Basic Bank Limited

A REPORT ON-

BASIC BANK LIMITED

A Report On-

BASIC BANK LIMITED

Prepared for-

S M Zahidur Rahman Assistant Professor Business Administration Discipline Khulna University

Prepared byName Md Masrul Mollah

ID 070314

Md Nazmul Huda

070323

Date of Submission: July 23, 2008

BBA Program Business Administration Discipline Khulna University

Letter of Transmittal

July 23, 2008

S M Zahidur Rahman Assistant Professor Business Administration Discipline Khulna University

Dear Sir,

Here is a report on “BASIC BANK LIMITED”, which you asked me to prepare on the July 01, 2007. To know about the functions, loan schemes and the deposit schemes, we have gone to the local branch of the bank, which I observed as relevant to the topic of the report. The information provided by you in your class lectures was also helpful to us. In this report, we have tried our best to know about the different functions played by the bank. Also we have collected information about the loan and deposit schemes of the bank. Therefore, I hope that our report will fulfill the need to understand the functions, loan schemes and deposit schemes of the bank. I assure you that the report is totally selfexplanatory. We will be available anytime if you face any difficulty to translate any meaning of this report.

Sincerely yours,

Md Nazmul Huda (070323)

Md Masrul Mollah (070314)

Acknowledgement I would like to give thanks to those people who helped us to prepare this report and we are very much grateful to them for their cordial assistance, helpful co-operation and essential suggestion. At first we would like to express deep gratitude to my honorable course teacher S M Zahidur Rahman (assistant professor) of Business Administration Discipline, Khulna University, for his sincere guideline and valuable remarks, thoughtful comments and essential suggestion. He inspired us and gave us encouragement to complete this report. We would also like to express our gratitude to the all managers and employees of the organization, where I have gone to collect information for preparing my report. We are really grateful to them. All of the persons stated above played a great role by helping us to make this report a successful one. So again, a special thanks to all of them.

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Table of Contents

Contents

Page No.

Letter of Transmittal Acknowledgement

III IV

Summary of the report

01

Part 1: Introduction Origin of the report Purpose of the report Scopes of the report Limitations of making the report Branch Problem Shortage of Time Methodology Sources of collecting data Methods of collecting data

01-04 03 03 03 03 04 04 04 04 04

Part 2: BASIC Bank & its functions Background Functions Organizational Goals Organizational Structures A. Board of Directors B. Management Activities of the Bank A. Industrial Credit B. Commercial Credit C. Micro Credit D. Foreign Trade E. Other Activities Lending Criteria 1. Entrepreneur 2. Viability of the Project A. Technical Viability B. Commercial Viability C. Financial Viability D. Economic Viability Resources & Capabilities A. Physical and technological resources B. Human Resources

05-16 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 10 10 10 11

C. Training D. Recruitment of New Officers Monetary and Financial Resources A. Mobilization of fund 1. Deposit 2. Borrowing B. Utilization of Fund Credit Facilities- BASIC Bank Limited A. Working Capital B. Term Loan C. Trade Finance Loan Categories Deposits Offerings Revised Interest Rates on Deposits

11 12 12 12 12 12 13 13 13 14 14 14 14 15

Part 3: Report Ending Conclusion

17-18 18

Appendix Bibliography Reference

19-21 20 21

Summary of the Report BASIC Bank Limited started its business in 1991 and their goal was to reach banking system more closely to the general people. And this made this bank up to this time. Now BASIC Bank Limited is an improved and modernized bank where the banking system has been easier than the continuing banking system. Basically BASIC Bank Limited performs major four types of functions – Term Loans to Industries, Full-fledged commercial banking service, Technical Support to Small Scale Industries (SSIs), and Micro-credit to urban poor. BASIC Bank Limited is totally strict in its goal and for completing its objectives it has a strong management system. It has three types of Deposit Categories and eight types of Loan Categories. In this report we have discussed detail about the functions and credit ratings of BASIC Bank Limited. For this purpose we contacted with Md Anwar Hossain Rubel from BASIC Bank Limited and we used our text books as references.

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Chapter 1 

Introduction             

 

ORIGIN OF THE REPORT S M Zahidur Rahman (Assistant professor), the honorable course instructors of ‘Theory and Practices of Banking’, assigned us to prepare a report on July 01, 2007 about the “functions, Loan schemes and Deposit schemes of BASIC BANK LIMITED”. The date of submission of this report is July 23, 2008.

PURPOSE OF THE REPORT: We are very much passionate to be an executive of the coming days. So, we have to gather more experience beside our study. We do not want to concentrate our lessons only in classroom but to implement it in my practical life that will help me in my professional life. The purposes of preparing of this report are•

To relate my theoretical report writing knowledge with the practical working experience.

•

To know about the functions played by the bank.

•

To know about the loan schemes and the deposit schemes of the bank.

SCOPE OF THE REPORT We have collected data from the local branch of BASIC Bank in Khulna; we have mainly tried to cover all the information needed to know about the functions played by the bank as well as the various loan schemes and deposit schemes offered by the bank. The entire interviews are taken from the Managing Directors or Managers or various upper level officers of the bank.

LIMITIONS OF THE REPORT Though we are lucky to get the chance to prepare this report but unfortunately we have faced some difficulties. We tried to overcome the difficulties and gave our best effort. When preparing this report, some difficulties we faced: 3  

Branch problem Some employees of the bank told us that they are not authorized to tell anything about the matter. They also told that only the head office can provide information about this. So it becomes a problem working within branch office.

Shortage of time This extensive type of report needs too much time to prepare it. But we had to prepare this report within a very short span of time. The managers are also very busy, so it was hard to bring their concentration on the matter.

METHODOLOGY: Sources of collecting data: The report is based on data & information, which have been collected from various sources. They are stated below: a) Primary source - Interview - Search through the internet b) Secondary sources - Various books related with banking.

Method of collecting data: To do this report first we have gone to the local branch of the bank. We have also collected information about the banks past history on the internet. Then we have related all those information with the currently studying course “Theory and Practices of Banking”.

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Chapter 2 

BASIC Bank & its functions      

 

Background BASIC Bank Limited (Bangladesh Small Industries and Commerce Bank Limited) registered under the Companies Act 1913 on the 2nd of August, 1988, started its operations from the 21st of January, 1989. It is governed by the Banking Companies Act 1991. The Bank was established as the policy makers of the country felt the urgency for a bank in the private sector for financing small scale Industries (SSIs). At the outset, the Bank started as a joint venture enterprise of the BCC Foundation with 70 percent shares and the Government of Bangladesh (GOB) with the remaining 30 percent shares. The BCC Foundation being nonfunctional following the closure of the BCCI, the Government of Bangladesh took over 100 percent ownership of the bank on 4th June 1992. Thus the Bank is state-owned. However, the Bank is not nationalized; it operates like a private bank as before. BASIC Bank Limited is unique in its objectives. It is a blend of development and commercial banks. The Memorandum and Articles of Association of the Bank stipulate that 50 percent of loan able funds shall be invested in small and cottage industries sector.

Functions The Bank Offers: a. Term loans to industries especially to small-scale enterprises. b. Full-fledged commercial banking service including collection of deposit, short term trade finance, working capital finance in processing and manufacturing units and financing and facilitating international trade. c. Technical support to Small Scale Industries (SSls) in order to enable them to run their enterprises successfully. d. Micro credit to the urban poor through linkage with Non- Government Organizations (NGOs) with a view to facilitating their access to the formal financial market for the mobilization of resources. In order to perform the above tasks, BASIC Bank works closely with its clients, the regulatory authorities, the shareholders (GOB), banks and other financial institutions.

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Organizational Goals • • • • •

To employ funds for profitable purposes in various fields with special emphasis on small scale industries. To undertake project promotion on identify profitable areas of investment. To search for newer avenues for investment and develop new products to suit such needs. To establish linkage with other institutions which are engaged in financing microenterprises. To cooperate and collaborate with institutions entrusted with the responsibility of promoting and aiding SSI sector.

Organizational Structure To achieve its organizational goals, the Bank conducts its operations in accordance with the major policy guidelines laid down by the Board of Directors, the highest policy making body. The day to day operation of the Bank is looked after by the management. A. BOARD OF DIRECTORS As stated earlier the Government holds 100 percent ownership of the Bank. All the Directors of the Board are appointed by the Government of Bangladesh. The secretary of the Ministry of Industries is the Chairman of the Bank. Other Directors of the Bank are senior Government and central Bank executives. The Managing Director is an ex-officio member of the Board of Directors. There are at present 7 Directors including the Managing Director. B. MANAGEMENT The management is headed by the Managing Director. He is assisted by the General Managers and Departmental Heads in the Head Office. BASIC Bank is different in respect of hierarchical structure from other banks in that it is much more vertically integrated as far as reporting to the Chief Executive is concerned. The Branch Managers of the Bank report direct to the Managing Director and, for functional purposes, to the Heads of Departments. Consequently, quick decision making in disposal of cases is ensured.

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Activities of the bank A. Industrial Credit BASIC Bank's services are directed towards the entrepreneurs in the small industries sector. A small industry, as per Industrial policy 1999 approved by the Cabinet, has been defined as an industrial undertaking whose total fixed investment is less than Tk.100 million. The industrial loan reflected a significant growth of 29.85 percent over the previous year. Total outstanding industrial loans including term and working capital stood at Taka 9,987.50 million at the end of 2005 compared to Taka 7,691.20 million of 2004. Total outstanding term loan stood at Taka 3,517.85 million as on December 31, 2005 compared to Taka 2,553.26 million in 2004 reflecting a growth of 37.78 percent. The outstanding working capital finance extended to industrial units stood at Taka 6,469.71 million at the end of the reporting period compared to Taka 5,137.95 million in 2004. Growth rate here was 25.92 percent. BASIC Bank's services are specially directed towards promotion and development of small industries. Its exposure to small and medium industries sector accounted for 51.70 percent of the total loans and advances. During the year total of 175 projects were sanctioned term loan. Out of which 109 were new and the rest were under BMRE of the existing projects. As on 31 December, 569 projects were in the portfolio of the bank. The textile sector including garments being one of the major contributors to national economy dominated the loan portfolio of the Bank. Other sectors financed include engineering; food and allied industries; chemicals, pharmaceuticals and allied industries; paper, board, printing and packaging; glass; ceramic; and other non-metallic goods and jute products. Recovery rate of project loan was 89 percent. B. Commercial Credit The Bank also supports development of trade, business and other commercial activities in the country. It covers the full range of services to the exporters and importers extending various facilities such as cash credit, export cash credit, packing credit, short term loans, local and foreign bills purchase facilities. As on December 31, 2005 total outstanding commercial loans stood at Taka 5,013.55 million compared to Taka 4,024.70 million in 2004. C. Micro Credit BASIC Bank launched a Micro Credit Scheme in 1994. Micro Credit Scheme provides for the poor for generation of employment and income on a sustainable basis particularly in urban and suburban areas. The Bank follows three systems of credit delivery. 8

These are1. Lending to the NGOs who on-lend to their members. At present there are 15 such NGOs. 2. Lending direct to the targets groups or ultimate borrowers under the Bank’s own management. 3. Lending direct to the member-borrowers and NGOs providing nonfinancial services like group formation and monitoring and supervision on exchange for a supervision fee. At the end of 2005, total amount of Taka 338.30 million remained outstanding as against Taka 284.10 million in 2004. Recovery rate during this period remained at a satisfactory level of 100.00 percent. D. Foreign Trade The bank achieved substantial growth in export in 2005 and the performance of the bank in import business was also satisfactory. The Bank handled total export business of Taka 11,097.23 million and import business of Taka 14,094.96 million in 2005. The export and import business grew by 40.33 percent and 12.69 percent respectively. Major items of exports were garments, jute products, textile, leather etc. Items of import included mainly industrial raw materials, garments accessories, capital machinery, food items and other essential commodities. The Bank became a proud member of SWIFT (Society for Worldwide Interbank Financial Telecommunication) that would pave the way to achieving uninterrupted communication related to banking for international trade, business and fund transfer. E. Other Activities The Bank provides services for remittance, underwriting, guarantee, public offering of shares etc. The bank also provides funds to investment and leasing companies. The Bank has recently created a venture capital fund for equity support to innovative but risky projects.

Lending Criteria 1. Entrepreneur Entrepreneur / promoter has to be creditworthy and competent enough to run the proposed industry. 9

2. Viability of the project The project should be viable from organizational, technical, commercial, financial and economic points of view. A. Technical Viability • • •

The project should be technically sound and environment-friendly. Technology transfer in case of borrowed know-how ought to be ensured. Building should be well planned and well constructed.

B. Commercial Viability • •

Market prospect and potential for the product has to be fully assured at competitive prices. Marketing channel for the product should be accessible to the entrepreneur.

C. Financial Viability • • •

There should be reasonable debt equity ratio as determined by the Bank on individual case basis. Debt service coverage ratio should be at least 2.5 times at the optimum level of production. IRR should preferably be not less than 20 percent.

D. Economic Viability The project should ensure benefit to the national economy and create sufficient employment opportunity and be environment friendly.

Resources & Capabilities BASIC Bank Limited is well prepared to and capable of meeting the demand for a broad range of banking services. It has got adequate resources, both human and physical, to provide the customers with the best possible services. A. Physical and technological resources A great deal of investment for developing the physical resource base of the Bank has been made. The Bank has its presence in all the major industrial and commercial hubs of Bangladesh in order to cater to the needs of industry and trade. At present, there are twenty-seven conveniently located branches throughout Bangladesh. There 10

are ten branches in the capital city of Dhaka, six in Chittagong and one each in Narayanganj, Narsingdi, Rajshahi, Saidpur, Bogra, Khulna, Jessore, Sylhet, Moulvibazar, Comilla, and Barisal. Major features of these branches are: • • •

•

Fully computerized accounts maintenance. Well decorated air conditioned facilities. A fully operational computer network which is currently being implemented. The work of Local Area Network (LAN) and Wide Area Network (WAN) installation having reliable and secured communication between the branches and the Head Office is in progress to facilitate any Branch Banking and ATM Services. Money counting machine for making cash transactions easy and prompt.

Fifteen out of twenty six branches are authorized dealers of foreign exchange. This facilitates speedy disposal of transaction of export and import trade. B. Human resources BASIC Bank Limited has a well diversified pool of human resources which is composed of people with high academic background. Also, there is a positive demographic characteristic - most employees are comparatively young in age yet mature in experience. As of December 2003 the total employee strength is 523. The strength is 435 excluding the menial staff. BASIC Bank Limited has been investing its resources with a view to developing an efficient and professional work force. Two approaches are mainly used in this regard. Data Of Human Resources Category Level Of Education Age Employees Under Below Above Support Post . Graduate Management Graduate 40 40 Staff Graduate 66 369 325 115 95 509 26 Number 12.62 70.55 62.14 21.99 18.16 97.32 4.97 % C. Training Intensive training program, on a regular basis is being imparted to employees of both management and non-management levels to meet the challenges in the banking industry and to help employees adapt to changes and new working conditions. During the year 2003, a total of 164 employees of the Bank were provided with training in various fields. Out of them 6 employees participated in training courses abroad.

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D. Recruitment of New Officers The Bank follows a strict recruitment policy in order to ensure that only the best people are recruited. The Bank, so far, has recruited four batches of entry-level management staff, all of whom have excellent academic background.

Monetary & Financial Resources Like any other financial intermediaries, BASIC Bank Limited is no exception in performing its core functions viz. Mobilization of fund and utilizing such mobilized fund for profitable purposes. A. Mobilization of fund The main sources of fund for the Bank are: 1. Deposit, and 2. Borrowing 1. Deposit Deposit is the mainstay of the Bank's sources of funds. Following usual practices, it collects deposit through: A. Current Deposit B. Savings Deposit C. Term Deposit 2. Borrowing Apart from deposit, BASIC Bank Limited received funds from: A. Bangladesh Bank B. Asian Development Bank (ADB) C. KfW (kreditanstalt fur Wieder-aufbau Credit Institution for Reconstruction), a German development bank. All of these funding sources are for relatively longer period. Receiving the credit lines from ADB and KfW has been a recognizing of the Bank's highly satisfactory performance.

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B. Utilization of Fund BASIC Bank Limited utilizes its funds in accordance with its organizational goals and corporate strategy. Main use is for lending to industrial and trade sectors. Maintenance of cash and statutory liquidity reserve with the Bangladesh Bank covers 20 percent of demand and time liabilities. Placement of funds in Nostro Accounts to handle foreign trade and investment in money market is also done as usual.

Credit Facilities- BASIC Bank Limited Credit Facilities offered to various industries by BASIC Bank Limited A. Working Capital Secured Overdraft (SOD), Cash Credit (Hypothecation) [CC(H)] 13

B. Term Loan Term Loan (T/L), Short Term Loan (STL) C. Trade Finance Letter of Credit (L/C), Back-to-Back Letter of Credit (B/B L/C), Export Cash Credit (ECC), Packing Credit (PC), Local Bill Purchase (LBP), Foreign Bill Purchase (FBP), Payment against Documents (PAD), Loan against Imported Merchandise (LIM), Loan against Trust Receipt (LTR)

Credit Facilities

Interest rate

Recovery rate

a) Working Capital : Secured Overdraft (SOD)

9% - 12% p.a.

Cash Credit (Hypothecation) [CC(H)]

10% - 12% p.a.

b) Term Loan: Term Loan (T/L)

9% - 11% p.a.

Short Term Loan (STL)

9% - 12% p.a.

88%

c) Trade Finance: Export Cash Credit (ECC)

7% p.a.

Packing Credit (PC)

7% p.a.

Payment against Documents (PAD)

10 - 12% p.a.

Loan against Imported Merchandise (LIM)

10 - 12% p.a.

Loan against Trust Receipt (LTR)

10 - 12% p.a.

Loans Categories: 01. Term Loan 02. CC (Hypothecation) 03. CC (Pledge) 04. Loan General 05. LIM 06. LTR 07. L/C 08. Bank Guarantee

Deposits Offerings: 01. Saving Accounts 02. Short Term Deposit 03. Term Deposit 14

Revised Interest rates on Deposit

Category

Interest Rate

Savings STD

06.00% 04.00%

Fixed Deposit 3 Months 6 Months 1 Year 2 Year and above

07.00% 07.25% 07.75% 08.00%

1. Agriculture :

a. Primary Products

10.00%

2. Industrial Term Lending :

a. Agro based industries b. Micro industries with project cost up to Tk 50.00 lac c. Other small Scale Industries d. Medium Scale Industries e. Large scale industries f. Credit to NBFI for small and medium scale industries

11.50% 11.50% 12.50% 13.00% 13.50% 14.00%

3. Working capital (Industrial) :

a. Agro based industries b. Micro industries with project cost upto Tk 50.00 lac c. Other small Scale Industries d. Medium Scale Industries e. Large Scale industries f. Credit to NBFI for small and medium scale industries

12.00% 13.00% 13.50% 14.00% 14.50% 14.50%

4. Export :

15

a. Export (Direct) (i) PC (ii) ECC b. Advance against inland documentary bills accepted by banks (i) Payment in foreign currency (ii) Payment in local currency

07.00% 07.00% 12.00% 14.00%

5. Commercial lending

(a) Small Enterprise 15.00% (b) Medium Enterprise 15.00% (c) Large Enterprise 15.00% (d) Trade financing(import financing)/other short term and demand 15.00% loan 6. OD against

6(a). Bank's own fixed deposit 6(b) Other Bank's fixed deposit receipt 6(c) Govt Bonds and securities 6(d) Unit Certificate/Share

2.00% above FDR rate 15.00% 13.00% 14.00%

7. Consumer Finance

(a). House Loan (b) Transport loan (d) Others

15.00% 15.00% 15.00%

8. Wholesale finance to NGOs/NBFI etc for Micro credit and 11.50% other special programs

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Chapter 3

Report Ending

Conclusion

BASIC Bank was established as the policy makers of the country felt the urgency for a bank in the private sector for financing small scale Industries (SSIs). BASIC Bank Limited is unique in its objectives. It is a blend of development and commercial banks. The Memorandum and Articles of Association of the Bank stipulate that 50 percent of loan able funds shall be invested in small and cottage industries sector. BASIC Bank's services are directed towards the entrepreneurs in the small industries sector. A small industry, as per Industrial policy 1999 approved by the Cabinet, has been defined as an industrial undertaking whose total fixed investment is less than Tk.100 million. The Bank also supports development of trade, business and other commercial activities in the country. It covers the full range of services to the exporters and importers extending various facilities such as cash credit, export cash credit, packing credit, short term loans, local and foreign bills purchase facilities. BASIC Bank launched a Micro Credit Scheme in 1994. Micro Credit Scheme provides for the poor for generation of employment and income on a sustainable basis particularly in urban and suburban areas. The bank also provides funds to investment and leasing companies. The Bank has recently created a venture capital fund for equity support to innovative but risky projects.

18  

Appendix                           

   

 

Bibliography 1. Commercial Bank Management - Peter S. Rose 2. Business of Banking - Dr. R. M. Debnath

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Reference Md Anwar Hossain Rubel Deputy Manager International Division Basic Bank Limited Head Office Sena Kalyan Bhaban (7th Floor) 195, Motijheel Commercial Area Dhaka- 1000 Mob- 01714-048530 E-mail- [email protected]

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