whether a potential borrower has a financial commitment; that he has
put himself at risk in the company. How well capitalized is the firm. How much money has been
invested in the business.

Conditions

UCBL attempts have a overview of the current economic conditions and how does the borrowing
firm fit in? If the business is sensitive to economic downturns, the bank wants to know that the
firm is good at managing productivity and expenses.

Collateral

UCBL rarely gives loan without collateral. Most collateral is in the form hard assets like real
estate and office or manufacturing equipment. In the case of working capital financing accounts
receivable and inventory are pledged as collateral.

Loan amount determination:

In determining the loan amount the bank is going to advance to a potential loan applicant the
banks credit department follows a very structured outline.

1. The amount sought:

The first consideration is the amount sought by the applicant. The volume of the loan
sought outlines the initial consideration in the loan advancing process.

2. Investigation Borrowers need:

The very next step in amount determination process is how significant is the loan to the
smooth operation of the concern, that is how seriously the firm need the fund. Because,
the purpose of the loan, at the first place, determines the integrity of the loan repayment.

3. Banks internal liquidity and loaning capacity:

While determining the loan amount the bank also opt for determining the amount of
loanable fund available for a specific sector.

4. Amount to be advanced:
 UCBL, in most cases, does not opt for satisfying the entire amount of fund requirement
of a potential borrower. It usually advances 50%-70% of the amount required. In cases
50% of the market value of the collateral pledged is advanced as loan.The condition is
sometimes relaxed for a known and long term customer.

Credit monitoring Policy

UCBL employs modern and sophisticated policy and modules in monitoring and tracking the
loan advanced to potential borrowers. In this context the bank follows the guidelines of CRM
(Credit Risk Management Policy) and the Credit Manual formulated by the Bangladesh Bank.

On Site Monitoring

Credit monitoring process starts immediately after disbursement of the facility. The customers
start repayment the loan from the next month. Simultaneously, Branch relationship Officer starts
monitoring the loan on site basis. If the officer finds any deviation to the terms and conditions of
the loan or borrowers wealth, he/she sends an Early Alert Report to the Corporate Banking
Division. An Early Alert Account is the one that has risks or potential weakness requires
monitoring, supervision or close attention of the management. After having the Early Alert
Report, Credit Administrative Division monitors the loan on an off-site basis and thereby reports
the Credit Risk Management Division to take necessary action.

Collateral

UCBLs credit department puts formidable efforts in determining the worthiness of potential
collateral.

Types of assets kept as mortgage:

The bank opts for particular assets for individual sector.

13
 Manufacturing sector: Land, building and machinery. In the case of short term working
capital of a manufacturing firm the bank also goes for inventory. In this case inventories
stuck and lead time play a considerable time in determining loan amount.

Service sector: Project land building

Trading Business: Warehouse

Other aspects of collateral

UCBL also allows Lien as collateral. In this regard FDR and Share certificate are most
preferred. In the case of share the issuing firms must be listed.
Inventory hypothecation: UCBL generally goes for Inventory hypothecation for
manufacturing and trading concerns.
Third party mortgage guarantee: UCBL also Okays Third Party Mortgage of reputed
individuals or institutions. In this case the loan is disbursed at a ratio of 1.5:1. That is
two-thirds of the asset guaranteed is advanced to the borrower. But obviously the parties
involved should be reputed and the property should be solid.

Valuation of Collateral
Valuation of land and building pledged as collateral is not performed based on borrowers
provided price information. Here the bank rather takes help from an individual surveyor and
generally advanced 50% or lower of the market value of the asset as loan.

Interest rate structure

UCBLs interest structure on working capital depends on various current banking industry norms
and business trends. Major macroeconomic variables are also considered in determining interest
rate. UCBL normally charges 14%- 15% interest rate on working capital. The rate may be
adjusted on the basis of money market condition and call money rate. And yet, it should be borne
in mind that rate of interest in the reflection of risk in the transaction. The higher the risk, the
higher is the interest rate.

Other aspects of interest rate

Interest on various lending categories will depend on the level of risk and type of security
offered.

Interest may be reviewed at least once in 6 month and more often when appropriate fixed
interest rate should be discouraged.
 All rates should vary with cost of funds fluctuation based on a spread of profit.

Effective yield can be enhanced to the extent the borrowers are required to
maintain deposits to support borrowing activities.

Yield should be further improved by commitment fee and Service charges where
possible.

All pricing of loans should however have relevance with the market condition and be
approved by the Executive committee / Managing Director from time to time.

Where repayment and interest servicing performance of a credit deteriorates it shall be

identified at an early state and closely monitored in order to avoid loan losses.

Additional Facility for existing clients

UCBL has a policy to cultivate existing long term customer with additional superior services.
The bank likes to accommodate a congenial environment by accommodating the following
additional facilities:

Relaxed scrutinization:

The existing customers, while seeking loan, are exempted from the through scrtinization
process as the bank evaluates the previous track record of the customer with the bank.

Preference in loan disbursement:

Existing customers preferred over the new potential borrower in the finalization process of to
whom the loan would be ultimately advanced. This very much facilitating for the existing
customers especially when the bank goes for credit rationing due to lack of loanable fund.

Relaxed upper limit:

UCBL does not generally grants the absolute amount of loan sought by a candidate. Normally
50%-70% of the amount required is granted as loan. But in the case of the existing customer the
amount soars to as high as 90%.

Drawing power facility:

15
In the case of revolving credit an existing customer is, in cases, is bestowed with the facility to
withdraw a portion of the compensating balance on the basis of mutual understanding with the
bank.

Interest rate concession:

At instances the bank allows the existing customers to get interest rate concession. In this case
the party is entitled to pay a lower interest rate than usual. The concession rate, however, never
exceeds 1%.

Other charges

Except the interest rate the bank, in occasions, charges accidental fees like the following:

Overdue charge (Time nonpayment): the bank charges punitive fees to a customer if he
fails to pay due installment payment within a stipulated date. The rate of this punitive fee
widely varies depending on the quantum of the payment and the period of time for which
the amount remains unpaid. UCBL, however, strongly demotivates such kind of deeds.
Parcel charge: The bank charges a fee for parcel transaction by a customer.

Recovery rate:
UCBL has a superior working capital loan recovery rate which they believe is above industry
average. The bank enjoys a recovery rate of around 97% of the loan it advances.
Repayment schedule

UCBL employs a loan recovery procedure which is intended to accommodate both the client and
the bank itself. Generally these amounts are round figure and during the determination of the
installment amount bank consider the payment ability of the client. The entire loan amount shall
be paid into equal monthly installment throughout the loan period. Any excess or shortage has
adjusted with last installment.

Dues shall be recoverable in the following manners:

equal monthly installments.

The monthly installment shall be payable by the first week of every month, but the first
installment shall be payable on the corresponding day of the subsequent month of
disbursement.
If the customer fails to repay three monthly installments, bank reserves the right to cancel
or call back the entire outstanding loan liability of the concerned account irrespective of
the validity of the account and bank can also take initiative for Artha Rin Adalot Ain Act-
2003.

17
Conclusion:
The funds invested in current assets are termed as working capital. It is the fund that is needed to
run the day-to-day operations. It circulates in the business like the blood circulates in a living
body. Working capital financing is a specialized area and is designed to meet the working
requirements of a business. The main sources of working capital financing are trade credit, bank
credit, factoring and commercial paper. Out of all these, this paper is related only to bank credit
which represents the most important source for financing of current assets. The firms generally
enjoy easy access to the bank finance for meeting their working capital needs. United
Commercial Bank is a business organization which deals in money i.e. lending and borrowing of
money. They perform all types of functions like accepting deposits, advancing loans, credit
creation and agency functions. Besides these usual functions, one of the most important
functions of the bank is to finance working capital requirement of firms. Working capital
advances forms major part of advance portfolio of banks. In determining working capital
requirements of a firm, the bank takes into account its sales and production plans and desirable
level of current assets. The amount approved by the bank for the firms working capital
requirement is called credit limit. Thus, it is maximum fund which a firm can obtain from the
bank. In the case of firms with seasonal businesses, the bank may approve separate limits for
peak season and non-peak season.
Bibliography

www.UnitedCommercialbank.com

www.en.wikipidia.com

Financial management, I M Pandey (ninth Edition)

www.researchexamples.com/finance/working-capital-management

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