1

IX
INTRODUCTION
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Introduction

IX.01 Background (THE INTERNSHIP)

We the students of Masters of Business Administration (M.B.A) study the subject's related to
business including Accounting, Management, Finance, Marketing, Mathematics, Social and
cultural status and little about science and technology. The schools of business at home and
abroad try to familiarize each student as they move comfortably in the business
environment. But only the theoretical study in the class rooms is not enough rather a
practical experience and the only means of practical experience is internship program.

In the business environment at home & abroad there are lots of financial institution, business
firms, and industries which provide this facility towards us. If we could not get this facility
of internship then a wide gaps will take place between our study and experience. I think this
is an extremely valuable asset for us.

We the students of business do this usually for there months. In our country there are many
banks particularly the esteemed private sector banks, and elite business firms provide this. In
this respect I have done my internship at IFIC bank ltd. the one of the most renowned
private bank in Bangladesh. I am thankful to IFIC Bank for this.

IX.02 Objectives

The objectives of the reports is to provide

a general description of the branch banking

an exposure of practices of different banking activities in IFIC Bank Ltd..

relevant rules, regulations, theories and practices for banking.

IX.03 Significance

IFIC BANK LTD. is one of leading private commercial banks of the country. Through it has
62 branches all over the country, it is performing banking activities very successfully. To
mobilize funds from surplus units and deploy funds to deficit units, the bank is playing a
great role in the economic development of the country. IFIC BANK LTD. is one of the key
players of country’s economic development.

IX.04 Scope

The report covers different departments of IFIC BANK LTD., Malibagh Branch like
General Banking, Loans and Advance & Foreign Exchange etc. It also presents a brief
scenario of IFIC BANK LTD in total.
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IX.05 Time Schedule :

I have worked in different desks of IFIC BANK LTD., Malibagh Branch. This branch did
not give any hard and fast schedule for me. I have maintained the following self-prepared
schedule in this bank.

DEPARTMENT TIME

1. Loans & Advance About 1 (one) month.

2. Foreign Exchange About 1 (one) month.
3. General Banking About 1/2 (half) month.

IX.06 Methodology :

I interviewed the branch incumbent, department in charges, officers and clients. I have
observed the activities of the people of different desks, I did also observed the practice of the
branch’s Management. I have reviewed the Annual Reports – 1999, 2000 & 2001, 2002 of
IFIC BANK LTD., Bank Companies Act-1991, Negotiable Instrument Act-1881. I have also
reviewed Different Publications regarding banking functions, foreign exchange operation,
credit policies, and ‘Practical Orientation Dairy’ Maintained by me.

-This report is formatted into five segments

(a) The Introduction

(b) The Organizational Profile
(c) Overall Banking Operation
(d) Human Resource Development In IFIC Bank.
(e) Performance Measurement
(f) Analytical Study and Recommendation

-In this report the banking operation has been looked into as far as possible and a
performance measurement has been done by using different ratios and diagrams.

IX.07 The limitations of the report

This is my first report. I am not aware of the format and writing style of the report. I think"
this is the main reason why some limitations have been recognized here. But the reports
submitted to IFIC Bank academic section's library by the internees student of various
university’s worked as guideline to prepare this report. I have also used reliable sources of
information by using some text book, the manual etc. I have tried to do the performance
measurement by using the data published in annual report 2001.
So I think the main limitations of this report are
- Lack of experience to prepare a report.
-Lack of clear knowledge of different ratios.
-Lack of information.
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X
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I F I C B A N K AT A S K E T C H

HISTORICAL BACKGROUND OF IFIC BANK LTD.

International Finance Investment and Commerce Bank Limited "IFIC Bank"

came in to existence In 1976 as a joint venture between the Government of
Bangladesh and sponsors In the private sector with the objective of working
as a finance company within the country and setting up joint venture
banks/financial Institutions abroad. IFIC was Incorporated as a public
limited company with an authorized capital of Tk. 20 core and paid up
capital of Tk.10 core. IFIC commenced Its operation on February 28,1977
with a Subscribed capital of Tk.5 core, contributed by leading private sector
entrepreneurs In the country. the Government held 49 percent shares and the
rest 51 percent were held by the sponsors and general public.

But, In 1983 when the Government allowed banks In the private sector IFIC
was converted Into a full-fledged commercial bank. the Investment company
has transformed Into banking company In June 13,1983 and started activities
from June 24,1983 through Its Motijheel Branch.

At the very beginning the 60 percent share are owned by private

entrepreneur and 40 percent are owned by Govt. at the end of 1984 the
authorized capital was 10 core and the paid up capital was 7crore 15 lacs
Taka only.
Annual report as on 1983. the ownership of non Govt. sector is included-

1. Mr. Jahurul Islam, Chairman.

2. Salman F. Rahman, Vice-Chairman.
3. A.M. Aga Usuf.
4. Syed. Mohsen Ali.
5. Mr. Ahmadul Kabir. Owner of "Dainic Shangbad".

PRESENT OWNERSHIP STRUCTURE

The government of the peoples' Republic of Bangladesh now holds 35 percent of

share capital of the bank. Leading Industrialists of the country having vast
experience In the field of trade and commerce own 34 percent of the share
capital and the rest Is held by the general public.
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MISSION OF IFIC BANK

To establish and conduct all types of banking financial investment and

trust business in Bangladesh and abroad.
To carry on any business relating to wage earners scheme as may be
allowed by Bangladesh Bank from time to time including maintaining
of foreign currency accounts and any other matter related there to.
To contract or negotiate all kinds of loan.
To form, promote, organize, assist, participate or aid in forming,
promoting or organizing any company or others.
To encourage, sponsor and facilitate participation of private capital in
financial, industrial or commercial investment.
To purchase or otherwise acquire, undertake the whole or any part in
the business.
To take part in the formation, management, supervision or control of
the business or operations of any company.

PRESENT CAPITAL AND RESERVE

IFIC Bank has been consistently maintaining the ‘Capital Adequacy Ratio’, as
prescribed by Bangladesh Bank. This has been possible by a policy of building up
both capital and reserves. It started with an Authorized and Paid-up Capital of Tk.
100 million and Tk. 63.20 million respectively in 1983 which stand at Tk. 500
million and Tk. 406.39 million respectively in 2003.

CREDIT POLICY AND PORTFOLIO

IFIC Bank follows the credit policy within the framework of three main objectives
namely, maintenance and improvement of quality assets, recovery on time and
building up an efficient customer oriented credit delivery system..

The portfolio includes working capital financing, project financing, import-export

financing and domestic trade financing etc. the continued to extend working
capital facilities to customers to ensure smooth and uninterrupted operation of
their business. At the same time, it expanded project financing portfolio to meet
the growth demands of the economy for long term finance in a depressed capital
market.

So far the Bank has financed 295 projects. Among them 48 projects were financed
during 2003 amounting to Tk. 1205.60 million. The Bank also participates in
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Syndicate Financing and so far has disbursed Tk. 1000 million in 10 projects. The
bank successfully handled two credit lines viz-IDA credit No.2340 and ADB loan
No.1070 BAN (SF) with recovery rate of 100% and 87% respectively. Under these
programs the Bank sanctioned loans of Tk.428.00 million to as 53 units.

NEW PRODUCTS

IFIC Bank has been successfully providing in the recent years a good number of
new products besides so called traditional services to meet the increasing demands
of the clients and the members of the public. Some of them are: Visa Credit cards,
ATMs, Phone Banking, Pension Saving Scheme, Death Risk Benefit Scheme,
Consumer Credit Scheme, Education Plan.

JOINT VENTURE ABROAD

Bank of Maldives limited (BML)

IFIC Bank limited has established a joint venture in the name of Bank of Maldives
limited at Male in the republic of Maldives right in 1983 i.e. 20 years ago. This is
the first National Bank of Maldives. The ownership composition is 60:40 percent.
The Government of Maldives own 60% sharer and the 40% sharer are owned by
IFIC Bank limited.

Oman-Bangladesh exchange company (LLC)

To help remittance of more the 30,000 Bangladesh wage Earners living in Omen.
The bank has established an exchange house-OMAN BANGLADESH
EXCHANGE COMPANY (LLC) in the Sultanate of Oman in collaboration with
Omani nationals OBEC has seven branches.

Nepal Bangladesh bank Ltd.

_,
This is the first joint venture bank between two countries. In December 1993 the
bank establish a joint venture with 50% equity in Nepal. The bank comes into
operation in June 1994.
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OVERSEAS BRANCH

The bank has a branch in Karachi in Pakistan which has started operations in early
1987. Within the short span of its operations the branch procured sizeable business
subsequently. The bank opened its second branch at Lahore in 1993. Bath the
branches enjoy reputation and good will in Pakistan and have been operating
profitably.

BRANCH NETWORK (DOMESTIC)

The branches of the Bank cover all the important trading and commercial centers
in Bangladesh. As of date, it has 62 branches within Bangladesh. All the branches
are equipped with computers in addition to modern facilities, logistics and
professionally competent manpower.

BOARD OF DIRECTORS

Unlike others bank in the private sector, Board of directors of this bank is an
unique combination of both private and Govt. sector experience. Currently it
consist nine (9) directors, of them four represent the sponsors and general public
and four senior officials in the rank and status of Join secretary/ Additional
secretary represent the government. The Managing Director is the ex-officio
director of the board.
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Here enclosed the current list of Board of Directors of IFI C Bank Ltd.

SL NO. NAME OF OFFICER DESIGNATION

1. Mr. Manzurul Islam Chairman

Chairman
Islam Group
125/A, Motijheel C.A
Dhaka.
2. Mr. Shafiul Islam Director
Chairman
Navana Group
125/A, Motijheel C.A.
Dhaka.
3. Maj. Gen. (Rtd) Dr. AR. Khan Director
Chief Consultant
BARDEM
Shahbag
Dhaka.
4. Mr. Abdul Hamid Chowdhury Director
Chairman
C.A. Hamid Group of Companies
'
33, Road-4, Block-F.
Banani, Dhaka.
5. Mr. Mohammad Delwar Husain Director
Member - '
National Board of Revenue
Govt. of Bangladesh
Dhaka.
6. Mr. Habib Abu Ibrahim Director
Vice Chairman
Export promotion Bureau
Chamber Building
Dhaka.
7. Dr. Chowdhury Saleh Ahmed Director
Director General
Momtoring Cen
Ministry of Finance
Govt. of Bangladesh
Bangladesh Secretariat \
Dhaka.
8. Mr. Nazrul Islam Director
Divisional Commissioner
Sylhet.
9. Mr. Ataul Haq Managing Director
Managing Director
 Management Hierarchy

MANAGING DIRECTOR (MD)

DEPUTY MANAGING DIRECTOR (DMD)

EXECUTIVE VICE PRESIDENT (EVP)

SENIOR VICE PRESIDENT (SVP)

VICE PRESIDENT (VP)

SENIOR ASSISTANT VICE PRESIDENT (SAVP)

ASSISTANT VICE PRESIDENT (AVP)

SENIOR PRINCIPLE OFFICER (SPO)

PRINCILE OFFICER (PO)

SENIOR OFFICER (SO)

OFFICER

XI
CHAPTER-03
 ORVERALL BANKING OPERATIONS OF IFIC BANK LTD.

SL.NO PARTICULARS PAGE NO.

1 GENERAL BANKING 12-27

2 LOAN & ADVANCE 28-38

3 FOREIGN EXCHANGE 39-58
 XI-0l

GENERAL BANKING

SI. No. PARTICULARS PAGE

XI-01 Introduction 13
XI-1.02 Functions 13
XI-1.03.1 Accounts Opening Section 13
XI-01.03.02 Types of Accounts 13
XIII-01.03.03 Operational nature of Accounts 14-16
XIII-01.03.04 Accounts Opening Process 16
XIII-01.03.05 Issuing Cheque Book 17
XIII-01.03.06 Dormant A/C 18
XIII -01. 03.07 Transfer A/C 18
XIII.01.03.08 Closing of A/C 18
XIII-01.03.09 Portrait of Deposits of IFIC Malibagh Br. 18
XIII -01. 03.10 Kinds of Account holders 19
XIII-01.04 Cash Section 19
XIII-01.04.01 Functions of cash section 19
XIII-0 1.04.02 Books maintains by this section 20
XIII-01.05 Local remittance 20
XIII-01.05.01 Demand draft (DD) 21-22
XIII-01.05.02 Pay Order (PO) 23
XIII -01. 05.03 Telegraphic foreface (TT) 24-26
XIII -01.06 Test Arrangement 26
XIII -01.07 Clearing Section 26
XIII-01.07.01 Types of Cheques for Clearing 27
XIII-01.08 Accounts Section 27
XIII-01.09 Establishment Section 27
XIII-01.10 Locker Facility 27
XI.1 Introduction

During my practical orientation I was placed in IFIC Bank Limited. First I was placed in
Malibagh Branch. I have completed General Banking and some exposure in Advance in this
branch. General Banking is the starting point and main function of all the banking operations
it is the department which provides day-to-day service to the customers. Everyday it collects
deposit from the customers by allowing broking interest rate, meets their demand for cash by
honoring Cheques and lend it to the customers against ending interest rate. Lending interest
rate in higher than borrowing interest rate, this is the profit for the bank.

XI.1.2 Functions of this department

♦This department maintains following functions.

♦Accounts opening section.
♦Cash section Remittance section.
♦Clearing section.
♦Accounts section.
♦Establishment.

XI.1.3.1 Accounts Opening Section

This section opens different types of account for their valued customers. Selection of
customer is very important for the bank because bank’s success and failure largely depends
on their customers. If customers are bad they creates fraud and forgery by their account with
bank and, this destroys the good will of the banks. So, this section takes extreme caution in
selecting its valued customer.

XI.1.3.2 Types of Accounts

Accounts can be classified into two types:

Operative Account Non-Operative Accounts

PSS AlC
Current Deposit Account
MIS A/C
Savings Deposit Account

FDR AlC
SOD AlC

STD AlC
 XI.1.3.3 Operational Nature of Accounts

♦ Current Deposit Accounts (CD account)

- A current account may be opened by any individual, firm, company, club, associates, etc.
Bank: may, however, refuse without assigning any reasons to open current account to any
body.
- Minimum balance of Tk. 5000 while open.
- No current account will be opened with Cheques.
- Fund in the current deposit account shall be payable on demand.
- Minimum balance to be maintained of Tk. 1000.
- If minimum balance falls then incidental charges of Tk. 50 will be realized half is early.
- No interest is payable on the balance of CD.
- In case of closing of current account Tk. 100 is to be realized against incidental charges.
♦ Saving Deposit Accounts (SB account)
- 6.5% interest is provided to depositors.
- The minimum amount of balance to be maintained with this type of account is Tk. 2000
- A depositor can withdraw two times in a week for more withdrawal depositors are not
entitled for any interest.
- To withdraw above Tk. 20,000 the depositors has to notice.
- No savings account will be allowed to be overdrawn.
♦ Short term deposit (SID A/C)
. . - Generally opened by big business firm.
- Interest depends on the amount deposited.
- Minimum amount of balance has to be maintained with STD account is Tk 2 lacs, while
open
- Interest is given at a rate of 4%
- Minimum amount is Tk 5000 must be maintained.

♦ Pension Savings Scheme (PSS)

- This is a scheme to make the customer introduced to the banking system under this
schemes the customers are to pay a certain of money at monthly interval up to a period of 5
to 10 years and after the period they will get the returns along with the full interest earned
during the period and the principal amount. Most of the clients under this scheme are middle
crass and lower middle class people
- Generally opened by small sever.
- Minimum Amount Tk 500 and minimum Tk 2000
- Interest rate 9.00%
- Maturity 5 to 10 years.
 PSS 5 years
Monthly installment Principal amount Bonus With Bonus
500 36,265 1500 37,765
1000 72,530 3000 75,530
2000 1,45,060 6000 ' 1,51,060

Liquidation of PSS
- In case of premature encashment if the period is below 1 year then no interest will be
provide.
- ff above 1 year interest will be given @ Savings.

♦ Monthly Income Scheme (MIS)

- This is another attractive scheme offered by this bank under this scheme the depositors an:
to deposit a fixed amount to the bank' and for their fixed amount they are entitled to earn :;
monthly payment from the bank. This is an attractive scheme for the retired person. This i_
also a kind of FDR, but here the interest is given monthly to the customers the deposit will
b_ 50,000, 10,00,000, 1,50,000 respectively.
- The rate of interest is 10.80%
- Maturity is 05 years.

Liquidation of MIS
- 200 bank charge for premature encashment as out access duty.
- Closing before 6 months no benefit will be providing.
- Preen casement between 6 months to 1 year interest are provide according to savings rate. - Pre
encashment between 1 to 3 years savings interest are provide 0.50 + saving rate
- Pre encashment between 3 to 5 years. Interests are providing 1.00+saving rate.

♦ Fixed Deposit Reserve (FDR)

- FDR is neither transferable nor negotiable.
- It can be opened by all.
- Provided 7.50% - 8.25% interest.
- Interest rate very on principal amount.
- The deposited principal amounts have not fixed by the Bank.
- One can deposit any sum of amount under fixed deposit reserve.
- In case of with drawl before maturity the previous maturity period is considered to pa:
interest according to savings interest rate 6.5% it is known as pre matured en-casement.
 Interest rate have been rated by the Management of IFIC Bank on FDR have given below

Maturity period Rate of interest

3 months 7.5%
6 months 8.00%
1 year 8.25%
2 year 8.25%
3 year 8.25%

Liquidation of FDR
- Only the account holder himself and the authorized person can liquid the FDR after maturity.
- In case of joint name authentication from both is necessary.
- If demand before maturity the last expired duration is considered to pay interest.

XI.1.3.4 Account opening process

Step l- Receiving filled up application in bank's prescribed form mentioning what type of
account is desired to be opened.
Stop 2- The form is failed up by the applicant.
Step 3-Two copies of passport sized photographs for individual and in case of firm's
photographs of all partners are necessary.
Step 4-Applicant must submit required document.
Step 5-Applicant must sign specimen signature sheet and give mandate.
Step 6-Introducer's signature and accounts number verified.
Step 7- Authorized officer accepts the application
Step 8- Minimum balance is deposited only cash is acceptable.
Step 9- Account is opened and deposit slip and a cheque book has given.
Account Opening Procedure in a flow chart :

Applicant fills up the He/she is required to fill For individual

relevant application up the specimen introduction is needed
form in the prescribed signature card by an account holder
manner.

The authorized officer

scrutinizes the
introduction and examine
the documents submit
Account is opened

Issuance of deposit slip

and the deposit must be
made in cash. No cheque
or draft is acceptable to
After depositing the cash the Bank
one cheque book is issued
XI.1.3.5 Issuing Cheque books to the customers

The bank issues 10 leaves cheque book for savings account and 20, 50 and 100 leaves
cheque books for current account. To complete the issuing of cheque books a customer has
to fill up the requisition form for cheque books. Then a new cheque book will be filled up by
the account number of the customer. The requisition slips are maintained and recorded in a
register as voucher.
XI.1.3.6 Dormant account

If any account is inoperative for more then one year is called dormant account. To operate
this accounts manager's permission is necessary.

XI.1.3.7 Transfer of Account

Account holder may transfer his account from one branch to another branch. For this he
must apply to the manager of the branch where he is maintaining his account. Then the
manager sends a request to the manager of the branch where the account holder wants to
transfer his account for opening the account.

XI.1.3.8 Closing of Account

To close an account parties may be request to send an application along with the unused
leaves of the cheque book. On receipt of the application the following steps are taken.

i) The signature of the account holder is verified.

ii) The number of the unused cheque leaves shall be noted therefore.
iii) Debiting the incidental charges to the account.
iv) The account holder is advised to draw the remaining balance.

XI.1.3.9 Portrait of Deposits of IFIC Malibagh Br.

(Fig. in Thousand)
Type of account No. of account Amount in Tk.
CD 521 22,349
SB 2090 10,0,144
STD 13 279
FDR 204 1,20,109
PSS 745 32,618
MIS 01 100

Portrait of Accounts Portrait of Deposits

XI.1.3.10 Kinds of Account Holders

Branch may open accounts of the following categories of depositors:

1) Individuals - Individuals are adult persons of 18 years age or more who are competent
to
enter into contracts.
2) Joint accounts - More than one adults jointly or adult with minor(s) may constitute joint
accounts.
3) Sole Proprietorship concern - A business trading concern owned by a single adult person
is sole proprietorship concern.
4) Partnership firms - A business concern owned and managed by more than one persons
which may be registered or not registered is a partnership firm.
5) Private limited - A body corporate formed and registered under companies Act 1994,
with limited members.
6) Public limited - A body corporate formed & registered under companies Act 1994 with
limited liability of the shareholders and with no upper ceiling of shareholding both
certificate of incorporation and certificate of commencement has given by registrar.
7) Trusts - Trusts are created by trust deed in accordance with the law.
8) LIQUIDATORS - Liquidators are appointed by court of law for companies going into
liquidation.
9) EXECUTORS - Executors are appointed by a deceased himself before his death by
"with" to settle the accounts of the person after his death.
10) Club/Associations/Societies - There are organizations created & registered or not
registered under societies registration act.
11) Co-operatives - There are corporate bodies registered under societies registration Act or
companies Act or the co-operative societies Act.
12) Non-Govt. Organization - NGOs are voluntary organizations created & registered and
society's registration Act or co-operative societies Act.
13) Non-Trading concern - These are organization registered under societies registration Act
or companies Act or co-operative societies Act.

XI.1.4 Cash Section

Cash department is the most vital and sensitive organ of a branch as it deals with all kinds of
cash transactions. This department starts the day with cash in vault. Each day some cash i.e.
opening cash balance are transferred to the cash officers from the cash vault. Net figure of
this cash receipts and payments are added to the opening cash balance. The figure is called
closing balance. This closing balance is then added to the vault. And this is the final cash
balance figure for the bank at the end of any particular day.

XI.1.4.1 Functions of cash department

-Cash payment
-Cheque cancellation process
-Cash receipt
♦ Cash payment
Cash payment is made only against cheque.
This is the unique functions of the backing system which is known as "payment on
demand" .
It makes payment only against its printed valid cheque.

♦ Cheque cancellation process

Receiving cheque by the employee in the cash counter and verification of the following by
the cash officer in the computer section:
i) Date ofthe cheque. (it is presented within 6 month from issue date)
ii) Issued from this branch.
iii) An amount in figure and in word does not differ.
iv) Cheque is not torn or mutilated. Then gives pay cash seal and sends to the payment
counter and payment office makes payment.

♦ Cash receipt .
Another important function of this department is receipt of cash. Depositors deposit money
in the account through this section by deposit slip.
i) It receives deposit from depositors in from of cash.
ii) So it is the "mobilization unit" of the banking system.
iii) It collects money only its receipts from.
iv) It receives cash for issuing pay order TT, DD.

XI.1.4.2 Books maintained by this section:

i) Vault register: It keeps accounts of cash balance in vault at the bank.

ii) Cash receipt register: Cash receipt in whole of the day is recorded here.
iii) Cash payment register: Cash payments are made in a day are entries here.
iv) Rough vault register: Cash collection for final entry in vault registers done here, as
any error and correction is not acceptable.
v) Cash balance book: Balance here is compared with vault register. If no deference is
found, indicate no error and omission.

XI.1.5 Local Remittance

Sending money from one place to another place for the customer is another important
service of the bank. This service is an important part of transaction system. In this service
system, people, especially businessman can transfer funds from one place to another place
easily. There are three kinds of technique for remitting money from one place to another
these are

-Demand draft (DD)

-Pay order (PO)
-Telegraphic Transfer (TT)
XI.1.5.1 Demand Draft (DD)

DD is an order of issuing branch on another branch of the same bank to pay specified sum of
money to payee on demand. It is generally issued when customer wants to remit money in
any place i.e. outside or the clearing house area of issuing branch. Payee can be the
purchaser himself or another mentioned in the DD. It is safe technique of transferring money
from one place to another.

Payment process of the paying bank:

-Test confirmation if the DD value is more then Tk. 25,000.00
-Confirm that the DD is not forged one.
-Confirm with sent advice.
-Make payment.
Commission and charges of DD:

Postal charge Tk. 15.00 + commission 0.10% + 15% Vat on commission.

How DD Works :

Applicant fills up the

The applicant should relevant form with a
have A/C with IFIC credit voucher (income
A/C) for the Bank

DD is handed to the
customer where paying
Bank is mentioned and
payment will be made
from another Bank

An IBCA along with

photocopy of DD is sent
to the paying Bank (An
advice to paying
Banker)

If DD comes to the Bank

on which it is drawn, the
Bank honors it.
Cancellation of DD:
Step - I : Application is writing to the manager of the account maintaining branch.
Step - 2 : Verification of specimen signature.
Step - 3 : Journal posting for incoming:
-Bills payable DD payable Dr.
- IFIC General AIC Cr

Journal posting for outgoing:

-IFIC general A/C Dr.
-Party A/C Cr.
Step - 4 : Send a letter to paying bank

XI.1.5.2 Pay Order (P.O)

Pay order gives the right to claim from the issuing ban1e A payment is an instrument from
one branch the another branch of the bank to pay a specific sum of money. Unlike cheque
there is no possibility of dishonoring because before issuing pay order the bank takes money
in advance. There are three reasons behind use of P.O:
Remitting Purpose
Advice to Pay
Payment against bill submitted to the bank.

Pay Order consists of three parties:

- Beneficiary
- Applicant
 - Counter Part.

Commission and charges of P.O:

Amount of P.O Commission on Remittance 15% VAT on Commission

Up to TK. 100,000 25 4
100,001 to 500,000 50 8
Above 500,000 100 25

Payment Process of Paying Bank:

Payment is made through clearing.

Payment of Pay Order :

An the PO issued by the bank is crossed one it is not paid over the counter. On the contrary

the amount is transferred to the payees’ account. To transfer the amount the payee must duly

stamp the PO.

The payee deposits it to

his Collecting Banker Payment is given and is
registered in incoming
payment of P.O Book.

Collecting Bank sends the The Pay Order is passed

P.O. to the issuing Bank and cancelled in the
through clearing house deposit section.
arrangement
Cancellation of P. 0:

Step-I: Application writes to the manager of the account maintaining branch.

Step-2: Verification of specimen signature.

Encasement of P.O: To encashment of that P.O. the payee of the instrument deposits the P.O.
to his bank. The bank sends the pay order to the issuing bank through clearing. Then the P.
O. is passed through the deposit section and the P. O. is send back to the clearing house
again and later the amount of P.O. credited to payee’s account.

Flow Chart of P.O.-How It Works :

Purchaser has an account He purchased the P.O. in

with IFIC and fill up the favor of a person or
relevant from with a credit company
voucher

The beneficiary deposits

If any A/C with the PO in his account with
Collecting Banker sends
IFIC or another Bank
an IBDA
IFIC BANK(the collecting

Banker)

The collecting Banker

presents the PO to paying
Banker through clearing
house

Payee’s account is
credited with collecting
Banker
 Payee’s account credited
with collecting Banker

XI.1.5.3 Telegraphic Transfer (TT)

Issuing branch requests to another branch to pay specified sum of money to a specific person
on demand by telegraph or telex or telephone. Transfer of fund by TT is the rapid and
Convenient but expensive method.
TT (Issue):

Customer fills up the TT form and pays the amount along with commission in cash

or by cheque.

The respected officer issues a cost memo after receiving the TT form with payment

seal, then sign it and at last give it to the customer.

Next a TT confirmation slip is issued and its entry is given in the TT issue register.

A test number is also put on the face of the slip. Two authorized officer signs this

slip.

The respective officer transfers the message to the drawee branch mentioning the

amount, name of the payee, name of the issuing branch, date, test number and his her

power of attorney (P.A.) number.

The confirmation slip is send by post.

How TT Works (Outward) :

Applicant has an account Applicant fills up the relevant form with a

with IFIC Bank credit voucher (Income A/C) for the Bank

Text of telex is written or the relevant information along with

Test code is sent to the payee Bank through fax or telephone
 Another 2 copies of the text are sent through courier to the Payee’s
Bank.

The reconciliation departments

reconcile two copies and
Then one copy from drawer’s Bank and
detect the fraud or forgery if
another from Payee’s Bank are sent to the
any
reconciliation department of local office.

Before that the Payee’s

Bank decode the test and if
test is agreed

Payee’s account credited

Payment Process of TT:

Step-I: Test confirmation

Step-2: Confirm issuing branch
Step-3: Confirm payee's account.
Step-4: Confirm amount
Step-5: Make payment
Step-6: Advice sends to the Head Office for reconciliation.

Commission and Charges of TT:

-Telephone or Telex charge TK.30.
-Commission of Principal amount.
-15% VAT on commission.

Entry for TT

a) On Issuing of TT :

1. Cash / Respective A/C (issuer) -------------- Dr.

IFIC BANKGeneral A/C ---------------------------- Cr.

(Principal amount)

Income A/C-postage -------------------------- -------Cr.

Income A/C-Commission on TT ---------------- --Cr.

2. IFIC BANKGeneral A/C -------------------------- Dr.

Bills Payable A/C-TT Payable ------------------- Cr.

b) On Payment of TT

Bills Payable A/C – TT Payable ---------------------- Dr.

 Party A/C --------------------------------------- Cr.

XI.1.6 Test Arrangement of TT & DD

Test is the security code by decoding which any branch can be sure that the TT or DD is not
forged one. Only the authorized officers know the test code. Each bank maintains secret
code for this. That is the test arrangement is the combination of different secret codes.

XI.1.7 Clearing Section

This section receives all kinds of cheque in favor of the valued client for clearing on the part
of their banking services. After receiving cheque it is necessary to endorse it and cross it
specially. Clearing of cheque is done through the clearing house in Bangladesh Bank.
- 1 st clearing
- 2nd clearing
XI.1.7.1 Types of cheque for clearing

There are four types of cheque for clearing:

1) Inward clearing cheque.
2) Outward clearing cheque.
3) Inward bills for collection.
4) Outward bills for collection.

♦ Inward clearing cheque

It refers the instruments drawn on IFIC bank received by other banks in the clearing house
from the representative of other bank.
♦ Outward bills for collection
When our branch sends Cheques to other branch ofIFIC bank is called OBC. Accounting
treatment of this process:
IFIC general (Sender's Branch) Dr.
Depositor's A/C Cr.

♦ Inward bills for collection (lEC)

There are two types of clearing, firstly cheque collects from the other branch of IFIC banle
These Cheques are settled by sending mCA i.e. debiting depositors account and crediting
sender's branch account. .

Secondly cheque collects from another bank outside the clearing house. These cheque are
settled debiting depositors account and sending DD or TT in favor of senders bank.

♦ Outward Clearing Cheque

Cheque drawn of another branch of IFIC bank are called Outward Clearing Cheque. These
types of cheque are directly sent to the respective branch and request them to send IBCA.

XI.1.8 Accounts section

This is obviously an independent and unique department, which works as the composition of
all the departments of the branch. This section is fully computerized. So the conventional
large ledger and journal books are not kept like the some nationalized bank. It receives the
vouchers from all departments and prepares the subsidiaries and maintains accounts.

XI.1.9 Establishment section

This section deals with employees salary, many types of internal expenses such as purchases
of stationary, equipment, machinery, payment of labor cost and convence. In case of leave of
absence employee collects prescribed form from this section.

XI.1.10 Locker facilities

Locker facility is available in this branch. Generally people keep their valuable ornaments in
the locker. Lockers are three sizes one are small and other are middle and big. If any body
want to open a locker s/he has to pay rent Tk. 1800 for big size, Tk. 2500 for large and Tk.
1200 for small size annually. Any individual can open a locker.
 XII-02

LOAN & ADVANCE

SL.NO PARTICULARS Page No.

XII-02.01 Introduction 29

XII-02.02 Types of Advance 29

XII-02.03 Nature of Different Types of Advance 30-32

XII-02.04 Securities Against Advance 33

XII-02.05 Which Advance Against which Securities 33

XII -02.06 Process of Loan Sanction 34

XII-02.07 Portrait of Advance Division of IFIC BANK, Malibagh Br. 35

XII-02.08 Classification of Loan 36-37

XII-02.09 Lending Risk Analysis (LRA) 38

XII.2.1 Introduction

This is the survival unit of a bank because until and unless the success of this section is a
question to every bank. If this section is not properly working, the bank it self may become
bankrupt. This is important because this is the earning unit of the bank. Banks are accepting
deposits from the depositors in condition of providing interest to them as well as safe
keeping their deposits. Now the question may gradually arise how the bank will provide
interest to the clients and the simple answer is advance.

We often use loans and advances as an alternative to one another. But academically this
concept is incorrect. Advance is the combination of such items where loan is a part only for
this credit section of the bank.

XII.2.2 Types of Advance

All loan and advance that are provided by this bank can be categorized into there heads
according to the nature and characteristics of each product:

ADVANCE

Continuous Loan Term Loan Loan General

Figure shows the different types of advances

XII.2.3 Nature of Different Types of Advance

Cash Credit HYPOTHECATION (CC HYPO)

 Cash credit is given through the cash credit account. Cash credit is an active and
running account where deposit and withdrawals may be made frequently. The debit
balance of the account on any day can not exceed the agreed limit.
 Instrument HYPOTHECATION DEED.
 50% margin requires to open a CC account. (varies)
 Operation of cash credit is same as that of overdraft the purpose of cash credit is to
meet working capital needs of traders, farmers, and industrialist.
 It is granted only the first class parties.
 It is charged against a property where neither the ownership nor the possession is
passed to the bank.

Cash Credit PLEDGE

 The nature, operational work, and characteristics of CC- PLEDGE in as same as CC-
HYPO.
 CC.PLEDGE in different from CC-HYPO only from the securities or business goods
against the loan amount.
 It is charged against properties where the ownership may remain to the borrower but
the possession is passed to the bank.
 Instrument - Pledge Deed.

Secured Overdraft (SOD)

 Overdrafts are those drawings, which are allowed by the banks in excess of the
balance in the current account up to a specified amount for definite period as arranged
for.
 Generally it is given to the businessmen to increase their business activities.
 Usually provide against FDR, PSS, i.e. financial obligation or any primary securities.
The interest charges from the date of first withdraw.
 Interest is calculated and charged only on the actual debit balance on daily product
basis.
 Balance of OD account are fluctuates
 The interest rate of SOD is 3% above of FDR interest rate if the FDR is in our Bank.
If the FDR is in other bank then the interest r1te is 14.50%
Industries Loan
It is a term loan.
It is given for three (3) years at equal installment.
Grass period is allowed of this types of loan.
Grass period is the period that require to earn visible returns.

Others loan
Loan provided for other purpose which is productive and less risk rather industrial sector are
treated as others loan.
The terms and conditions of these types of loan are same as industry loan.

House Building Loan

This loan is give for the construction of building house. It is gives for three (3) years at equal
monthly installment. This loan is not provides frequently.

Staff House Building Loan (SHBL)

120 times of BASIC salary is provided as SHBL. Bank rate + 1 % interest is charged to the
loan amount. Repaymeilt adjusted from their monthly salary. Repayment is made at equal
monthly installment.

Consumes Credit Scheme

Under this scheme credit is given to the customer to purchase necessary and luxury
commodities like computer, motor vehicle, television, refrigerator, music system sewing
machine, furniture etc.
Other then the employee it is given to the valuable client.
It is a 24,36,48 installment system @ 15.50% interest.

Stuff loan against Provident Fund (SLPF)

10% of basic in contributed by employee Repayment is adjusted from their on they salary.
Maximum sanction from PF.

Loan against PSS

This loan is provides against PSS fund. 80% are given of the PSS fund.
This is 100% secured for the bank.
Payment Against Document (PAD)

The importers are to open letter of credit through any bank for importing goods. Most of the
time they are to extend credit to the importers if not prohibited by Bangladesh bank. This
loan creates, on receipt of shipping documents from the negotiating bank, is transferred and
lodged to PAD.

PAD is associated with import and import financing. The bank opening letter of credit is
bound to honor its commitment to pass for import bills when these are presented for
payment provided that it is drawn strictly in terms of the letter of credit, in fact the amount
their sends advanced on behalf of the importer.

Loan against imported Merchandise (LIM)

In many cases, a bank has to clear the goods imported under letter of credit at the request of
the borrower. When the importer does not come forward to retire the documents inspire of
repeated reminders bank has on forced circumstances to clear the imported consignment on
arrival of the same to avoid demurrage at the port which adds to the burden of commitment.
When the importer fails to retire the documents or request for clearance of goods, the
outstanding under PAD is transferred to LIM account.

After clearance, consignments are taken delivery by the importer on full payment of bank's
liability. Normally part delivery is not allowed while on LIM A/C. when the delivery in part
is desired by the importer, the LIM is converted into cash credit account retaining
proper margin and executing charge documents, the delivery is effected themselves on
obtaining pro rate payment.

Trust Receipts (TR)

This is an arrangement under which credit is allowed against trust receipts and imported or
exportable goods remain in the custody of the importer or exporter but he is to execute a
stamped trust receipt in favor of the bank where a declaration is made that goods imported
or bought with the bank's financial assistance are held by him in trust for the bank. .

Export Cash Credit (ECC)

ECC are extended to an export to facilitate the export of goods & commodities for which
there is export letter of credit or contract on hand. It is a pre-shipment & short term credit to
be liquidated out of the proceeds of export documents which include negotiation or purchase
of export documents.
XII.2.4 Securities against Advances

The following securities are to be obtained by the branches depending on the nature of
advances while allowing secured advances to the parties.
- Pratirakshya Sanchay Patra, Bangladesh Sanchay Patra, ICB unit certificates,
Wage Earner Development Bond
- Fixed Deposit Receipt issued by any branch of IFIC Bank Limited.
- Shares quoted in the Dhaka Stock Exchange Limited
- Pledge of goods and produce
- Hypothecation of goods, produce and machinery
- Immovable property
- Fixed assets of a manufacturing unit
Cheques, Drafts, Pay Order, Railway Receipts, Steamer Receipts, Burge Receipts of the
Govt. or Corporations
Shipping document

XII.2.5 Which Advances Against Which Securities

All securities are not suitable for all types of advances. Each security has its own suitability.
Specific securities to be obtained by the branches while allowing advance are shown below
against the types of advances:

Types of advances Securities

Loans Lien of various kinds of Sanchay Patras, Govt. Securities,

and Shares quoted in the Stock Exchange, Debentures, Fixed
Deposit Receipts, Pledge of gold/Gold ornaments,
hypothecation of vehicles. Collateral of immovable
properties.

Overdraft Sanchay Patra, Non-resident for deposit (NFCD), shares,

debt. Promissory notes, fixed deposit, insurance policies,
gold etc.

Cash Credits Pledge or hypothecation of stock, produced merchandise.

Inland bills purchase (IBP) The bill itself.

PAD Shipping document for imports.
IM Pledge of imported merchandise.
TR Trust receipt obtained in lieu of trustees.

ECC Pledge or hypothecation of goods receipts.

Foreign Bills Purchase Shipping document for exports.
XII.2.6 Process of Loan Section

Step-1 : Sanctioning by the competent authority

A secured advance may be grant to a party only after getting a limit sectioned
from the competent authority.

Step-2 : Loan/Advance Proposal

For obtaining a loan/advance the party must make an application in standard

form in writing to the branch where he maintains his operative account. After
receiving the application from the party, the branch manager will take
immediate steps to compile report regarding the party based on the following
sources of information:

 Personal investigation
 Confidential supports from
 Other banks,
 Chamber of commerce
 CIB from Bangladesh bank as the earnable.
 Treading account P/C, B/S. M/A if' any and other documents
submitted by the party.
 The average balance and the present maintained in the account.
 The nature of operations during the last six months and the date of
opening account.

Step-3 : Preparation of limit proposals

The branch, may prepare a limit proposal after being fully satisfied with the
following points:

 The financial position of the party.

 Purpose for which advance is required.
 Nature of securities offered.
 The payment arrangement.

Step-4 : Renewal Proposal.

Step-5 : Approval by Head Office and Branch responsible.

 Limit proposal sent to HO.

 Sanction/reject
 Receive the limit section advice.

Step-6 : Disbursement of loan.

Step-7 : Loan monitoring and administration.

 XII.2.7 Portrait of advance division of IFIC Malibagh Branch

Tk. In Thousand

Particulars No. of Acc Amount in Tk.

Term loan (industries) 10 123737
Term loan (other) 05 101208
SHBL 11 9697
House Building Loan 03 1694
SOD 18 64848
CCS 96 9184
CC (HYPO) 23 181466
CC (PLEDGE) 07 220446
ECC 04 18400
Loan against PF 46 6423
Loan against PSS 80 1961
FDBP 131 80046
IDBP 19 3111
LIM 48 486922
PAD (Cash) 06 12188
PAD (Force) 10 11443
PAD Inland 18 16748
PAD EDF 12 48940
Loan against TR 586 96780
Grand Total 1439670

As per Statement of affairs as on Nov, 10, 2004.

XII.2.8 Classification of Loan (CL)

Advance may classified or unclassified are determine on the basis of regularity of loan
recovery.

ASSESSMENT OF LOAN & ADVANCE

CLASIFIED (IRREGULAR)

CLASSIFIED UNCLASSIFIED
(IRREGULAR) (REGULAR)

SUBSTANDARD

DOUBTFUL

BAD LOAN

Figure: Shows the Classification or 1oan

Unclassified Loan: the repayment of advance which have regularity are called unc1assifiec
advance. This is a clean loan that is these is no overdue installment or not the expire due
date.

Classified: The repayments of advance which have no regularity are classified. That means
which are irregular in nature, overdue installment of payment, and expire the due date. There
are three standards of classification:

- Sub Standard
- Doubtful
 - Bad LoanAs per summery sheet as at 09.11.2004 IFIC Bank,
Malibagh Branch.

Nature No of Amount in TK. Interest Eligible Base for Required

Of CL Account Outstanding Suspense Security Provision Provision
UC 322 39887 Not applicable 937732 NIL 1%
BL NIL NIL NIL NIL NIL 100%
DF 05 522 48 NIL NIL 50%
SS 49 2555 _ NIL NIL 20%
Total 376 42964 48 937732
CL 54 3077 48 NIL,

Eligible security
- For land and building 50%.
- Financial obligation 100%.

Interest suspense
- Total balance of interest against classified loan.
Base for provision
- Formula: Outstanding - Interest surpasses - Eligible security
- In case of unclassified advance the base for provision should kept 1 % of the total
outstanding amount.
- In case of bad loan the base for provision should kept 100% of the total outstanding
amount
- In case of doubtful loan the base for provision should kept 50% of the total
outstanding amount.
- In case of sub standards loan the base for provision should kept 20% the total
outstanding amount.

Basically this standards of classification are depends on the expansion of time. There are separate
systems of classification for each type of loan. Each banking institution have develop there own
system of loan classification.

At !FIC Bank Ltd. Malibagh branch, what I have seen in the advance division that classification of
loan is a system of observation rather to measure of classify the credits which has provided by this
bank.
XII.2.9 Lending Risk Analysis (LRA)

LRA is the combination of analysis of various types of risks that may occur while a loan
have sanctioned. This is an analysis of the measurement of performance of a company or
individuals. When a loan have been provided by the bank then all types of risks have to
calculate. This is not easy to express all the pros and corns of LRA are not possible in this
report. Before sanctioning a loan it is necessary to analyze the LRA. IFIC Bank has
formatted this analysis which contains several sheets of analysis to identify the strength and
weakness and the repayment probability of the lending.

Here shows the simple flow chart of LRA where considering the business risk, company
risk, industry and management risk in the following:

LENDING RISK ANALYSIS

Business Risk
Supply Risk
Industry Risk
Industry Risk Sales Risk
Company Risk

Performance Risk
Company
Reliance Risk

Mgt. Competence Risk

Management Risk
Mgt. Integrity Mgt. Competence Risk

Security Control Risk

Security Risk
Security Cover Risk

Figure: Shows the Components that analyzed in the LRA

 FOREIGN EXCHANGE

SL. NO. PARTICULARS PAGE

XIII-03.0 1 Introduction 40
XIII-03.02 Administration of foreign exchange in bangle 40
XIII-03.03 Authorized Dealers 40
XIII-03.04 Handling of foreign exchanges of IFIC Bank 40-41
XIII-03.05.01 Types of Letter of credit 42
XIII-03.05.02 Nature of different types of L/C 42-44
XIII-03.06 Import Section 45
XIII-03.06.01 Import Procedures 45
XIII-03.06.02 Proposal for Opening L/C 46
XIII-03.06.03 The L/C Application form 46
XIII-03.06.04 The Letter of Credit Authorization form 47
XIII-03.06.05 The IMP form 47
XIII-03.06.06 Securitization of L/C Application 48
XIII-03.06.07 Accounting Treatment in case of L/C Opening 48
XIII-03.06.08 Amendment of L/C 49
XIII-03.06.09 Adding Confirmation 49
XIII-03.07 Export Section & Export Financial 50
XIII-03.07.01 Back to Back L/C 51
XIII-03.07.02 Payment for Back to Back L/C 52
XIII-03.07.03 Export L/C 52
XIII-03.07.04 Formalities of Export L/C 53
XIII-03.07.05 Procedure for FDBP 54
XIII-03.07.06 Settlement of Local Bill 54
XIII-03.07.07 Modes of Payment for Export Bills Under L/C 55
XIII-03.07.08 Test key arrangement 56
XIII-03.08 Foreign Remittance 56
XIII-03.08.01 FDD 57
XIII-03.08.02 Endorsements of US$ in passport 58
XIII-03.09 Student File Open 58
XIII-03.01: Introduction

A person living in Dhaka city can make payment to another in Chittagong with money or by
Cheques on any bank of the country. Such payments do not present any problems. But things
are different when the debtor and the creditor live in different country. When a trader from
Dhaka city imports goods from New York, the payment involves certain complication. The
Dhaka man can pay in taka but taka is of no use to New York exporter. There must be some
means of changing taka into dollar. Obviously the intervention of a third party is required.
So there is a need for a foreign exchange mechanism.

Foreign exchange refers to the process or mechanism by which the currency of one country
is converted into the currency of another country. Foreign exchange is the means and
methods by which rights to wealth in a country's currency are converted into rights to
wealth in another country's currency.

-L.R. CHOWDHURY
In terms of foreign exchange regulation Act 1947, as adapted in Bangladesh,
foreign exchange means foreign currency and includes all deposits. credits and balances
payable in foreign currency as well as all foreign currency instruments such as, drafts,
travelers Cheques, and bills of exchange in any foreign country.

XIII-03.02: Administration of Foreign Exchange in Bangladesh

The statute for administration of foreign currency in Bangladesh is the foreign exchange
regulation Act, 1947 as adapted in Bangladesh. Under this Act, the responsibility and
authority of administration of foreign exchange is vested by the government with the
Bangladesh bank.
While the Bangladesh bank has full authority to administer foreign exchange in Bangladesh,
it cannot do so by itself. This is not possible for Bangladesh bank to deal with a large
number of exporters and importers individually. Therefore, provision has been made in the
act, enabling the Bangladesh bank to delegate its powers of functions to authorized dealers.

XIII-03.03: Authorized Dealers (AD)

In administering exchange control and foreign trade, Central Bank of the country

(Bangladesh Bank) authorizes few branches of commercial banks to deal in foreign

exchange. These branches are known as “Authorized Dealers”. They act as an agent of the

Central Bank and work under the “Foreign Exchange Regulations Act-1947” and

“Guidelines for Foreign Exchange Transactions-Volume 1 & 2” prescribed by Bangladesh

Bank.
XII-03.04: Handling of Foreign Exchange at IFIC Bank

The IFIC Bank deals with foreign exchange with goodwill for a long time. It is handling of
foreign exchange closer to twenty (20) years. Nowadays 16 branches of this bank are
authorized to deal foreign exchange by Bangladesh Bank.
IFIC BANK offers two types of credit facilities to its customers. Such as-

a) Funded Credit and

b) Non Funded Credit

a) Funded Credit :

The credit facilities in which the fund of the bank is directly invested is known as funded

credit. Such as-Cash Credit, Secured Overdraft act.

b) Non Funded Credit:

The credit facilities in which bank’s funds are not directly invested are known as non-funded

credit. Such as-Letter of Credit (L/C), Guarantee etc.

Letter of Credit / Documentary Credit (“L/Cs”) is the key player in the foreign exchange

business. With the globalization of economy. International trade has become quite

competitive. Timely payment for exports and quicker delivery of goods is, therefore, a pre-

requisite for successful international trade operation. Growing complexity of international

trade, separation of commercial parties across the globe etc. underlined the need for

evolving a system that balances between the expectations of the seller and the buyer.

Documentary Credit has emerged as a vital system of trade payment, and fulfilled the

requisite commercial need. This system substantially reduces payment-related risks for both

exporter and importer. Thus the letter of credit is the classic form of international export

payment, especially in trade between distant partners. Payment, acceptance or negotiation of

the credit is made by the bank upon presentation by the seller of stipulated documents (e.g.,

bill of lading, invoice, inspection certificate).

 The Importer The Bank The Exporter
(Buyer of Goods) (Third (Seller of Goods)
Party)

DOCUMENTARY CREDIT / LETTER OF CREDIT (L/Cs):

Documentary Credit or letter of credit is nothing but an arrangement whereby a bank

(issuing bank) acting at the request and on the instruction of a customer (the applicant) or on

its own behalf undertakes to make payment to or to the order of a third party (the

beneficiary) or to accept and pay bills of exchange (draft) drawn by the beneficiary, or

authorize another bank to negotiate against stipulated documents provided the terms and

conditions to the credit are complied. Thus, Documentary Credits are akin to bank

guarantees. In popular language, they are known as Letters of credit (L/Cs). Bank guarantees

are, however, issued to cover situation of non-performance whereas documentary credits are

issued on behalf of the buyer to cover situation of performance, i.e., the issuing bank agrees

to make payment to the beneficiary one he surrenders the requisite complying documents.
XII-03.05.1: Types of Letter of Credit

TYPES of L/C

Revocable
Irrevocable

Non-transferable
Sight L/C

Deferred L/C
Transferable

The figure shows the different types of L/C

XIII-03.05.02: Nature of Different types of L/C

Revocable Credits : A revocable credit is one which can be amended or cancelled

by the issuing banker at any time without prior notice.
Irrevocable Credits : An irrevocable letter of credit contains an absolute
undertaking on the part of the issuing bank to accept.
Transferable Credit : The main theme of this type of credit is transferable i.e. if the
exporters can not able to supply the goods then. they can
transfer it to others.
Non-transferable Credit : These types of credit can not be transferable.
Sight L/C : In international business this types of credit is most preferable.
The main theme of this credit is the payment is properly
secured.
Deferred L/C : A maturity period specified there. The payment is made on
between the maturity periods.
Sales Contract
The Buyer

The Seller
Reimbursing Agreement

The Buyer The Issuing Bank

Documentary Credit Agreement

The Issuing The Beneficiary

Law of L/C

BANK AS A PARTY OF DOCUMENTARY CREDIT :

Parties to the documentary credit are-an issuing bank, an advising bank, a confirming bank,

a reimbursing bank or a negotiating banks.

Issuing Bank : The Issuing Bank or the Opening Bank is one which issues the

credit, i.e., undertakes, independent of the undertaking of the applicant, to make

payment provided the terms and conditions of the credit have been complied with.

The payment may be at sight if the credit provides for sight payment, or at maturity

dates if the credit provides for deferred payment. Especially the issuing bank should

satisfy himself on the credit worthiness of the applicant. The credit application must
 be in accordance with the Uniform Customs and practices for Documentary Credit

(UCPDC)- ICC publication no. 500 edition of 1993.

Advising Bank: The Advising Bank advises the credit to the beneficiary

authenticating the genuineness of the credit. The advising bank is generally situated

in the country/place of the beneficiary.

Issuing Bank

(Bangladesh)

Reimbursin
g
Bank
Advising Bank

(Singapore)

Negotiating Bank
(Singapore)

Confirming Bank : A Confirming Bank is one which adds its guarantee to the credit

opened by another bank, thereby undertaking the responsibility of payment /

 negotiation / acceptance under the credit in addition to that of the issuing bank. A

confirming bank normally does so if requested by the issuing bank. When the

creditworthiness of the issuing bank is in doubt, beneficiary’s bank may request the

issuing bank to give additional confirmation by another bank. It is said, ‘Add

Confirmation’ in practice.

Negotiating Bank : A Negotiating Bank is the bank nominated or authorized by the

issuing bank to pay, to incur a deferred payment liability, to accept drafts or to

negotiate the credit.

Reimbursing Bank : A Reimbursing Bank is the bank authorized to honor the

reimbursement claims in settlement of negotiation / acceptance / payment lodged

with it by the negotiating bank or accepting bank. It is normally the bank with which

the issuing bank has account from which payment is to be made. Reimbursement

claims in foreign exchange business is settled by the Uniform Rules for

Reimbursement (URR)-ICC publication no. 525.

The Foreign Exchange Department is mainly divided into three sections. Such as-

1. Import Section
2. Export Section &
3. Remittance Section
The import Section deals with L/C in the perspective of the importers and the Export Section
deals with L/C in the perspective of the exporters.

IFIC BANK
LIMITED
 Foreign Exchange
Department

Import Export Remittance

Section Section Section

XIII-03.06: Import Section

Import is the flow of goods and services purchased form one country to another. Hence,

import of merchandise essentially involves two things: bringing of goods physically into the

country and remittance of foreign exchange towards the cost of the merchandise and

services connected with this to the importer. In case of import, the importers are asked by

their exporters to open letters of credit so that their payment against goods is ensured.

Importer

Public Sector Private

(Govt. Organs. &
Sector
Corpns.

Commercial (finished Industrial (raw

products materials, machinery’s Actual Users

 Fig : Types of Importers

XIII-03.06.01: IMPORT PROCEDURES :

An importer is required to submit the following documents in order to get a license to import

through IFIC BANK Malibagh Br.

A bank account with the branch

Import Registration Certificate (IRC)

Tax Payer’s Identification Number (TIN)

Performa Invoice / Indent

Membership certificate from a recognized Chamber of Commerce & Industry or

Town Association or registered Trade Association.

Letter of Credit Authorization (LAC) Form properly filled in quintuplicate signed by

the importer.

L/C Application duly signed by the importer.

One set of IMP Form.

Insurance Cover Note with money receipt.

VAT Registration Certificate (for Commercial Importers)

In case of public Sector, attested photocopy of allocation letter issued by the

allocation authority, Administrative Ministry or Division specifying the source,

amount, purpose, validity and other terms and conditions against the imports.

Any such documents as may be required as per instruction issued/to are issued by the

Chief Controller of Imports & Exports (CCI&E) from time to time.

 On receipt of the LCA Form and the other documents, the branch officials carefully

scrutinize the documents and lodge the same in their respective registration books

and duly verify the signature of the importer put on the LCA Form.

To import, a person should be competent to be an ‘importer’. The office of the Chief

Controller of Imports & Exports (CCI&E) provides the registration (IRC) to the importer.

After obtaining the IRC, the person has to secure a “Letter of Credit Authorization” (LCA)

registration from the Registration Unit of Bangladesh Bank. After getting the LCA

registration, a person becomes a qualified importer. He is the person who requests or

instructs the opening bank to open an L/C. He is also called the “Opener” or “Applicant” of

the credit.

XIII-03.06.02: Proposal For Opening Of L/C

In case of an L/C of a small amount only the prescribed application form, i.e., the LCA Form

is enough to open an L/C. But when the L/C amount is reasonably high or where the party

intends to avail a credit facility, then the importer needs to submit an application to the

Foreign Exchange Department for getting a limit of the L/C amount.

The salient features of the application are

Full particulars of the bank account

Nature of business
Required amount of limit
Payment terms and conditions
Goods to be imported
Offered security
 Repayment schedule

XIII-03.06.03: The L/C Application Form :

L/C Application form is a sort of an agreement between customer and bank on the basis of

which the letter of credit is opened. IFIC BANK Malibagh Branch provides a printed form

for opening of L/C to the importer. A special adhesive stamp of value Tk. 150 is affixed on

the form in accordance with Stamp Act in force. While opening, the stamp is cancelled.

Usually the importer expresses his decision to open the L/C quoting the amount of margin in

percentage (Some L/C’s are opened for 100% margin).

Requirements of L/C Opening
. Applicant must hold a current deposit (CD) account in the Bank.
He must have a trade license of import
Tax Identification number (TIN)
Vat certificate.
Membership certificate.
Import registration certificate (IRC) for industrial or commercial.
An importer must ensure the above requirements while he is going to issue a L/C with any
bank to import some thing form another country.

XIII-03.06.04: The Letter Of Credit Authorization Form (Lcaf)

The Letter of Credit Authorization Form (LCAF) is the form prescribed for the authorization

of opening letter of credit/payment against importer and used in lieu of import license. The

authorized dealers are empowered to issue LCA Forms to the importers as per basis of

licensing of the import Policy Order in force to allow import into Bangladesh. If foreign

exchange is intended to be bought from the Bangladesh Bank against an LCAF, it has to be

registered with Bangladesh Bank’s Registration Unit located in the concerned area office of

CCI&E. The LCA Forms available with authorized dealers are issued in set of five (05)

copies each. First Copy is exchange control copy, which is used for opening of LC and

effecting remittance. Second Copy is the custom purpose copy, which is used for clearance

of imported goods from custom authority. Triplicate and Quadruplicate Copy of LCAF are

to be sent to concerned area of CCI&F office by authorized dealer/Registration Unit of

Bangladesh Bank. Quintuplicate Copy is kept as office copy by authorized

dealer/Registration Unit.

The Letter of Credit Authorization Form (LCAF) contains the following details-
 (1) Name and address of the importer.

(2) IRC no. and year of renewal.

(3) Amount of L/C applied for (both in figure and in word).

(4) Description of item(s) to be imported.

(5) Import Trade Certificate (ITC) Number / Harmonized System of Code (HS

Code Number.

XIII-03.06.05: The imp form :

The IMP Form contains the followings

Name and address of the Authorized Dealer.

Amount of remittance to be permitted (i.e., L/C amount).

LCA Form number, date, value in Tk.

Description of goods, quantity.

Invoice value in foreign currency (i.e., L/C amount)

Country of origin.

Port of shipment.

Name of steamer/airline (i.e., by road/by ship/by air etc.)

Port of importation.

Indentor’s name and address.

Indentor’s registration number with CCI&E and Bangladesh Bank.

Full name and address of the applicant.

Registration number of the applicant with CCI&E

Type of LCF i.e. Commercial or Industrial.

XIII-03.06.06: Scrutinization of l/c application :
On receipt of L/C application, the branch officials scrutinize the same very carefully giving

emphasis to the following points-

1. L/C application is stamped (as per Govt. Stamp Rule) as it is a guarantee of

payment.

2. All information mentioned in different columns have been furnished;

3. The items to be imported are eligible according to import entitleemnt;

4. If L/C is opened against indent, Bangladesh Bank’s permission, valid

registration, authority to issue indent by indentor are to be checked;

5. The terms and conditions stipulated in the L/C application are consistent with the

Bangladesh Bank Foreign Exchange Guidelines, Import Trade Regulations,

UCPDC etc;

6. The amount and description of merchandise are relevant to LCAF and proforma

invoice/ indent / purchase order;

7. Survey Report or Certificate in case of old machinery;

8. Carrying vessel is not of Israel or Serbia, Montenegro, Iraq, Israel &

Afghanistan;

9. Certificate declaring that the item is in operation not more than 5 years in case of

car.

XIII-03.06.07: Accounting Treatment in Case of L/C Opening

As soon as L/C is opened, the bank accepts a liability on behalf of the importer to make
payment against the credit. Provided that the shipment is made within the period and other
term, and conditions as per L/Care complied with, naturally, bank has to pass an entry in L/C
liability ledger and also in the general ledger to show its actual liability accepted on L/C. A
liability voucher in passed as under:

Contingent liability voucher

Customer's liability on L/C Dr.

Bank's liability on LIC Cr.
♦ Margin and bank charge
Margin, Commission, Postage and Cable Charge are recovered from the party by passing
entries as under:
Parties AIC Dr.
Margin AlC on LIC. Cr.
All charges on LIC Cr.

Transmission of L/C

In international trade, receipt of L/C by cable, telex, fax is preferred by all. In that case the
whole text of L/C is to be transmitted to the advising bank.

Transmission Process of IFIC Bank

The transmission process of L/C of IFIC Bank are much more advance. They are sending all
foreign L/C to the advising bank through SWIFT.
SWIFT- Society for World Wide Inter Bank Tale Communication. This is a system of inter
bank transaction. Every bank or other financial institutions must get the membership of
SWIFT to share the information. This is a system of communication where further
confirmation will not require.

XIII-03.06.08: Amendment of l/c :

The letter of credit opened by a bank may need to amendment. If the supplier finds. that the
terms of the credit cannot be complied with in full, he would arrange for necessary
amendments by the opener before the goods have shipped. These amendments must be
advised by the opening bank to the supplier through advising bank. Some time the opener
also may like to amend the credit after it has been advised.

XIII-03.06.09: Adding confirmation :

Sometimes beneficiary or supplier of the goods insists the importer for adding confirmation

to L/Cs or to issue L/Cs with add confirmation. In that case, at the request of the importer,

the Issuing Bank requests the Advising Bank or any third bank to add their confirmation to

the L/C. Normally, add confirmation charge is borne by the beneficiary and the confirmation

charge differs from bank to bank.

XIII-03.06.10: Lodegment & retirement of shipping documents:

On scrutiny, if it is found that the document drawn in conformity with the terms of the

credit, i.e., the documents are in order, this Branch lodges the documents in PAD (Payment

Against Documents) and the following accounting treatments are given-

PAD A/C --------------------------------------------------- Dr.

IFIC BANK General A/c (at HO prescribed rate) ---Cr.

Exchange A/C ---------------------------------------Cr.

The reversal entries are as follow –

Banker’s Liability --------------------------------- Dr.

Customer’s Liability ------------------------------ Cr.

(When lodgment is passed)

After passing the lodgment vouchers, the shipping documents are then stamped with PAD

Number and entered in the PAD Register. Intimation is given to the customer calling on the

bank’s counter requesting retirement of the shipping documents. The retirement vouchers are

as follows

L/C Margin A/C ------------------------------------------------ Dr.

Party’s A/C ----------------------------------------------------- Dr.

PAD A/C -------------------------------------------------------- Cr.

Interest / Commission A/C ----------------------------------- Cr.

P & T Charges A/C -------------------------------------------- Cr.

After passing the retirement vouchers, endorsement is made on the back of the Bill of

Exchange as “Received Payment” and the Bill of Lading endorsed to the effect “Please

deliver to the order of M/S -----”, under two authorized signatures of the bank’s officers

(P.A. Holder). Then the documents are delivered to the importer.

XIII-03.07: Export Section & Export Financing :

In the Export Section, two (02) types of L/Cs are handled in this branch-

1) Back-to-Back L/C; and

2) Export L/C

Export financing can be done in two ways. These are:

1) Pre-shipment Financing;

2) Post-shipment Financing.

Pre-shipment financing can be done by opening of back-to-back L/C and Packing Cash

Credit (PCC). In case of pre-shipment financing, about 90% is financed by the bank. Of that

portion, about 75% is for back-to-back L/C and 10% is for packing cash credit. Financing in

Back to Back L/C changes according to the products i.e. Normal fabric, Flannel fabric,

Woven fabric etc. Example of post-shipment financing by bank is Foreign Documentary

Bills for Purchase (FDBP).

XIII-03.07.01: Back to Back L/C:

In case of a “Back-to-Back” letter of credit, a new L/C (an import L/C) is opened on the

basis of an original L/C (an export L/C). Under the “Back-to-Back” concept, the seller as the

beneficiary it as a ‘security’ to the Advising Bank. The beneficiary of the back-to-back L/C

may be located inside or outside the original beneficiary’s country. In case of a back-to-back

L/C, no cash security (no margin) is taken by the bank; bank liens the first L/C (the master

L/C). In case of a back-to-back L/C, the drawn bill is usage/time bill.

Papers/documents required for opening of back-to-back L/C are as follows

Master L/C
Valid Import Registration Certificate (IRC) and Export Registration Certificate
(ERC)
L/C Application and LCAF duly filled in and signed
Proforma Invoice or Indent
Insurance Cover Note with money receipt
IMP Form duly signed
In addition to the above documents, the following papers/documents are also
required to export oriented garment industries while requesting for opening of back-
to-back letter of credit -
Textile Permission
Valid Bonded Warehouse License
Quota Allocation Letter issued by the Export Promotion Bureau (EPB) in favor of
the applicant for quota items.
A permission from Bangladesh Garments Manufacturer’s & Exporter’s Association
(BGMEA).
In case the factory premises is a rented one, Letter of Disclaimer duly executed by the

owners of the house / premises to be submitted. A checklist to open back-to-back L/C is as

follows-

Applicant is registered with CCI&E and has bonded warehouse license.

The master L/C has adequate validity period and has no defective clause
L/C value shall not exceed the admissible percentage of net FOB value of relative
Master L/C
Usage Period will be up to 180 days.

Flow Chart for back-to-back L/C

Check the credit limit

Prepare offering sheet if regular credit line is not available

Mark lien on the Master L/C

 Issue the L/C

XIII-03.07.02: Payment for back to back L/C:

In case of back-to-back L/C for 30,60,90,120 & 180 days of maturity period, deferred

payment is made. Payment is given after realizing export proceeds from the L/C Issuing

Bank. For Garments Sector, the duration can be maximum 180 days. For importing

machinery items or capital goods for 360 days Back to Back L/C can be opened.

XIII-03.07.03: Export L/C :

The other type of L/C facility offered by this Branch is Export L/C. Bangladesh exports a

large quantity of goods and services to other countries. Readymade garments (both knitted

and woven), jute, jute-made products, frozen shrimps, tea are the main goods that

Bangladeshi exporters export to foreign countries. Garments Sector is the largest sector that
exports the lion share of the country’s export. Bangladesh exports most of its readymade

garments products of USA and European Community (EC) countries. Bangladesh exports

about 40% of its readymade garments products to USA. Most of the exporters who export

through this Branch are readymade garment exporters.

XIII-03.07.04: Formalities for export L/C

The export trade of the country is regulated by the Imports & Exports (Control) Act, 1950.

There are a number of formalities that an exporter has to fulfill before and after shipment of

goods. These formalities or procedures are enumerated as follows –

Export Registration Certificate (ERC) : The exports from Bangladesh are subject

to export trade control exercised by the Ministry of Commerce through Chief

Controller of Imports & Exports (CCI&E). No exporter is allowed to export any

commodity permissible for export from Bangladesh unless he is registered with

CCI&E and holds valid ERC. The ERC is required to be renewed every year. The

ERC number is to be incorporated on EXP Forms and others documents connected

with exports.

The EXP Form: After having the registration, the exporter applies to this Branch

with the Trade License, ERC and the Certificate from the concerned Government

Organization to get the EXP Form. If the branch is satisfied, an EXP Form is issued

to the exporter.

Securing the Order : Upon registration, the exporter may proceed to secure the

export order. This can be done by contracting the buyers directly through

correspondence.
 Signing of the Contract : While making a contract, the following points are to be

mentioned: (a) description of the goods, (b) quantity of the commodity, (e) price of

the commodity, (d) shipment, (e) insurance and marks, (f) inspection, and (g)

arbitration.

Procuring the Materials : After making the deal and on having the L/C opened in

this favor, the next step for the exporter is set about the task of procuring or

manufacturing the contracted merchandise.

Registration of Sale : This is needed when the proposed items to be exported are

raw jute and jute-made goods.

Shipment of Goods : The following documents are normally involved at the stage of

shipment: (a) EXP From, (b) photocopy of registration certificate, (c) photocopy of

contract, (d) photocopy of the L/C, (e) customs copy of ERF Form for shipment of

jute-made goods and EPC Form for raw jute, (f) freight certificate from the bank in

case of payment of the freight if the port of lading is involved, (g) railway receipt,

berg receipt or truck receipt, (h) shipping instructions, and (i) insurance policy.

The following points should be looked for –

The terms of the L/C are in conformity with those of the contract.

The L/C is an irrevocable one, preferably confirmed by the Advising Bank.

The L/C allows sufficient time for shipment and a reasonable time for registration.
 If the exporter wants the L/C to be transferable, advisable, he should ensure those

stipulations are specially mentioned in the L/C.

At last, the exporter submits all these documents along with a Letter of Indemnity to this

branch for negotiation. An officer scrutinizes all the documents. If the documents are clean

one, the branch purchases the documents on the basis of banker-customer relationship. This

is know as “Foreign Documentary Bills for Purchase”.

XIII-03.07.05: Procedure for FDBP :

After purchasing the documents the following entries are made –

FDBP A/C ------------------------------------------------- Dr.

Liabilities A/C ------------------------------------------------- Cr.
Charges A/C --------------------------------------------------- Cr.
Exporter’s A/C ------------------------------------------------ Cr.
(Before realization of proceeds)

IFIC BANK General A/C (ID, Head Office) ------------------------------- Dr.

FDBP A/C ----------------------------------------------------- Cr.
Charges A/C --------------------------------------------------- Cr.
Exporter’s A/C ----------------------------------------------- Cr.
(Adjustment after realization of proceeds)
The FDBP Register is maintained for recording all the particulars.
XIII-03.07.06: Settlement of local bill :

The settlement of local bills is done in the following ways –

The customer submits the L/C to the branch along with the documents to negotiate.
The branch officials scrutinize the documents to ensure the conformity with the
terms and conditions.
The documents are then forwarded to the L/C Opening Bank.
The L/C Issuing Bank gives the acceptance and forwards an acceptance letter.
Payment is given to the customer on either by collection basis or by purchasing the
document.
The following accounting treatments are made for the purchasing of local bill –

Local Bill Purchase ---------------------------------------------------- Dr.

Party’s A/C -------------------------------------------------------------- Cr.
Commission ------------------------------------------------------------- Cr.
Interest A/C ------------------------------------------------------------- Cr.
A local bill purchase register is maintained to record the acceptance of the Issuing Bank.

Until the acceptance is obtained, the record is dept in a Collection Register.

XIII-03.07.07: Modes Of Payment For Export Bills Under L/C:

The most common methods of payment under a L/C are as follows-

At Sight Payment : In At Sight Payment, the bank pays the stipulated sum

immediately against the exporter’s presentation of the documents.

 At Sight Payment
Credit

Deferred Payment
Credit

Payment methods
under L/C

Negotiation Payment
Credit

Acceptance Payment
Credit
 Deferred Payment : In deferred payment, the bank agrees to pay on a specified

future date or event, after presentation of the export documents. No bill of Exchange

is involved. In this branch, the payment is given to the party at the rate of

30,60,90,180,360 days rate as the case may be. But the Head Office is paid under

T.T. Clean Rate. The difference between the two rates is the exchange margin for the

branch.

Negotiation Credit: In Negotiation Credit, the export has to present a bill of

exchange payable to him in addition to other documents that the bank negotiates.

Acceptance Credit: In Acceptance Credit, the exporter presents a bill of exchange

payable to him and drawn at the agreed tenor (that is, on a specified future date or

event) on the bank that is to accept it. The bank signs its acceptance on the bill and

returns it to the exporter. The exporter can then represent it for payment on maturity.

Alternatively he can discount it in order to obtain immediate payment.

XIII-03.07.08: Test key arrangement :

Test Key Arrangement is a secret code maintained by the banks for the authentication for

their telex messages. It is a systematic procedure by which a test number is given and the

person to whom this number is given can easily authenticate the same test number by

maintaining that same procedure. IFIC BANK Malibagh Branch has test key arrangements

with so many banks for the authentication of L/C messages and for the transfer of funds.
XIII-03.08: FOREIGN REMITTANCE :

“Foreign remittance” means purchase and sale of freely convertible foreign currencies as

admissible “Foreign Exchange Regulations Act-1947” and “Guidelines For Foreign

Exchange Transaction-VOL. 1 & 2” of the country. Purchase of foreign currencies

constitutes inward foreign remittance and sale of foreign currencies constitutes outward

foreign remittance.

So we see that there are two types of Foreign Remittance:

Foreign Outward Remittance.

Foreign Inward Remittance.

Mode of Outwards Remittance :

Foreign Telegraphic Transfer (FTT).

Foreign Mail Transfer (FMT).

Foreign Demand Drafts (FDD).

Travelers Cheque (TC).

Foreign Currency Notes.

Mode of Inward Remittance

Telegraphic Transfer (TT).

Mail Transfer (MT).

 Mail Transfer (MT).

Foreign Demand Drafts (FDD).

Payment Order (PO).

Travelers Cheque (TC).

Foreign Currency Notes.

Telegraphic Transfer (TT)

Telegraphic Transfer refers to the payment instruction by tested telex/cable or authenticated

fax by bank in abroad on an inland bank (local/foreign bank). Normally foreign banks, with

which corresponding banking relationship / drawing prevails, send T.T.

XIII-03.08.01: Foreign Demand Draft (FDD)

The foreign bank/exchange company on local bank usually issues Foreign Demand Draft. It

is an order to pay a certain sum to a certain person or as his instruction, issued by the bank

on its overseas branch or on its correspondent bank. The demand draft is handed over to the

purchaser who sends it to the beneficiary. The beneficiary obtains payment on presentation

to the bank on which the draft is drawn.

Encashment of FDD may take place in two ways-

Purchase,
Sending for collection.
XIII-03.08.02: Endorsements of us$ in passport :

IFIC BANK endorses US Dollars (USD), Great Britain Pound (GBP) in passports. To

endorse US Dollar, the client has to apply in the prescribed form (TM Form). The following

entries are given in this regard, -

Cash or Customer’ A/C Dr.

Foreign Currency on Hand Cr.

(Dollar Special)

XIII-03.09: Student file open :

As we know that Bangladesh – Taka is not fully convertible. Only current account not
capital account of our currency is convertible. But in case of students who studied abroad
can take any amount for their study cost. Thus IFIC BANK Malibagh Branch opens student
file to remit the costs to the respective institutes on behalf of the student subject to
scrutinizing the appropriate documents issued from the registrar.
XII
 HUMAN RESOURCE DEVELOPMENT

Human Resources Development (HRD) activities aim at fulfilling the Bank's Mission. One
of our four major missions of IFIC is to: "Provide service to their clients with the help of a
skilled and dedicated workforce whose creative talents, innovative actions and competitive
edge make their position unique in giving quality service to all institutions and individuals
that they care for."

Skilled and dedicated workforce with creative talents, innovative actions are not always
readily available. Appreciating the scarcity of such manpower, the Bank /Tom the very
beginning laid importance to HRD that conceptually includes activities like: pre-recruitment
drill, recruitment, induction training in the Academy, job rotation, placement and posting,
reward and promotion. All these activities are planned by the Bank in an integrated way
aiming at manpower with required technical, managerial, human and conceptual skills.

Management of IFIC Bank not only appreciates the need of skills required for day to day
banking but also realizes the need for skills to meet the global and national financial and
economic environments that are changing fast. Meeting the needs of new skills arising out of
Financial Sector Reforms Programme (FSRP) is also a major concern of the management.

THE ACADEMY

At the very beginning, the Bank laid a foundation by setting up an Academy at Head Office
under Human Resource Development Division to develop human resource internally.
Equipped with a professional library, modem training aids, professional faculty and other
facilities, the Academy of the Bank is a leading one among the Banks in private sector.

The Academy regularly conducts foundation courses, specialized courses and seminars in
different areas of banking to take care of the professional banking needs. In addition,
officers are regularly sent to Bangladesh Institute of Bank Management (BI8M) and
Bangladesh Bank Training Academy for professional training. Sending officers abroad for
higher training is a regular feature. A Research Department also works in aid of HRD and
other operational areas.

The Academy has to its credit the experience of conducting several courses for the officers
of the Bank of Maldives (BML) and Nepal-Bangladesh Bank Limited. In addition, it built up
the training system for the Bank of Maldives Limited. The Bank is now undertaking steps to
build up training system for Nepal-Bangladesh Bank Limited.

ACADEMY OBJECTIVES

IFIC Bank Academy, established in 1983 as an in-house training institution, takes care of the
training need of the employees of the Bank. The objectives of the Academy are to:

♦ make available skilled and dedicated workforce within shortest possible time by
reducing time required for on-the-job training;
♦ develop understanding about law and practice of banking through foundation training;
♦ impart technical skill to the operational level officers through case studies/practical
exercises/demonstration/project visit for efficient desk operations;
♦ develop analytical & decision making skills of the officers;
♦develop understanding about human/conceptual skill and organizational culture;
♦ impart managerial skills to groom future Executives and to keep existing Executives up-.
to-date with national and international environment.

TYPES OF PROGRAMMES

For fresher, Foundation Courses on elementary knowledge of banking are organised.

Specialised Courses on the areas like Credit, Foreign Exchange, Accounts, Inspection,
Marketing etc. are meant for officials working in those areas. Senior level courses are run on
specific knowledge area. Certain courses are a blend of different knowledge areas.

APPROACHES TO TEACHING

The Academy holds need-based training courses/workshops/seminars etc. which are

finalised by HRD Division in consultation with various departments and senior Executives
at Head Office. Training inputs are constantly reviewed/modified for achieving the Bank's
objectives. Methods in training include: discussionllecture/workshop/case study/games/role
play/ film show/simulation/group work & presentation/project visit and so on.

ON-THE-JOB TRAINING

Foundation courses have to parts: ♦ theoretical training in the academy and

♦ job rotation.
The officers on probation are required to under go both in a period if one year. During this
period three –phased training is provided. On the theoretical training in, say, General
Banking the officers required to under go under go rotation in General Banking activities
under the supervision of the HRDD. Similar process is followed in case of Credit and
foreign Exchange.
XIII
 PERFORMANCE ANALYSIS
Financial Statement
INTERNATIONAL FINANCE INVESTMENT AND COMMERCE BANK LTD.
TAKA IN MILLION
SL. PARTICULARS YEARS
No.
1997 1998 1999 2000 2001 2002
01 Authorized capital 500 500 500 500 500 500
02 Paid-up capital 279.35 279.35 279.35 279.35 406.39 406.39
03 Reserve & Surplus 393.00 533.54 683.73 827.98 622.53 623.98
04 Shareholder's Equity 672.35 812.89 963.08 1107.33 1028.92 1030.37
05 Deposit 15623.94 16793.49 17312.09 16577.52 17616.68 18719.20
06 Credit 10494.80 11199.80 11475.23 17312.79 18189.70 19502.70
07 Total Income 1422.37 1545.80 1777.92 1874.02 2173.96 2136.63
08 Total Expenditure 1215.33 1329.58 1546.86 1631.86 1925.96 1685.43
09 Net Profit Before Tax 207.04 216.22 231.06 242.16 248.00 451.20
10 Net Profit After Tax 124.22 140.54 150.19 157.40 161.20 270.72
11 Tot1 Assets 17648.12 19214.85 25671.53 26417.12 27258.65 27332.90
12 Fixed Assets 252.15 238.86 282.06 316.04 315.87 123.77
484
13 No. of Shareholders 5156 5356 5522 5862 5862
1
14 Current Assets 17395.97 18975.99 25389.47 26101.08 26942.75 27209.13
15 Total Liabilities - 26175.81 27249.99 25451.13 26229.73 27806.68
16 Cash - - - 1603.11 5228.59 2407.82
Balance With Other
17 - - - 1750.21 1157.27 230.51
Bank
18 Money at Call - - - 1407.26 1335.00 670.00
19 Investment - - - 3241.11 721.42 4239.88
Premises & Fixed
20 - - - 140.72 126.42 141.50
Assets
21 Others Assets - - - 961.91 500.24 599.61
Borrowing From Other
22 - - - 1590.24 1190.65 1913.18
Bank
23 Others Liabilities - - - 7283.36 7422.39 7358.50
Note:
♦The Above data has been collected from the Annual Report 200 I, the provisional figure 2002 and Balance
Sheet. The
♦Current Assets have calculated by deducting the fixed assets from the total assets.
♦The Deposit is the Current Liability of a bank.
♦The credit figure is the advance of a bank.
♦The figure of the year of2002 has been audited but not yet published.
♦The tax for the year of 2002 have assumed here @ 60%.
Ratio Analysis

Current Ratio
Measures : It shows a firms ability cover it's current liability with it's current assets.
Formula : Current Assets ÷ Current Liability

Debt to equity Ratio

Measures : Ratio that shows the extent to which the finn is financed by debt.
Formula : Total debt -;- Share Holder's Equity

Debt to Total Asset Ratio

Measures : It highlights the relative importance of debt financing to the firm by
showing th, percentage of the firms assets that are supported by debt financing.

Formula : Total debt -;- Total Assets

Net Profit Margin

Measures : Measures the profitability with respect to sales lincome generated in one
unit 01 money.

Formula : Net Profit After Tax -;- Total Income

Return on Investment (ROI)

Measures : Measures overall effectiveness in generating profits with available assets,
earning power invested capital.

Formula : Net Profit After Tax -;- Total Assets

Return on Equity (ROE)

Measures : Measures earning power on share holder's book value investment.
Formula : Net Profit After Tax -;- Share Holder's Equity

International Finance Investment And Commerce Bank Ltd.

SI. No RATIOS YEARS
1997 1998 1999 2000 2001 2002
01 Current 1.11 1.13 1.47 1.57 1.53 1.45
Ratio
02 Debt to 32.20 28.29 22.98 25.49
Equity Ratio
03 Debt to Total 1.362 1.061 0.963 0.962
Assets Ratio
04 Net Profit 0.087 0.090 0.084 0.083 0.074 0.097
Margin
05 Return on 0 .007 0.007 0.006 0.006 0.006 0.010
Investment
I
(ROI)
06 Return on 0.184 0.1 72 0.155 0.142 0.156 0.263
Equity
(ROE)
Oct: Trend Analysis

Until now, I have introduced various financial ratios, explaining their uses in analysis. In
addition to financial ratio analysis, it is often useful to express balance sheet and income
statement items as percentages. The percentages can be related to totals or some base year.
Called common size analysis and index analysis, respectively, the evaluation of levels and
trends in financial statement percentages over time affords the analyst insight into the
underlying improvement or deterioration in financial condition and performance.

These two new types of analysis are extremely helpful in comparing firm, whose data differ
significantly in size because every item on the financial statements gets placed or a relative
or standardized, basis.

In common size analysis, we express the various components of a balance sheet as

percentage: of the total assets of the company. In addition, this can be done for the income
statement, but here these analysis are expressed only on the basis of balance sheet items.
Common size analysis is an analysis of percentage financial statement where all balance
sheet items are divided by the total assets and total liabilities.

Index analysis: An analysis of percentage financial statements where all balance sheet or
income statement figure for a base year equal to 100.00 percent and subsequent financial
statement item_ are expressed as percentage of their values in the base year.

OS: Trend Analysis of IFIC Bank Ltd.

International Finance Investment And Commerce Bank Ltd.

Taka In Million
Particulars Years
Regular size Common Size % Index Size %
Assets 2000 2001 2002 2000 2001 2002 2000 2001 '2002
Cash 1603.11 5228.59 2407.82 6.07 19.]8 8.80 100.00 326.15 150.20
Balance with 1750.21 1157.27 230.51 6.63 4.25 0.84 100.00 66.12 13.17
other bank I
Money at Call 1407.26 1335.00 670.00 5.33 4.90 2.00 100.00 94.86 47.61
Investment 324 I.I 1 721.42 4239.88 12.27 2.65 15.51 100.00 22.26 130.81
Loan & Advance 17312.79 18189.70 19502.70' 65.53 66.73 70.15 100.00 105.06 112.65
Premises & 140.72 126.42 141.50 0.53 0.46 0.51 100.00 89.84 100.55
Fixed Assets
Others Assets 961.91 500.24 599.61 ' 3.64 1.83 2.19 100.0 52.00 62.33
Total Assets 26417.12 27258.65 27332.90 100.00 100.00 100.00 100.00 103.18 103.4 7
Liability- Capital
Borrowing from 1590.24 1190.65 1321.37 6.25 4.54 4.75 100.00 74.87 83.09
other Bank
Deposits 16577.52 17616.68 18719.20 65.13 67.16 68.81 100.00 106.27 112.92
Other liability 7283.36 7422.39 7353.50 28.62 28.30 26.44 100.00 101.91 100.96
Total liability 25451.13 26229.73 27806.68 100.00 100.00 100,00 100.00 103.06 109.25

SOWT ANALYSIS

OF

IFIC BANK LTD.

During my internship period in IFIC Bank at Malibagh I found some aspects relating to the
Bank’s strength, opportunity, weakness and threats which are more or less present in almost
every branches, I think affecting the Bank’s performance in total. Which are explained
through SWOT analysis below:

Strength Weakness

The prime weakness I found lack of

Found that a good image about the Bank
motivation of workers originating from
$ has been created among the customers ®
management’s mal-practices, partiality,
through careful and quality services
inter personnel clash, unsatisfied
grievances etc.
Skilled and excellent management staff is
$ ® Absence of teamwork because of subtle
its focal strength.
interpersonal clash.
Quality services through modern
$ sophisticated automated system.

Qualified and knowledgeable Human Bad employee-management relation in

$ ®
Resource. some cases.

Opportunity Threats
Few non-baking organization snatching
Vast opportunity for expansion and away few banking services like- some
€ £
customer finance transport authorities are engaged in
money transportation.

Stepping of new banking organization

Potentials for investment in different with highly updated sophisticated
€ £
sectors increasing rapidly in Bangladesh. automated servicing system and
products.

Opportunity to serve quality service Introduction of certain harder banking

€ £
through the usage of updated technology. rules and regulation.

Customer awareness of pricing and

£
services
 Analytical Study

The current ratio simply calculated by dividing the current asset by the current liabilities. If
the current asset is increase then the current ratio is increase too. If the current asset
decreases then the ratio is also decrease. And it shows the ability to cover current liability
with it's current assets. Here the current asset has calculated by deducting the fixed asset
from the total asset. The deposit has treated the current liability of a bank.

Here analyze the current ratio of !FIC Bank using six years data from 1997 to 2002. It can
be said that the recovery of current liability is much better and satisfactory and stable. The
increase and deterioration trend of current ratio i..,' quite consistence. This is good for a
bank or any undertakings.

Debt to equity ratio shows the extent to which the firm is financed by debt. Debt to equity
ratio simply calculated by dividing the total debt by the shareholders equity. This ratio tells
us that what portion of finance is provided by the shareholders and what portion is provided
by the creditors. Creditors would generally like this ratio to be low, because while the ratio
is lower the portion of shareholders equity will be higher. Then the creditor's liability will be
reduced.

The debt to total assets ratio is derived by dividing a firm's total debt by its total assets. This
ratio serves a similar purpose to the debt to equity ratio. This ratio detects that percent of the
firms assets are finance with debt while the remaining of the financing
. comes from others sources of equity.
In short, the higher the debt to total assets ratio, the greater the financial risk the lower this
ratio the lower the financial risk.

In case of IF1C Bank Ltd. the trends of six years (1997 to 2002) of debt to total asset ratio is
satisfactory. But this trend are changing and improving. The management of this bank
should handle it carefully and always try to lower this ratio as well as the financial risk.

The net profit margin ratio measures the profitability of any organization. We can verify the
profitability of a business by using this ratio. The ratio shows the net income of one unit of
total income.

In analysis the six years net profit margin ratio of IF1C bank, 1 found that it pay 60% to
65% taxes to the government of People's Republic of Bangladesh. The net profit before tax
(NPBT) of six years from ]997 to 2002 is consistent but in the year of 2002 it has increased
significantly.

The ratio of return on investment (ROI) measures overall effectiveness in generating profit
with available assets.

If we analyze the six years from1997 to 2002 we will see that the RO1 is growing
consistently of IFIC bank. Because its total assets as well as net income after tax (NIAT) are
increasing. This is good for bonk and the economy of the country.
The ratio of return on equity measures the earning power on shareholders book value
investment.

The trends of return on equity (ROE) is growing, the reason is that the NIAT and the
shareholders equity has increased over the six years from 1997 to 2002. So the ratio of ROE
is moving upward.

Here presented the trend analysis by using two new types of analysis.

♦ The common size method.

♦ Index method

These are much helpful to realize the performance or trends of a business undertaking.

In this study these two analyses have been used only on balance sheet items.

In common size the total assets and the total liabilities are present @ 100% and all the B/S
items are divided by total assets and total liabilities and multiply with 100 to show
percentage.

(Each balance sheet components + total assets / total liabilities) x 100

This is not easy to realize the contribution of each B/S items on total of the business. This is
the method how we can realize it promptly.

In case of 1FIC bank limited here I saw that the loan and advance or credit which is the
account receivable of a bank is closer to three fourth -3/4. which will be the main reason of
money crisis while the bank may need to finance at its crucial moments.

And in the liabilities a big portion is captured by the deposits which are the current
liabilities of a bank is also much closer to three fourth -%. .

The index method of trend analysis represents another side of IFIC bank Ltd. It shows a
consistence and steady growth which is really respectable and honorable in the private sector
banking as well as Bangladesh economy.
 FINDINGS

@ Hopefully the management decided to provide fully computerized services that will
booster services of the bank.

@ When a joint stock company comes to open an account if the company happens to be an
existing one, the banker should demand copies of the balance sheet and profit & loss
account, which will reflect the financial growth of the company and its soundness, But in
practice companies and the bankers as well don't even bother.

@ Few officers of the bank are competent. Even though many of them simply know the
working procedure of what they are doing but don't know the philosophy behind doing those
and some are inefficient to serve the customer.

@ Project loan requires testing of feasibility of project and judging the marketability of the
product. It requires infusion of knowledge of both the fields-marketing and banking. But the
bank has hardly any person with this kind of ability.

@ Officers of the desk, where workload is very high, hardly get the chance to go out for
development purpose and always feel that their duties for the organization would not be
evaluated unless they can show a good amount of deposit collection against their name.
 RECOMMENDATION

In order to get competitive advantage and to deliver quality service, top management should
try to modify the services.

♦ The synergy of dedicated manpower, technology, market opportunity can lead the
organization to achieve the goal, a bank must establish and adhere to adequate of loan
provision and reserve.

♦ IFIC Bank should train up their branch personnel about all sort of information regarding
SWIFT and its service.

♦ Due to lack of proper knowledge about the operation procedures and services provided to
the customers by SWIFT, certain customers are facing problem, as they have to wait for
certain tin1e to get service. and sometimes personnel are not being able to operate SWIFT
without any confusion. They are not fully independent of handling SWIFT. Official training
is the solution to this problem.

♦ IFIC Bank should always monitor the performance of its competitors in the field of
Foreign Trade.
♦ Mercantile Bank Ltd. Standard Bank Ltd. Mutual Trust Bank Ltd. Premier Bank Ltd. First
Security Bank Ltd. Eastern Bank Ltd. Bank Asia Ltd. and Dhaka Bank Ltd. and all other
private banks are emerging competitors of IFIC Bank. They should continuously strive and
try .to introduce new products and services as access card. A TM with future improved
quality services.

♦ For customer's convenience in Foreign Exchange Department of IFIC Bank Ltd. should
provide more personnel to deliver faster services to their honorable customer.

♦ It seems to me that day-by-day customers operation is increasing, individual employee has

to handle different types of job. But that is pocking a back for an employee. As a result it
might be happen any big mistake by the employee and service is also timed consuming and
customer has to suffer for this situation. May be it would be the reason for employee's de-
motivation as well as the customer's dissatisfaction.

♦ IFIC Bank Ltd. should focus on their promotional activities.

♦ They should also focus on the marketing aspects to let customers know about their
products and offerings and more promotion should be given to attract new customer.

♦IFIC Bank Ltd. must develop electronic banking system to moderate the service.
Technological advantage of a bank ensuring its competitive edge in the market place can
only be achieved by efficient manpower. It is market share to reduce its operating cost and to
generate new revenue. Electronic banking system also allows increased access to the
financial system by its customers.

Few other important factor that should be focused on the development process:

@ Evaluate customer's needs from their persp0ective and explain locally the shortcomings.

@ Customer's convenience should receive priority over other.

@ Improve office atmosphere to give customers better feeling.

@ Time consumed at service level should be minimized at optimum level.

@ Use of effective management information systems.

@ Use appropriate techniques in evaluating customer need professionally.

@ To deliver quality service top management should try to mitigate the gap between
customer's expectation and employee's perception.
 FEW SUGGESTATIONS

I. The bank can offer to its customer better service if all of its departments are computerized
and incorporated under Local Area Network (LAN)

II. At the entry position the bank should enroll more expertise people to augment quality
services.

III. Nowadays-conventional banking concept is outmoded. Now banks are offering more
ancillary services like credit card, on line services and many others. IFIC Bank Ltd. should
differentiate its services adopting the modern facilities.

_IV. Bank is providing both internal and external training for the officers but bank should be
scrupulous about the training facilities so that official can implicate this in their job.

V. People are very choosy about environment now a day_ so bank premises should be well
decorated and IHC Bank Ltd. should look into the matter very seriously.

VI. Bank should provide advances towards the true entrepreneur with reconsidering
conventional system of security and collateral, moreover, the whole process should be
completed within an acceptable time.
 CONCLUSION

Form the learning and experience point of view I can say that I really enjoyed my internship
period in IFIC Bank Ltd. at Malibagh Br. from the very first day. I am confident that this 3
three months internship program will definitely help me to realize my further carrier in the
job market.

Performance analysis of a bank is not so sufficient to measure and express perfectly within
this short time of my internship period. But it is a great opportunity for me to get used to
with the operational environment of commercial banking of IFIC Bank. I have tried by soul
to incorporate the necessary relevant information in my report.

Top management of IFIC should conduct a comprehensive study or survey on the branches’
performance, its managements performance and the employees’ performance and their
motivation as well. Few loyal committed customer base, lack of modern and effective
technology or facilities, not enough skilled employee in some sector, considering all of these
very important factors. IFIC Bank should always try to improve their service level in every
terms.

The marketing department should think freshly about their marketing objectives and
practices. Rapid changes can quickly make yesterday's wining strategies out of date. As a
developing private bank in Bangladesh, IFIC Bank shouldn't allow their client to get
dissatisfied with their service. They have their competitors who actively striving to take the
advantages in every side.

During the course of my practical orientation I have tried to learn the practical banking to
relate it with my theoretical knowledge, what I have gathered and going to acquire from
various courses.
 BIBLIOGRAPHY

My daily - Daily Notebook, written during the orientation program.

IFIC BANK LTD., Working Manual for different department.

Import Policy, 1997-2002, published by Ministry of Commerce, Bangladesh

Secretariat, Dhaka.

Annual report 2002, IFIC BANK LTD.

Business of Banking - Dr. R.M. Debnath.

A Text Book on Foreign Exchange- L.R. Chowdhury.

Special Project Report- Published by IFIC Bank

 TABLE OF CONTENTS

SI. No. PARTICULARS PAGE

I 1st Cover Page I
II 2nd Cover Page II
III Letter of Submission III
IV Letter of Placement as Internee IV
V Letter of Joining as Internee V
VI Dedication VI
VII Acknowledgement VII
VIII Executive Summery VIII
IX Introduction 1
X The Organization Profile 4
XI Overall Banking Operations of IFIC 11-58
XI-01 General Banking 12-27
XI-02 Loan & Advance 28-38
XI-03 Foreign Exchange 39-58
XII Human Resources Development 59-61
XIII Performance Analysis & Recommendation 62-72
XIV Conclusion 73
XV Bibliography 74