thesis report ccs

7/30/2019 Thesis Report CCS

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Consumer Credit

Scheme a Comparable

Study to Other

Commercial Banks

With Prime Bank

Report on Prime Bank Limited


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Letter of Transmittal

December 29, 2004

Farzana Lalarukh

Assistant Professor

Department of Finance

Faculty of Business Studies

University of Dhaka.

Subject: Consumers Credit Scheme a Comparative Study on

Prime Bank Limited with Other Private Sector Branch.

Madam,

With due respect and honor I would like to inform you that I am Shahana

Shumy MBA 4th Batch Department of Finance, University of Dhaka, prepare

a thesis report on the Prime Bank Limited. The name of the topic is

Consumer Credit Scheme a Comparable Study to Other

Commercial Banks With Prime Bank.

Therefore, I hope and pray that you will be kind enough to accept myreport. I would be pleased to make your further classification if necessary.

With best regards.

Sincerely yours.

(Shahana Shumy)

MBA 4th Batch

Roll-4-226

Group: Finance

Department of Finance

University of Dhaka



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Acknowledgement

First of all I wish to thank immeasurable grate & profound kindness of the

almighty Allah, The supreme Authority of the universe.

The report mainly focus on the present situation, consumer credit scheme: a

comparable study to other commercial Banks with PBL, for these I had to work

with all the departments, top management and with my colleges. So I am

indebted to them all. The talented Staff at the company helps a lot to prepare

the report.

I am express my deep sense o gratitude and sincere appreciation to my

internship supervision Mr. Salauddin Ahmed Khan, Associate Professor &

Director, Department of Finance & Banking, University of Dhaka for his

guidance & Special supervision during my work.

I am very grateful to the following person who helped me every step in

preparing this report. First and before all I would like to thank Mr. M. Shahidul

Islam SVP, Past Manger of the Elephant Road Branch & Mr. Shamsul Haq,

SVP, present manger of the Elephant Road Branch, they are provide me with

the time, support and inspiration needed to prepare this paper.

A special Thank to Mr. Suk Dev AVP, ERB, Mr. Ibrahim Hossain Gazi, SEO

ERB; Md. Moniurzzaman, SEO, ERB, Dorothy Sultana, SEO, ERB; Sultana

Parven E.O, ERB; officers of ERB for their will full and heartiest co-operation.

A very special thanks to Md. Golam Mostafa, S.O, ERB & A.B.M. Sayedur

Rahman, J.O, ERB & Other officers who helped me to gather the supporting m

formation, encouraged as well as generous comments & suggestions despite

their very inflexible schedule.



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Executive Summery

Consumer Credit Scheme-A Comparative Study on Prime Bank Ltd. withother Private Sector Banks.

Prime Bank Ltd. was incorporated on 12 th February 1995 under the companies

Act 1994. It commenced business on and from 17th April 1995. Its authorized

capital is Tk. 1000 million, paid up capital is Tk. 600 million and reserved fund

is Tk. 807.92 million. Prime Bank Ltd. Started functioning with a commitment

to play some social role in addition to normal banking. To achieve this

objective, this bank started lease financing, capital market operation and

consumer credit scheme.

Consumer Credit is the combination of two words. Consumer and Credit.

Consumer means one who consumes or it also means one who uses article

produced. Credit comes from the Latin word Credo meaning I believe.

When one borrows money, the loan is based upon confidence in the future

solvency of the person and in his repaying the loan as per agreement.

Consumer Credit Scheme is a new concept in Bangladesh and it proves the

consumers equity participation. First Islami Bank Bangladesh Ltd. and then

Prime Bank Ltd. introduced this scheme for developing the standard of living

of fixed income group and middle class people. Under consumer Credit

Scheme the credit is provided for goods like Car, Pick-up. Motor Cycle,

Personal Computer, Television, and Refrigerator etc.

The consumer credit scheme of the Prime Bank Ltd. has been successfully

operating since 1995. But it faces some pre-sanctioned stage and post

sanctioned stage problems. Among Pre-sanctioned.



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Stage problems, selection of appropriate customer, lacks of expertise at branch

level are mentionable. Among post sanction stage problems, limitations to field

inspection facilities, lacks of proper communication with the default customer

are also mentionable.

In this report, brief information regarding the Prime Bank Ltd. the procedure of

disbursing and recovery loan and formalities of consumer credit scheme have

been death with far letter understanding. The performances of last five years of

this scheme of Prime Bank Ltd. and the analysis of this scheme to other

investment have also been mentioned. This scheme needs the contemporary

needs of the society. There is a large market demand to this scheme in a

developing country like Bangladesh. The performance of Prime Bank is very

much satisfactory in comparison to other commercial banks. It is fully a

supervisory and monitoring scheme.

It was found that service holders bath private and government availed

themselves of this loan facility most. Maximum consumed item are: personal

computer color television, washing machine etc.

The defaulters of this scheme are businessmen, private service holders, defense

service holders and contractors. Apparently it seems that recovery position is

good. But the size of manpower in CCS is smaller in comparison to total work

volume.

Most of the bank disburse through cash or pay order but only. IBB, Dhaka

gives goods delivery. Officers present physically when a good is delivered. So

the objectives are fulfilled properly by these Branches. There are some

problems also. The customer fell botheration for it procedure. Sometimes the

customers fell trouble whose mentality is to take cash not goods. Finally, it can

be stated that consumer credit scheme introduced by different Private Banks

has helped much in raising the standard of living of the middle class and fixed

earning income group people.



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Table of Content

Chapter Subject

1 Introduction

2Theoretical Review of Consumer

Credit Scheme

3 Prime Bank Limited: at a glance

4Concept of Consumer Credit

Scheme

5Overview of Consumer Credit

Scheme of Prime Bank Limited

6Procedure of Consumer Credit

Scheme of Prime Bank Limited

7Performance Evaluation of

Consumer Credit Scheme ofPBL

8Analytical Exploration of Consumer

Credit Scheme

9 SWOT Analysis

10 Findings & Suggestion of C.C.S

11 Appendix

12 Bibliography



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Introduction


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Introduction

Banks are among the most important financial institutions in the economy.

They play vital role in the economy by providing means of payment and in

mobilizing resources. The economic development of a country depends on the

development of banking sector to a great extend. The role/intermediation/

participation of banking sector in the economic activities of a country is

increasing day by day which ultimately contributes to run the wheel

development in a more dynamic way. Besides traditional banking, banks are

expanding the menu of financial services tl1ey offer to their customers. This

proliferation of new services has accelerated in recent years under the pressure

of increasing competition from other financial firms, more knowledgeable and

demanding customs and shifting technology. The changing and expanding role

of banking sector has made the banking business, more complex and

competitive which require creativity, specialization of knowledge and adoption

of new technology for survival and growth of this business. The Banking

Sector of Bangladesh is not an exception of this. To keep pace with this

changing world the Banks are required to equip themselves not only with

current technologies but also with a bunch of skilled and smart human

resources. This course has been designed with a combination of practical] and

theoretical aspects of the activities that are conducted by business organizations

with special emphasize on Financial (Banking and allied) Institutions.



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Background of the Report

With a view to have the scope of viewing the activities of a financial

Organization practically, BBA students are send to different banks in 4 th term

to fulfill the course requirement under the title' Practical Orientation in Banks.

This course provides the opportunity to have a practical exposure on the

functions undertaken by a bank branch in their day to day operations- On

completion of the orientation program in banks, students are required to submit

a written report based on the observations received from this program.

Being a student of BBA 4 th Batch (4th Term), I had the opportunity of working

at Prime Bank Limited, Motijheel Branch from October 5 to December 28 for

practical orientation with the activities of that branch for the fulfillment of my

course requirement. This report has been prepared based on my observations

those r received in my practical orientation during the tenor 1 was with them.

The report Practical Orientation inBanking' has been originated considering

the above thinking.



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Objectives

General Objectives:

The general objective of the report is to know about the management system of

Prime Bank Limited as a private commercial bank, its formation, and its

functional, operational aspects. To know the background of the organization is

the another objective. To enhance the knowledge of the readers about banking

and finance is also a disguise objective of the report.

Project Objective:

The project objective of the report is to provide a clear awareness about

Households Loan named as 'Consumer Credit Scheme', to describe this scheme

operation, its rules for the customers, and analysis of operation and

performance of the Prime Bank Limited. Consumer Credit Scheme' in other

commercial banks, comparison of their operation with Prime Bank Limited are

another objectives. It aims at identifying the Problems and Prospects of this

scheme in commercial banks and to make some suggestions to improve the

service of operation of Prime Bank Ltd.



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Methodology

This report is constructed on Deductive Method. It's a Research Report in

nature.

Data Collection:The organization part of the report is mainly base d on

Secondary data. These data were gathered from Annual reports, Prospectus,

Newspapers, Publications, CIB reports and the Bank's internal records.

The project part is prepared on the basis of both Primary data and

Secondary data. Primary data was collected from all commercial banks by

means of interviewing bankers with a questionnaire and also collected from

customers with questionnaire interview.

Data Analysis: The data were analyzed with simple statistical tools such as,

measures of central tendency, data range and arithmetic comparison and

percentage of representation.

i) Preannounce analysis of PBL such as 'Yearly positions,

classified position, Branch wise position are measured by

graphical representation. The trend and comparison are

presented by graphics.

ii) PBL performance has been compared with other Banks in

terms of cost effectiveness, positions. Simple graphical

representation is used to show the comparative position of

different Banks.



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iii) The selection analysis of CCS is based on sample from

Islamic Banking Branch's. The groups and items availing, the

Defaulters analysis and comparison of CCS ~ to total

investment are analyzed by comparative position which are

shown by graphical representation of various data.

Language: abstract terminology and technical terms have been avoided as

much as possible so that any person can understand the theme of the report.

Layout: all necessary parts of conventional formal report have been

followed. The readers are expected to get a different taste from the report.



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Scope

The report intends to assess the position of CCSfinance and CCSpromotional

facilities, itsprocedure, types problems etc. This study Covers the period since

incorporation of the Bank.

The report is prepared with a view to provide a brief but complete idea about'

consumer Credit Scheme. The readers will also understand the CCS procedures

and performance of Prime Bank Limited. Problems and prospects of CCS have

been identified from the view of the bankers. Some finding and

recommendation have been mentioned in the report.



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Limitations

A survey on CCS was conducted in commercial banks. But the response was

not inspiring, on the pretext of confidentially. For having inadequate data,

extensive statistical analysis e.g. hypothesis testing, inferences, time series

analysis etc. was not possible.



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Theoretical Review ofConsumer Credit Scheme


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Consumer Credit Scheme (CCS)

Bangladesh is a densely populated country. Job opportunity here is very scanty;

Unemployment rate is approximately 40%. Population below poverty line is

36%. Therefore, it is the prime concern for the nation to generate income

through creation of job opportunity & employment. Creation of job opportunity

at large scale by us is not possible. What can be done better is to help self-

employment through financial support. There are many small and medium

entrepreneurs in the country that have innovative idea, spirit and potentiality to

do something productive for local consumers as well as export abroad.

They can generate income and contribute to the GDP. They may also provide

employment to other people. Development and growth of Small and Medium

Enterprise is vital for national development. Such type of beneficial enterprises

borrower can not go a long way for want of financial support because they have

no access to institutional credit facilities, as they cannot provide collateral

security as demanded for such credit facility.

Prime Bank Limited, is committed to play positive role in the overall

socioeconomic development of the country. There is also a statement in the

objective clause of Memorandum of Association of Prime Bank Limited as

under:

To advance or lend money to the unemployed persons for self employment

and rehabilitation in the Society.

To finance the Small and Cottage Industries for Industrialization and also

to create employment opportunities.

It may be mentioned here that as per decision of the Board of Directors in its

78th meeting held on 17.11.1999 a Consumer Credit Scheme (CCS) Cell has

already been established at Head Office under the Credit Division.

In respect of small businesses, an eminent American scholar Mr. John Naisbitt

in his book Rethinking the Future remarked as under:



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Now you can replicate quality anywhere in the world. So, the competitive

differentiation comes from swiftness to market and innovation. And in this

regard, small companies right down to the individual can beat big bureaucratic

companies ten out of ten times. It is the small companies who are creating the

global economy, not the fortune-500. 50% of United States exports are created

by companies with 19(nineteen) or fewer employees. The global economy of

the 21st century will be dominated by Small and Medium sized players.

If we look at South East Asia, China, Taiwan, Hong Kong, South Korea etc we

will find that Small and Medium Businesses are the real engine of growth in

those countries.

In view of the above a credit scheme titled Consumer Credit Scheme has

been formulated as follows. It may also be mentioned that USAID has

approved our bank to receive their guarantee facility to lend money to Small

and Medium business Houses. 50% of losses, if any, be paid by USAID. Brief

details are enclosed at Annexture-A.

Objective

01. To provide credit facilities to the small and medium size entrepreneurs

located in Urban & Sub-urban areas and easily accessible by our

Branches.02. To encourage the new and educated young entrepreneurs to undertake

productive venture and demonstrate their creativity and thereby participate

in the national development. To flow credit for creation of employment

and generation of income on a sustainable basis through development of

small & medium enterprises.03. To assist potential entrepreneurs to take part in economic activities so that

they can improve their living standard.04. To reduce dependence on money lenders;05. To make the small & medium enterprises self reliant;06. To develop saving habit and making acquaintance with banking facilities.07. To inspire for undertaking small projects for creation employment through

income generating activities.



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Concepts

Small Enterprise

Small Enterprise refers to those enterprises: -

where goods are produced, recycled, repaired or traded in traditional

way;

where total bank investment is limited to Tk.250,000;

where 10 or less workers are engaged on wages or commission basis;

Medium EnterpriseMedium Enterprise refers to those enterprises:-

Where goods are produced, recycled, repaired or

traded applying some capital machinery;

Where 20 or less people are engaged on wages or commission basis;

Where total bank investment does not exceed Tk.75, 00,000.

The net fixed assets (excluding land and buildings) of borrowers may not

exceed Tk. equivalent of US $250,000.

Target Group

Initially, Small & Medium Size Entrepreneurs located within the accessible

area of our branches will be the target area under this program. The

Entrepreneurs should have an existing profitable business or a viable business

plan.

Eligibility for Credit Facilities

The following criteria have to be met by the applicant to qualify for a loan from

Prime Bank Limited under its CCS Credit Scheme:01

.The entrepreneurs must be literate i.e. capable of reading & writing.

02

.

The entrepreneurs should be skilled in managing his / her business and has

experience of successfully managing the business for at least 02(two) years.



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03

.The age of the entrepreneurs must range between 25 years to 50 years.

04

.

If the applicant is an individual, he must be a national or permanent resident

of Bangladesh. If the Borrower is a company/firm or other business entity it

must be registered in Bangladesh and majority shares owned by

Bangladeshis.05

.The applicant must be 100% privately owned, controlled and operated;

06

.The applicants principal place of business must be in Bangladesh;

07

.

If acceptable collateral security cannot be provided, the borrower should

arrange for 02(two) guarantors acceptable to the Bank. The type of

guarantors depends on size of the loan and business. In accepting a person

as guarantor his social standing, income and asset shall be considered. Any

default loanee or unreliable person shall not be accepted as guarantor.

However, guarantor will be determined on a case to case basis.08

. The project shall be financially viable and socially desirable.

09

.The Sponsor/applicant shall have reputation in the society.

10

.There should be some innovation / creativity in the project.

11

.

Proper utilization and timely repayment of previous loan will be considered

as proven track record of the applicant for renewal & enhancement of credit

facility.

Restricted Business

01.Production, Marketing, Trading of alcoholic, narcotic and other

intoxicating drug or liquor.02. Production and Trading of any item banned by the Government.03. Any activity not permissible by the law of the land.

Loan Ceiling

01. For small enterprise : Maximum Tk.2, 50,000/-



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02. For medium enterprise : Maximum Tk.75, 00,000/-No loan proposal for less than Tk.1, 00,000/- be entertained.

Purpose

Working capital;Delivery Van / Transport for business

purpose;Capital machinery; Refurbishing office/Business premises.

Mode of Finance01. Cash Credit (Hypo/Pledge);02. Hire purchase/ Lease Finance;

03. Term Loan.

Loan RenewalSuccessive loans depend on track record of previous loan. Usually, repayment

behavior and expansion of business by the borrower are the main

considerations for renewal and enhancement of the loan amount.

Interest

8% above Bank Rate. Presently 15%Penal Interest: If any borrower fails to adjust loan within validity period or to

repay consecutive 02(two)-installments, penal interest @0.25% per month shall

be charged on the defaulted amount.

SecuritiesIt is a supervisory credit scheme. Tangible security in the form of mortgage

may not be available in all the cases. So mortgages will not be mandatory.

Security will be stipulated on a case to case basis interalia as under(one or

several of the following):01. Registered mortgage of land & building.

02. Mortgage/Assignment of possession right.

03. Assignment of security money, advance rent, if any.

04. Assignment of Trade Receivables not older than 90 days.

05. Hypothecation of machineries, equipment, vehicles, stock-in-trade, raw

materials, work-in-process and finished goods.

06. Personal Guarantee from persons acceptable to the Bank.



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07. Post dated checks.

08. Lien on deposits/saving certificates/financial obligations.

09. Any other securities to be deemed suitable by the Bank depending on the

situation like Insurance Guarantee, Corporate Guarantee, As signment of

Contract, Security Money etc.

10. Guarantee of USAID for 50% of the exposure

Period of Loan

a. In case of continuous loan : 01(one) year.

b. In case of Term Loan : Maximum 05(five) years.

Mode of Repayment01. In case of continuous loan credit turnover in the account must be equal to

the limit in a quarter and full adjustment within the validity period.02. In case of term loan, the loan should be repaid by monthly installments

through post-dated checks as per amortization Schedule.

03. Sale proceeds should be deposited in the account regularly.

Loan Monitoring and ReviewThis is a supervising credit scheme. The success of the scheme depends on the

extensive and intensive post disbursement supervision, follow-up &

monitoring. It must be ensured that the loan fund is not diverted, the sponsors

are very serious to the operation of the project, quality is updated and

marketing effort is effective. Regular repayment must be ensured.

Visit to the establishment must be done at least once in a month. During visit of

the project motivational work to be done with a view to strengthening the spirit

& morale of the sponsors. A visit report should be recorded in credit fileagainst each visit. Supervision will be done by the respective branches, which

will be monitored by CCS Cell, Credit Division, Head Office.

A signboard shall be displayed at the shop / factory with writing Financed by

Prime Bank Limited.

Recovery System



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a. If any borrower fails to adjust the loan within validity period or to repay

his monthly installment then the responsible loan-monitoring officer of the

concerned branch will arrange for adjustment of the overdue installments

from the loanees savings account if there is adequate balance. The officer

shall regularly follow up for recovery and take any measure including

legal action for recovery.b. If any loanee fails to repay his consecutive 02(two) monthly installments,

then the Branchs loan monitoring officer will investigate into the actual

causes of default and report to the Branch Manager with a copy to CCS

Cell, Head office for further action and advice for recovery/regularization

of the loan.

Other Conditions01. The borrower shall maintain a non-withdrawal savings account with the

concerned branch where he shall make compulsory deposit of @ 0.5% of

outstanding loan amount per month for building up his own fund.02. The borrower must not change the nature of business and place of business

without prior permission of the Bank.

Allocation for the SchemeInitially a sum of Tk.10 crore may be allocated for disbursement of loan under

the scheme, which will be revised from time to time as per performance of

loans under the scheme.

Processing of Credit Proposal Under the Scheme

01. Initially, CCS Cell, Head Office shall process the credit proposals under

the scheme and Head Office Credit Committee shall approve the same. As

per desire of the customer the sanction advice will be sent to the concerned

branches for documentation and disbursement.02. CCS Cell/Branch will work very closely with JOBS program for

evaluation of credit proposals.03. The rules and regulations of USAID must be fully complied with for

extending loan to Small and Medium Business Enterprise.



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Prime Bank Limited: at aglance


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Prime Bank Limited

VisionTo be the most efficient Bank in terms of customer service, profitability and technology

application.

MissionContinuous improvement in our business policies and procedur4es, cost

reduction through interaction of technology at all level.

Efforts Are FocusedOn delivery of equity service in all areas of banking activities with the aim to add

increased value to shareholders investment and offer highest possible benefits to our

customers.

Strategic PrioritiesTo have sustained growth, broaden and improve range of products and services


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Highlights of Prime Bank LimitedHighlights of Prime Bank Limited


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Name of the Bank : Prime Bank Limited

Registered Office : Adamjee Coure Annex Building-2,

119-120, Motijheel C/ACable : PRIMEBANK

Phone : 9567265, 9570747-8 PABX

Telex : 642459 PRIME BJ, 671543 PBL MJ BJ

Fax No. : 88-02-9567230, 9560977, 9566215

E-mail : [email protected]

Web Site : www.prime-bank.com

SWIFT : PRBLBDDH

Date of Starting : April 17, 1995

Authorized Capital : 1000 (Tk. in Million)

Paid up Capital : 600 (Tk. in Million)

Reserve Fund : 807.92 (Tk. in Million)

Equity Fund : 1526.41 (Tk. in Million)

Deposits : 16902.29 (Tk. in Million)

Loans & advances : 12686.85 (Tk. in Million)

Investments : 1996.23 (Tk. in Million)Import : 19564.00 (Tk. in Million)

Export : 12189.00 (Tk. in Million)

Income : 2250.96 (Tk. in Million)

Expenditure : 1503.12 (Tk. in Million)

Operating Profit : 747.84 (Tk. in Million)

Net Profit Beforetax : 696.84 (Tk. in Million)

Total Assets : 20047.70 (Tk. in Million)

Divided : Cash : 20%Onus : 6:1

Book Value Per share : 234.81 (Tk. in Million)

Earning per Share : 69.69 (Tk. in Million)

MV of Shares : 307.51 (Tk. in Million)

No. of Board of Directors : 23

No. of employees : 27

N. of Share Holders : 1727



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No. of Foreign Correspondents : 422



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Concept of Consumer

Credit Scheme


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Chaptier-4

4.1. Consumer Credit Scheme

Consumer Credit is the combination of two words. Consumer and Credit.

Consumer means one who consumes or it also means one who uses article

produced. Credit comes from the Latin word Credo meaning I believe. When

one borrows money, the loan is based upon confidence in the future solvency

of the person and in his repaying the loan as per agreement. Consumer Credit

Scheme is a new concept in Bangladesh and it proves the consumers equity

participation. First Islami Bank Bangladesh Ltd. and then Prime Bank Ltd.

introduced this scheme for developing the standard of living of fixed income

group and middle class people. Under consumer Credit Scheme the credit is

provided for household durables and utility products goods like Car, Pick-up.

Motor Cycle, Personal Computer, Televisions, and Refrigerator water Cooler,

Furniture and Fixture, Crockery and Cutlery, Sewing Machine, Air Conditioner

etc.

4.2 Administration of Consumer Credit Scheme with reference Prime

Bank Ltd.

The Success of any credit largely depends on its efficient administration. A

bank has to undertake different policy prescription to manage the credit in line

of the set objectives. Banks always monitor the performance of the loan so that

the rate of default is less. This chapter concentrates on the various aspects of

consumer credit provided by Bank. Consumer credit scheme is small and

medium term loan. This credit is sanctioned for one to five years period. For

the small size and three years period of loan, every branch of the Bank has the

authority to sanction the loan. But the branches have some loan limited to

provide the scheme in different goods. The Bank maintains some policies and

guidelines to sanction the credit.



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Every branch of the Bank has a credit committee in order to facilitate quick

sanction of loan under the scheme. The credit committee is constituted of in

each of the designated branches with the following Executive/Officer:

At first, the sanctioning of loan, the customer will approach to Consumer

Credit In-Charge for getting the loan Under Consumer Credit Scheme. If the

Consumer Credit Scheme in-charge thinks that he or she is eligible for the

credit then they get the opportunity for application of loan. After that, the

Consumer Credit Scheme in-charge presents the application to Credit

Committee of the respective branch. If the committee approves that the

customer is eligible for the loan then the customer will submit the necessary

documents to that Committee. After submission of the documents the credit

committee will examine the documents and consumer credit scheme in change

will go for physical inspection, as to whether the information is wrong or right

that he or she is written on the application form. It all the information is correct

then the credit committee sanctions the loan under this scheme. But if the loan

amount exceeds the loan then the credit committee sends the necessary

documents and information to the Consumer Credit Division, at the Head


CreditCommittee

Chairman(Branch Manager)

Member

(2nd Officer)

Member(Credit In-Charge)

Member Secretary(CCS In-Charge)


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Office of the bank. Then the credit division decides that the will be sanctioned

or not.

The sanctioning mechanism is shown in the following diagram:

Customer

CCS in-charge

Credit Committee

Head Office (if branch credit limit exceeds)

4.3 Security and Documentation

The security and documentation procedure for th00e loan at different level is

shown under the following heading.

Application Level:

i) Application

ii) Letter of guarantee

iii) Personal net worth statement (only for business)

iv) Declaration.

Credit Committee Level:

Quotation of desired goods, Trade license, Articles & Memorandums Demand

Promissory Note, Letter of Authority, and Letter Hypothecation, Loan

agreement under Consumer Credit Scheme, Letter of Undertaking, Letter of

Disbursement and Letter of Installment.



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4.4 Disbursement of Loan

Credit committee sanctions the loan in favor of loan A/C. The credit committee

signs this document in which the details information about the disbursements is

mentioned. For disbursing the loan the customer open and loan account of the

branch and then he or she deposits the 20% equity of the loan amount as a

security and pays different chargers for sanctioning the credit such as security

and pays different chargers for sanctioning the credit such as service charge,

risk fund, cost of stamps. After depositing all the service charges and equity the

bank issues 24 or 36 leaves cheques according to payment period. The

customer will sign all the blank cheques and the consumer Credit Scheme in-

charge will keep the cheques from the customer for collection of the loan in

every month. And at last the branch will give the loan by a pay order not cash.

After purchasing the goods the customer is bound to show the money receipt of

the goods.

Inspection of Particulars of Applications Actually Visit:

i) Applications address & Status.

ii) Guarantors address and status and comments.

iii) Office and business center

iv) Verification of signatures

v) Price verification as per quotation.

Table-4.1

Consumer Credit Scheme of Prime Bank Ltd.

Name of Item Loan Item Delegation Power Period of Loan

New Vehicle Tk. 10,00,000/= Up to Tk. 6.00 Lac 5 Years

Reconditioned

Vehicle

Tk. 7,50,000/= Up to Tk. 6.00 Lac 4 Years

Other Items Tk. 3,00,000/= Up to Tk. 1.50 Lac 3 Years



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Personal Computer Tk. 10,00,000/= Full Limit 2 Years

Motorcycle Tk. 10,00,000/= Full Limit 2 Years

Photocopier Tk. 10,00,000/= Full Limit 1 Years

Source: Circular of Head Office

4.5 Payment of Loan

The payment of consumer credit scheme is stared next month of sanctioning

the loan. Normally first week of the month is selected for payment of the loan

but all over the month has the opportunity to pay the loan. It is customers own

liability to pay the loan. If the customer is fails to pay the loan in one or two

month then informed him or her by telephone or by letter for repayment of

loan. To know the current recovery position, every branch send a statement on

the credit in every month showing number of customer, monthly disbursement,

recover, overdue and cumulative figure on these. On the basis of these of his

position branch and Head Office takes necessary action on it.

To ensure the optimum recovery by developing relationship and close

supervision with the customers and the beneficiaries without filling any

suit/case.

Regular checking of recovered and overdue installment

Regular checking of the balance of clients SB A/C

Regular communication with the overdue customers; physically or by

phone.

Communication with the guarantors.

Issuance of letter to overdue customers, if there are two overdue

installments is remained.

Issuance of letter to overdue respective guarantor, if there is 3 overdue

installments.

Contact with the employers, if there are 4 overdue. Issuance of legal

notice before classified (After 5 overdue installments)



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Maintenance of telephone index and diary.

Distribution of specific assignment among the related officers and

maintain reports. Issuance of the letter of appreciation to regular clients with statement

(Half yearly)

Visiting regularly the supplied goods for supervising the proper

maintenance.

4.6 Actions in Case of Non-Recovery

A banks performance mostly depends on recovery position of the credit

whether it is small sized or large sized of loan. Prime Banks recovery position

exits 95% to 96%. But the recent recovery position has decreased. If a

customer fails to repay the loan for six months or one year then at first the

customer will be requested to pay the loan by telephone. The customer can

response it or not. If the response in negative then the respective branch sent a

letter to the customer and their guarantor. Guarantor is requested to help

recovery of rest of the loan amount. After that if there is no response, then

lastly bank takes legal steps for recovery of the loan after permission of Head

office according to IN Act (Negotiable Instrument), Section-138. The customer

is bound to pay three times of default loan.

Instruction For Handing of Overdue Installment:

First of all the correlated accomplishment has been taken which are:

i) Letter of authority

ii) Letter of guarantor

iii) Letter of overdue recovery

iv) Telephone contact

v) Cheque bounce letter



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Secondly, legal or authorized action has been taken

Legal notice to borrower

Legal notice to guarantor

Suit notice

4.7. Monitoring and Supervision

The credit under the scheme is fully supervised and as such, the success of the

scheme will depend on proper and persistent supervision, follow up persuasion

and monitoring of the credits by the branches. Branches shall maintain proper

records of applications received, loans sanctioned disbursed and recovery.

Bank operates its credit by a credit committee in every branch of it. Every

branch of the Bank has the authority to sanction the credit because of its size

and maturity. The top-level management fixes the credit limit of the branch. If

the limit is exceeded then the respective branch informs Head Offices

consumer credit division of sanctioning the loan. Every month all the branches

send a bank statement to Head Office showing the Consumer Credit Scheme

position of previous month. Top-management gets an idea about the whole

position of the bank in this credit. The branch credit committee always

supervises the customer to show a good recovery of the credit.



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Overview of Consumer

Credit Scheme of Prime

Bank Limited


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Chapter 5

5.1 An Overview of Consumer Credit Scheme (CCS) of Prime Bank Ltd.

A Bank has different sources of investment. The most widely used avenues of

investments are commercial credit and industrial credit, real estate credit,

foreign exchange, leasing etc. Moreover, commercial banks provide consumer

credits to its customers to finance their household durables. A sizable portion

of their investment is in this sector. This area has attracted wide spread

attention due to high demand from the customers, low risk of default and an

easy source of investment. Consumer credit has received important attention

from the banking sector in different parts of the world whether they from the

banking sector in different parts of the world, whether they are developed or

developing. Bangladesh is one of the very poorest countries of the world. Per

capita income of our country is very poor. So, the majority of our populations

face to a sub-standard life. The middle classes and the professionals cannot

effort to buy essential utility products, which require a substantial amount at a

time. As such they cannot raise their standard of living to an expected level. To

make life of the people easier, to fulfill their dream whatever they want to buy,

to establish the living standard of the people, our commercial banks have

introduced the consumer credit scheme to serve the needs of the limited income

group who cannot afford this and also improve their quality of life for

achieving the objective of the Bank.

Consumer Credit Scheme is designed to finance the fixed income group for

buying essential commodities to be repaid by monthly installment over a period

in accordance with a contractual agreement. In Bangladesh, there is a great

demand of consumer credit because most of the people of our country are

living a sub-standard life. Consumer Credit Scheme is gradually becoming very



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popular in our country. Thats why a good number of institutions in our country

are successfully operating similar programs.

The history of consumer credit in Bangladesh is recent. Among the different

commercial banks, Islamic Bank Bangladesh Ltd. introduced this Scheme for

the first time in our country. Gradually, other banks have been interested to

enter into this investment area observing high demand, profitability and low-

level of default. These are Prime Bank Ltd. Dhaka Bank Ltd. Uttara Bank Ltd.

Social Investment Bank Ltd. Pubali Bank Ltd. Mercantile bank ltd. premier

Bank Ltd. Arab Bangladesh Bank Ltd. and City Bank Ltd. etc. Now most of the

commercial banks provided this loan in our country. But the amount of

disbursement is very poor compared of the demand of this credit. Banks that

operate the consumer credit scheme operation in our country, their scheme

name and starting date of this program are given below.

Table-5.1

History of Banks in this Scheme

Name of the Bank Name of the Scheme Starting

Date

1. Islamic Bank Bangladesh Ltd. Households DurablesInvestments Scheme

1993

2. Pubali Bank Ltd. Consumer Loan Scheme 1996

3. Prime Bank Ltd. Consumer Credit Scheme 1995

4. Uttara Bank Ltd. Uttaran Consumer Credit Scheme 1996

5. Social Investment Bank Ltd. Households Loan 19956. Arab Bangladesh Bank Ltd. Consumer Loan Scheme 1997

7. STANDARD CHARTERED

BANK Grindlays Bank

Personal Finance 1996

8. Standard Chartered Bank Personal Loan 1997

9. Al-Arafa Islami Bank Ltd. Kangkito Samogri Biniog Prokaplo 1997

10. Al-Baraka Bank Ltd. Al-Baraka Consumer Credit Scheme 1997

11. Mercantile Bank Ltd. Consumer Loan Scheme 1999

12. One Bank Ltd. Consumer Loan Scheme 1999

13. Premier Bank Ltd. Consumer Loan Scheme 1999



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14. Dhaka Bank Ltd. Consumer Loan Scheme 1999

15. IFIC Bank Ltd. IFIC Consumer Credit Scheme 1999

16. The City Bank Ltd. Consumer Loan Scheme 1999

5.2 Objectives of Consumer Credit Scheme

Every scheme is covered through some objectives, which is prepared in line

with the corporate goal, mission and vision. The objectives of introducing

consumer credit scheme by banks are considered to be as follows-

To bring our credit services to a wide range of customers.

To provide financial assistance to the limited income group towards

buying utility products.

To help the professionals in rising their standard of living.To

participate in the socioeconomic development of the country. To

fulfill the dream whatever they want to buy, can afford.

To sell our services to a wide range of customers and increase our

Consumer Credit Scheme portfolio.

To provide financial assistance to the limited income group for

buying household durables and utility products.

To help the professionals in raising their standard of living.

To provide investment facility to the depositors of the bank. To

develop small capitalist or industrialist.

To build up strong communication to a wider range of customer

through provide loan.

To enhance job opportunities through credit facilities.

5.3. Consumer Lending: Theoretical Issues

Consumer lending is the heart of retail banking. Retail banking refers to

banking services provided to individuals and to small business concerns.

Now what is consumer credit? consumer and credit consumer means one

who consume. It a means one who uses an article produced.



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The word credit comes from the Latin word credo meaning I believe. Hence

credit is based upon confidence. When one borrows money, the loan is based

upon confidence in the future solvency of the person and in his repaying the

loan as per agreement. In this sense, credit means to command the capital of

another in return for a promise to pay at some specified time in Future. If

denotes trans actions involving the transfer of money or other property on

promise of repayment usually at fixed future data.

Consumer credit refers to loans individuals that are scheduled to be, repaid in

installments and for personal, household or family consumption. Consumer

lending differs from commercial and real estate loans in several respects. These

are-

The loans are used for household purposes.

Small amount of loan and not secured by collateral.

Duration of loan is short- two to five years.

The market for consumer loans is highly competitive; there is -

competition on interest rates, amounts lent, fees and non-credit services.

The rate charged on such loans is relatively high when compared' to rates

charged on commercial and real estate loans.

Finally, a large consumer loan portfolio consists of many small loans.

5.4. Finance and Interest charges of consumer credit

Every loan has interest and some financial charges. Consumer loans are not

exception of it. Lenders of consumer loans to provide borrowers with written

information about finance charges and annual percentage rates, before they

sign a loan agreement, so that they may compare credit costs. The extent to

which consumers use the information to make intelligent decision is not clear.

Few consumers have the time or the knowledge to compare the nuances of the

costs of financing. As we will shortly, casts are not always what they appear to



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be on the surface. Some methods of calculating costs result in higher profits for

lenders than others.

5.4.1. Finance Charge

The finance charge is the total amount raid far the use of credit. It is

the difference between the amount repaid and the amount borrowed, The

finance charge includes interest, service charges, and origination fees,

guarantee insurance premiums, appraisal fees, credit report fees, and other fees

that are charged on the borrowed amount.

5.4.2 Finance Charge on Revolving Credit

Revolving loans or open-end credit are those where the borrower has a line of

credit up to a certain amount, may pay off loans and credit charges over and

indefinite period of time. Revolving loans have no definite maturity. Four

methods of assessing finance charges on revolving credit are widely used,

which are discussed below-

1. Adjusted Balance Method:

Finance charge is applied against the amount that is due less any payment prior

to the due daze.

2. Previous Balance Method:

According to this method, the finance charge is applied against the original

amount being no consideration of payment.

3. Aver-age Daily Balance Method Excluding Current Transition:

The finance charge is based on the average daily outstanding over the

current 30 days period, but does not include current transactions.

4. Average Daily Balance Method Including Current

Transactions:



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According to this method, the finance charge is based on the average daily

balance outstanding during the current 30-days period, including the new

purchases made during that time.

5.4. 3. Monthly Amortization

Amortization refers to the gradual to the gradual repayment of debt over

time. We determine the periodic rate by the following equation-

nP=PMT = Periodic payment [1/(1+1)1]i = interest ratet = time period

p = original principal amount.The periodic rate is monthly; the nominal annual rate is determined by

multiplying the periodic by 12 to get the percentage.

Add-on Loan Rate:

In some states the maximum interest rate that may be charged on consumer

loans is an add-on rate. The term add-on means the finance charge is added

on to, the amount borrowed. Let us consider a Tk. 10,0001oan for one year at

10% add-on interest. The finance charge (FC) is determined by multiplying

the amount borrowed, P, by the add-on interest rate expressed as a decimal R,

times (T) the life of the loan in years. The FC may include fees and charges.

Add-on loan rate is expressed in equation by

IFC= PxRxT

The monthly payments (PMT) are determined by dividing the total amountowed, which is the principal amount plus the finance charge, by the number

of payment n.

PMT = (P + FC)/ n

In a discount loan rate, the creditor deducts the finance . charge from the

principal amount of the loan and the borrower receives the difference. When

calculating the Annual Percentage Rate on discount loans, P, the amount



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received by the borrower is set equal to the discounted monthly payments.

The equation of calculating this rate is

n

P=I PMT[1/(1+1)1] t=1

PMT = Periodic payment

i = interest rate

t= time period

p = original principal amount.

Adjustable Rate Consumer Loans:

Adjustable rate consumer loans (ARCS) permit banks to adjust their interest

income when their cost of funds changes in order to maintain a positive

spread between returns on those loans and costs of funding them. Stated

otherwise, they want to keep a constant interest spread between returns and

cost, which in turn, matches cash inflows with cash outflows. This is

accomplished by indexing the interest rate charged on Adjustable Rate

Consumers loans to a market rate, such as Treasury bill. Periodic adjustments

are made in the rate charged on Adjustable Rate Consumer loans to reflect

changes in the index rate. By using this mechanism, banks transfer most of

the interest rate risk associated with lending to their customers.

5.4.4. Interest Rebates for Prepayment of Loans:

Many borrowers pay off installment loans before they are due and they are

entitled to receive a rebate of part of the unearned finance charge that they

paid. The amount they receive depends on the method used for determining

the unpaid balance. Banks use two methods - the actuarial method and the

Rule of 78- for calculating rebates.

Actuarial Method:



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The actuarial method measures the exact amount of credit that a borrower has

used computed at the APR stated in the contract and it is applied to the

declining balance of the loan. In other words, the borrowers are charged for

what they used. Nevertheless, most of the interest in installment loans is paid

early in the life of the loan.

Rule of 78:

The rule of 78 is some times cal led the sum at the digits method because

it is determined by adding all of the whole numbers between l and 2 (1+2+3+....

+12=78) and the sum is 78. if a loan were for 18 months, the sum would be 171

(78 + 13 + 14 + . , . . . . + 14 = 171). The sum for other maturities is calculated in

the same manner or by using the following equation -

Sum of digits = n/ 2 x (n+ 1)

Where n is the number of payments.

The difference between the bank's total (cumulative) earnings from the loan and

the total finance charge is the amount of the rebate returned to the customer.

5. 4. 5 Annual Percentage Rate

The annual percentage rate (APR) is the percentage cost of credit oil an annual

basis. The APR may be used to compare credit costs of loans of various sizes and

maturities. The APR is the annualized internal rate of return (IRR) on the loan.

The IRR may be determined by using the following equation when the payments

are the same in each period:

n

P=I PMT[1/(1+1)1]

t= 1

P = Original principal amount, or the amount the case of discount loan rate.

PMT = Periodic payments

i = Periodic interest rate (%)



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n = Number of Periodic payments (number)

5.5 . The Credit Decis ion

Two methods used to evaluate consumer credit decisions are based on

judgment and statistical techniques. The former is subject to wide variations

in decisions because the judgment of one loan officer may vary from that of

another. In addition, taking credit application and interviewing the

prospective borrower is time consuming costly. The statistical technique

described below standardizes the criteria used to make credit decisions based

on the applicant's creditworthiness.

5.5 .1 . Judgment

A prospective borrower may meet face to face with a loan officer or fill out a

credit application. In either case, the bank must review the data on the

application and make a credit decision. The evaluation may include a review

of the prospective borrower's past credit performance and other data that are

relevant. This process works best when the loan is for high-priced durable

goods, such as automobiles.

5.5.2 Credit Scoring System

Credit scoring system are computerized, statistical techniques that use the

information provided in a credit application to distinguish between those who

are likely to be good borrowers and repay their loans and those who are not

likely to repay their loans. Careful analysis of the credit histories of a bank's

customers will reveal certain factors that can distinguish "good" accounts

"bad" accounts. These factors very depending on the type of credit histories

examined, geographic location, and other considerations. When the key

factors are identified, they are used to develop a credit-scoring program. The

program will assign a certain number of "points" or weights to factors such as

the length of time of employment, whether one rents or owns a home,, the level

of income, and so on. If the sum of the points is above the critical value (e.g.



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160 points) the applicant is granted credit. Credit scoring systems are especially

useful for evaluating large numbers of application low cost per application.

5.6. Bankruptcy

Despite banks efforts to select qualified applic3ras and make loans that

will be repaid, some individuals will default and some will go bankrupt. The

rise in the number of bankruptcies and individuals' willingness to go bankrupt

is a major concern no tenders who can only lose money when bankruptcy

occurs.

Consumer lending is different from commercial and real estate loans in some

respects such as purposes, size of loan, collateral free loan, financial charges

etc. Financial charges include interest, service charges, origination fees etc. It is

estimated in different types of method. Finance charge on revolving credit is

calculated by adjusted balance method, previous balance method, and average

daily balance method excluding current transaction, average daily balance

including current transaction. And the interest rate of this credit is calculated by

add-on loan rate that the finance charge is added on to the amount borrowed.

Discount rate is another method where creditor deducts the finance charge from

the principal amount of loan and the borrower receives the difference. The

difference between the initial rate charged on fixed and adjustable rate loans is

the premium that banks charged for assuming interest rate risk. To minimize

credit risk commercial banks credit decisions must be based on the credit

worthiness of the borrower. This may be determined by judgment or a credit

scoring system. Despite banks efforts some customers will default and some

will go bankrupt.


Procedure of Consumer

Credit Scheme of Prime

Bank Limited


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Chapter-6

Brief Discussion About Consumer Credit Scheme (CCS) of prime Bank Ltd.

6.1.1. Stamp Charge

Table-6.1. Stamp Charge of Different Documents

SL

No.

Name of Document Type of Stamps

be affixed

Present value

of stamp

Previous

cost

1 DP note Revenues stamp 20 20

2 Letter of authority Not adhesive

stamp

- -

3 Letter of hypothecation Adhesive stamp 150 150

4 Loan of agreement Adhesive stamp 150 150

5 Loan agreement Not 150 150

6 Supplementary agreement Not - 150

7 Letter of undertaking Not - 150

8 Declaration of satisfaction Not - 150

Source: Circular from Head Office, PBL

Cancellation of stamps is needed.

Sanction of CCS loan must be completed within 5 days from date of

application.

Registration of Motor vehicles can be made in the joint name of the

Bank and the Borrower instead of sole name of Bank as at present.

Where CCS facilities is converted by 50% by deposits or sanchay

patra under lien, no further security may be insisted.

Arrangement with National Electronics Ltd. allowed only clericalstaff recommendation by NEL. Age-53 yrs.

Landlords may be allowed if they have sufficient cash flow and

against tow guarantees acceptable to the Bank.

No loan shall be allowed for purchase of gold ornaments.

Loans under the Scheme may also be allowed against pledge of duly

discharged savings certificates, protirakhaya sanchaya patra, FDRs



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etc. up to the face value covering the amount of the loans in lieu of

Bank Guarantee/ Insurance Guarantee/ Personal Guarantee.

If any customer fail to repay the monthly statement within due date,

penal interest 2% to be charged on the outstanding amount for the

default period.

It is a welfare scheme of our Bank and so no collateral security was

stipulated against loans under the scheme.

Guarantees of the officials of law-enforcing agencies may be

tactfully avoided.

6.1.2 Eliquibility of Customers

Consumer credit is not for all classes of people in our country. It is provided to

some selected customer based on profession, class etc. the credit scheme is

provided for the following organizations engaged professionals:

Employees of Government

Non-Government Organizations of Institutes Semi-Government,

Sector Corporations

Professionals like Doctor, Engineer, Lawyer, and Architect etc.

Business Executives and Self-Employed Persons.

Bank Insurance Company and other Financial Institutions.

Locally established and renowned public limited companies.

Multinational Companies.

6.1.3 Age Limit

Application must be in between 20 to 50 years.



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6.1.4 Eligible Materials

Under the consumer credit scheme, the credit is provided for goods like.

Car

Station Wagon

Micro Bus

Pick-up

Motor Cycle

Personal Computer

Camera

Television

Refrigerator

Photo Copier

Sewing Machine

Washing Machine

Air Conditioner

Generator

Water Cooler

Water Pump

Phone

Spot Billing Machine

6.1.5 Credit Limit, Down Payment and Period of Loan

Amount of credit shall be allowed keeping in view the repayment capability of

the customer. The amount of credit shall be determined in monthly installment

does not exceed 50% of the disposable income of the customer. The monthly

installment size will not exceed one third of take home salary for non-officers

only. After repayment of 75% of the credit allowed to a customer, he/she will



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be eligible for fresh credit under the scheme but the total amount of credit shall

not exceed the ceiling under any circumstances.

6.1.6. Financial Charges of Consumer Credit Scheme

Financial charges of consumer credit scheme include interest size will not

exceed one third of take home salary for non-officers only. After repayment of

75% of the credit allowed to a customer, he/she will be eligible for fresh credit

under the scheme but the total amount of credit shall not exceed the ceiling

under any circumstances.

6.1.6 Financial Charges of Consumer Credit Scheme

Financial charges of consumer credit scheme include interest rate, service

charge, risk fund and other origination charges. Financial charges of prime

Bank Ltd. are given to get an idea about it.

Table-6.2

Financial Charges under Consumer Credit Scheme of Prime Bank Ltd.

Particulars Rate

Interest/Profit 16% P.A

Service Charge 1% on loan amount

Risk Fund 2% on loan amount

Cost of Stamps Tk. 470/=

Source: Annual Report of Prime Bank Ltd.

All branches are advised to transfer their entire outstanding balance in Risk

Fund on regular basis to Financial Administration Division, Head Officer at the

end of every month though IBCA (Inter Branch Credit Advice) along with a

statement as per existing picture.

6.1.7 Mode of Repayment

Repayment of loans including accrued interest will be made by equal monthly

installments, which will start from the following month of the disbursement of



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loan. Before disbursement of loan, the customer will deposit crossed cheque

covering the total number of monthly installment in favor of the bank which

will have to be presented for collection on the due dates. Installments will be

paid within 7th day of each month. However, per-payment is allowed.

6.1.8 Security

The client will submit crossed cheque in advance for the entire stipulated

installment in favor of the bank towards repayment of loan including interest.

The customer will provide some security. These are personal guarantee, Bank

guarantee, banks prescribed forms, Financial Instruments, Corporate

Guarantee, Ownership for vehicles. To avoid embarrassment where the

guarantor is the head of the institution/office, his particulars shall be verified

solely by an officer of the bank. The fact and circumstances should be recorded

in the file.

6.1.9 Rebate

5% on the amount of interest charged is allowed to the borrower who shall

repay the loan installment regularly as per schedule of payments. The branch

may refund the calculated rebate amount at the time of adjustment of the loan

by passing the following entry:

Dr: Interest A/C (Rebate Amount)

Cr: CCS loan A/C (Rebate Amount)

The Head Officer should be informed in such cases of rebate at an interval of

every three months.

6.1.10. Document

The customer will execute some documents. These are- Durand/ Promissory

Note, letter of Authority, Letter of Guarantee, Letter of Hypothecation, loan



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Agreement under consumer credit scheme, letter of undertaking, letter of

Disbursement, letter of installment.

At the time of disbursement of loan, customer will have to execute some

documents.

The documents are:

2 Copies of Demand/ Promissory Note:

2 Copies of Letter of Authority;

2 Copies of Letter of Guarantee;

2 Copies of Loan Agreement under Consumer Credit Scheme;

2 Copies of Letter of Hypothecation;

2 Copies of letter of Disbursement;

2 Copies of Agreement/ Arrangement;

2 Copies of Undertaking;

2 Copies of Installment.

Letter of Guarantee:

Two guarantees are required for the service holder from executive

level employees.

One for the businessman from another renowned businessman and

another from officer grade serviceman are required.

Letter of Assurance:

Organizations assurance is required and obligatory. For example, if any client

fail to repay the loan amount, organization will take away from his salary and

will bound to pay to the Bank.

Personal Net Worth Statement:



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It is the statement about the borrowers asset and liability Bank gets all kind of

information bout the borrower financial position through it.

Quotation:

Quotation is required which contains the description and the price of the items.

Charge Document:

Charge documents are stamped document, which contains different rules,

terms, and conditions. If the borrower of the CCS loan is agreed upon all these

terms and conditions regarding borrowing, he/she will need to sign the

document. If any disagreement or irregularities occur in future this document is

used to remedy situation.

Before disbursing the CCS loan the following documentation must be

completed by the customer/ borrower. On these documents, the stamp is

needed for legislative reason. The borrower pays it.

Letter of Hypothecation:

It contains the terms and conditions and borrower is hypothecated for the

equipment. The specification of items is also mentioned here.

Demand/ Promissory Note:

To promise for paying on demand to Bank is mentioned.

Letter of Installment:

Borrower promises to pay the irregular installment in any time

Letter of Disbursement:

The disbursement of loan the borrower indicates this letter.



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Balance Confirmation Letter:

Borrower promises to balance at least to one installment on his account which

cheques is given to Bank.

For Car:

Registration Certificate

Photocopy of Blue Book.

Photocopy of Insurance Certificate.

Tax taken Copy

Driving License.

For a company if the corporal guarantee is given, the further guarantee is not

necessary.

6.11.11 Other Conditions

No additional amount will be allowed by bank for repairing or any

other purpose on account of the articles for which credit was

allowed.

The client is at liberty to repay the entire outstanding amount in lump

sum before expiry of validity period of the loan.

The vehicles must be covered by comprehensive insurance policy to

be taken by the customer on his/her own expenses.

Customer will bear the license fee, registration fee, insurance charge

etc. if any in respect of the articles.

Customer will bear the expenses for necessary repair and

maintenance of the articles during the period of loan.

After delivery of the articles, the respective client shall remain

responsible if subsequently the articles are broken, stolen or



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damaged. The articles shall be used by the customer with optimum

care, caution and prudence and he will be liable for compensation or

replacement etc. for any damaged caused due to his negligence,

carelessness and inefficient handling, he will be liable to adjust

Banks dues that is outstanding principal, interest and other charges

on demand.

Customer will intimate the bank of any change of his address

immediately after the change.

The Articles shall remain in sole control and custody of the customer

who will not let out, lend, resell or transfer the possession or rights

of the same to a third party under any circumstances.

Customer will keep available all the articles supplied to him for

inspection by the bank officials as and when required.

Default in payment of 3 (three) consecutive installments shall render

the client liable to hand over the articles to the Bank. In case of loan

for purchase of Car, Station Wagon, Microbus, Motor Cycle etc. The

registration of the same shall be made in the sole name of the Bank

until full adjustment of the loan.

The registration Blue Book, tax token, Fitness Corticated etc. for

vehicles must always be kept up to date at the cost of the customer.

6.2. Rules for Application

Intending clients will have to apply for the credit in banks printed application

form, which will be available in respective branch or nay other authorized

agent on payment of Tk. 10.00 only. Clients will submit the application form

dully filled-with quotations(s) for purchase of desired articles.

Application Procedure:

First Phase:



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On proper scrutiny of the application, branch CCS will inform the initial

decision (Acceptable of processing/Decline) to the applicant within 3 (Three)

working days from the date of receiving application.

Second Phase:

Branch will provide additional papers to the applicants whose applications are

accepted for processing as following.

Particulars of Guarantor form.

Letter of Guarantee.

Personal Net-Worth Statement form for Businessman/ Professionals.

Applications will submit the above forms duly filled in in-with the following

additional papers:

Salary Certificate for service holder.

Trade license and TIN Certificate (in any) for Businessman.

TIN Certificate of applicants for Vehicle loan.

Attested photocopies of current Tax Receipt, Electric bill etc. &

Lease agreement (in any) when the source of income is house rent as

a landlord.

Branch will inspect the given information in respect of eligibly, feasibility and

security. After completion of all necessary formalities branch shall disabuse the

loan or decline the proposal within 7 (Seven) working days from receiving the

additional papers.

Price of the items (Down payment + Loan amount) should be given to the

respective supplier through payment Order (PO) after completion of necessary

documentation.



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6.3 CCS Accounting

6.3.1 Summarized Accounting Entries

Disbursement:

Debit: Loan A/C, with the amount of purchase price/risk fund/service

Credit: Suppliers A/C, P.O. (Purchase Price)

Credit: Risk Fund

Credit: Income A/C Service Charge

A/O arrear interest:

Debit: CCS Loan A/C

Credit: income A/C Interest

On recovery of monthly installments:

Debit: Cash/Bank A/C

Credit: CCS loan A/C

Recovery:

Debit; Cash/Bank A/C

Credit: Loan A/C.

6.4 Estimation of Installment

Its major problem to customer about annuity of money because of the deficient

in acknowledgement. For better appreciation it is mentioned below precisely.

1Annuity factor = 1-(1+r1)-n1

r1

Here, r = Interest rate (p.a.)



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k = 12 (months)

n = number of years

n1= n*k

r1 = k

Installment = Loan amount * Annuity factor

Annuity factor for 2 years = 0.04896312

Annuity factor for 3 years = 0.03515705

6.5.2 Professionals Loan

Personal guarantee from seniors in respective professions and/ or personal

guarantee from a person having social respectability financial standing

acceptable to the Bank.

6.5.3 Business Loan

Personal Guarantee for respective employees and another personal guarantee

from a person having social respectability/ financial standing acceptable to the

bank.

6.5.4 Loan for Self-Employed Business Person

Personal Guarantee from a person having social respectability financial

standing acceptable to the Bank.

6.5.5 Loan for Army

Adjutant General (AG Branch) or Military Services (MS Branch)

should be involved their clearance/ recommendation should be

obtained.

The directives prescribe by Army Head Quarter.

No of personnel (BA NO) Should be obtained.

The length of services of personnel should be ascertained



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No loan should be given if remaining service period does not cover

the repayment.

Any letter is sent to Army officer thorough Head Office.

6.3 Loan for Different Professionals

6.5.1 For PBL Officers

Only the confirmed employees of the bank will be eligible for the

loans under the scheme.

A maximum loan of Tk. 50,000/- (fifty thousand) only may be

allowed to any Executive/ Officer at a time for one ore more items.

S.P.O.s & A.V.P.s may avail themselves of loan of Tk. 1.50 lac to

buy private car but in that event they will not be entitled to avail

themselves of any loan for other items.

The amount of loan should be adjusted by 48 (forty eight) equal

monthly installments.

Once a loan is fully adjusted, concerned Executives/ Officers may

avail himself of loan again to buy similar or other items. however,

car loan cannot be repeated within a period of 5 years from the date

of availing the loan.

Since, the borrowers are Banks own Executives/ Officers, they will

be exempted form the following payments:

a) Down payment (Equity)

b) Payment of Risk Fund,

c) Service Charge payment.

Since the borrowers are Banks one Executives/Officers, the monthly

installments for availing loan shall be deducted directly from the

monthly salary of concerned Executive/Officer.



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Interest on loan should be charged at pay with the clients under

Consumer Credit Scheme will apply.

Credit Division, Head Office, and Dhaka shall sanction the loans tothe Executives/Officers of the Bank under the Scheme.

6.6 Job Description of the Proposed Unit

Central CCS unit will perform many duties. To identity the potential customer

and to focus the features of the scheme to create demand for purchasing

household durable availing loan under the scheme. After receiving loan

applications the central CCS unit shall make preliminarily scrutiny.

The following responsibilities will be vested with the unit:

Marketing

Loan Sanctioning

Recovery of CCS loans of Dhaka City branches

Follow up, monitoring and supervision.

There will be 3 (Three) teams consisting of 2 (Two) officers in each team who

will perform the above-mentioned activities on rotational basis. They will keep

record of their daily activities /performance in a separate register.

6.6.1 Job Description of the Central CCS unit

According to responsibilities the job description of the Central CCS unit, Head

Office Shall be as under:

Officers have to identity the potential customer for consumer credit. For this

and to focus the features of the scheme to create demand for purchasing

household durable availing loan under the scheme. The respective officers of

the unit will go to different Officers, Schools, Colleges, Universities

(Government & Private), Insurance Companies, private companies, Private



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Clinics professionals, well established businessman and pursue the officials/

employees of the above institutions/ offices/companies, businessman and

professionals for availing CCS loan from prime bank limited. They will also

work for a possible arrangement with the institutions/officers/ companies to

accommodate CCS loans to their employees under the corporate Guarantee of

the Concerned institutions/ offices/companies. The marketing officers will

pursue their solicited customers to submit their loan applications either direct to

the central CCS unit or to any other nearest branch of prime bank limited. The

branches shall forward the applications so received to the central CCS unit

immediately. In the loan application the borrower shall mention the name of

the branch of the Prime Bank limited through whom they want to take the loan.

Loan will be given from that branch and officers of that branch will process the

loan.

6.6.2 Loan Sanctioning

After receiving loan applications the central CCS unit shall make preliminarily

scrutiny. If found feasible and bankable, the customer shall be advised for

submission of further necessary papers/ information if any.

If found not feasible, they shall decline the proposal at that stage and politely

advise the applicant accordingly. The customer should be advised at one time

for required papers/information instead of piecemeal advice creating

dissatisfaction of the customer. They shall arrange for necessary inception, spot

verification of the applicants/ Guarantors addresses offices immediately.

A Committee shall be formed in the CCS unit consisting of Head of the Unit

(Chairman) and other six officers (Members). The respective loans will be

disbursed through the branch mentioned by the customer. The central CCS unit

will complete documentation and obtain post-dated cheques before issuing

sanction advice to the branches. They shall maintain a sanctioning and



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declining register in the computer. They shall keep the document and post

dated cheques in the safe under joint custody making entry in the safe-in and

safe-out register.

The delegation of business power for sanction/approval of CCS loan by the

Credit Committee and the CCS Committee is fixed. The limit is different for

different things.

The delegation of business power for sanction/ approval of CCS loan by the

Credit Committee and the CCS Committee will be as under:

Table-6.3

Name of Item Loan Limit Credit

Committee

Central CCS

Committee

New Vehicle Tk. 10,00,00.00 Full Limit Up to Tk. 6.00 Lac

ReconditionedVehicle

Tk. 10,00,00.00 Full Limit Up to Tk. 6.00 Lac

Other Items Tk. 3,50,000.00 ------- Up to Tk. 1.50 Lac

Motor Cycle Tk. 30,000,00.00 -------- Full Limit

Personal

Computer

Tk. 10,000,00.00 ------- Full Limit

Photo Copier Tk. 10,000,00.00 -------- Full Limit

To decide whether approved or declined a meeting is held. There will be a

regular meeting in very working day presided by head of CCS unit. After

detailed discussion based on the papers and inspection report the committee

will sanction or decline CCS loan as per delegated authority and refer to Head

Office Credit Committee for approval/ decision beyond the delegated authority

of the CCS committee. The head of CCS unit will attend the Credit Committee

Meeting along with the proposals and specific recommendations for approval

of loan cases beyond the delegated authority of the unit. the Credit Committee



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will approved or decline the proposals based on the merit. After deciding

whether accepted or declined it is informed to the applicant with in very short

time. If approved then documentation is prepared.

6.6.3. Follow up, Monitoring and Supervision

The credit under the scheme is fully supervised and the success of the scheme

will depend on the porter and persistent supervision, follow up persuasion and

monitoring of the credits by the branches. CCS unit shall monitor and supervise

the CCS loan portfolio of all the branches. Branches shall maintain proper

records of the applicants received, loans sanctioned, disbursed and recovery

made thereon. Branches shall send the statements of CCS loan and the overdue

list to the CCS Unit within the first week of every month. The CCS unit shall

properly utilize the MIS (Management Information System) available in the

existing computer program for consumer Credit Scheme of the bank to closely

monitor and supervise the scheme.

6.6.4 Steps Taken in case of Default Installment

Before disbursement of loan, the customer will deposit crossed cheque

covering the total number of monthly installments in favor of the bank which

will have to be presented for collection of the due dates. Installments will be

paid then within 7 th day of each month. If one installment is not paid then it has

become overdue. Actions are taken on the basis of default installment.

Steps taken are described below:

If one month installment is due then concerned officer will call a

phone to the client:

In case of installment due for two months letter is given to the client

and phone is also called;



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In case of three months phone and letter to client as well as visit is

done;

If installment is not given within four months then letter is given tothe guarantor;

If installment is not given within five months then legal notice is

send to the client;

In spite of all these steps if installment is not given then case is sued

against the client.

In case of installment due for six months the loan is treated as classified loan.



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Performance Evaluationof Consumer Credit

Scheme of PBL


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Chapter-7

7.1. Performance of CCS of Prime Bank Ltd.

7.1.1 Yearly Position of PBL

Prime Bank started its CCS operation from beginning of the Bank (1995) at

five branches. It has increased it operation. Now in all branches (20), CCS is

operated successfully. By establishing CCS unit, Bank emphasis on this loan.

Though this loan is very small comparison to other large investment, it dealing

is related to many people.

Table 7.1 Yearly Position of PBL

Year CumulativeNo. of

customer

No. ofcustomer

CumulativeAmount

disbursedTk. (000)

Amountdisbursement

during theyear Tk.

(000)

Overdue(000)

Recovered(%)

1995 1691 1691 56586 56586 439 93

1996 4445 2754 178833 122247 1147 98.65

1997 6136 1691 266145 81312 5700 96.26

1998 8448 2312 301196 41051 10850 95.48

1999 10618 2170 480416 179200 15506 96.08

Source: Provided by an Officer form CCS cell, Head Office.

Yearly Position of PBL

0

500

1000

1500

2000

2500

3000

1 2 3 4 5

Year

No.ofcustomer

Year

No. of customer

Chart 7.1



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No of Customer:

No of customer increased in 1996 as beginning stages. But for increasing

defaulters Bank restricted forgivi