An Overview of Banking Law

in Bangladesh

Barrister Jennifer Ashraf

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 Types of Loans and Advances
• • Personal Loan
• Car Loan
• Vacation Loan
• Home Loan
• Any Purpose Loan
• Overdraft
• Import Financing
• Export Financing
• Bank Guarantee

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 Overdraft (O.D.)
• Overdraft is an arrangement between a banker and
customer by which the latter is allowed to withdraw
over and above his credit balance in the current
account up to an agreed limit.
• Temporary, usually granted against sufficient
security; renewable after expiry.
• The borrower is permitted to draw and repay any
number of times, provided the total amount
overdrawn does not exceed the agreed limit.
• The interests charged only for the amount drawn
and not for the whole amount sanctioned. 3
 O.D. AGAINST HYPOTHECATION OF
GOODS:
• In this case both the ownership and physical
possession remain with the borrower.
• The borrower binds himself to surrender the
hypothecated goods to the bank as and when called
upon to do so.
• The bank only acquires a right over the goods.
• Therefore, the bank insists upon the borrower to
give other secondary securities; only trustworthy
and prudent clients.
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 O.D. AGAINST PLEDGE OF GOODS:
• In this matter the borrower surrenders the
physical possession of the goods, under effective
control of the bank.
• The ownership of the goods however, remains
with the borrower.
• In case of default by the borrower in repayment of
the credit, the bank has the authority to sell the
pledged goods and realize the due loan with
interest.
• However, the bank has to give a notice to the
borrower before attempting to sell the goods. 5
 Import Financing
• a) Pre-import financing:
1)Letter of credit (non-refunded)

b) Post import financing:

1) Payments against Documents (PAD)
2) Loans against Imported Merchandise (LIM)
3) Loans against Trust Receipt (LTR)

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 Export Financing
• Export finance can be allowed in two types or
stages, namely-
• Pre-shipment;
Packing credit
Back to Back L/C.
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• Post- shipment.
Through negotiation of documents;
Through purchase of foreign bill.
 Bank Guarantee

• Bank guarantee is nothing but giving a

guarantee (commitment) to a certain
organization by a bank on behalf of its client
stating that if the client of the bank fails to
perform certain contractual obligation, the
bank will settle the liability of the client to
that organization (beneficiary).
• Commission is realized from the bank’s client
for issuing such guarantee.
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 Bank Guarantee
• Bank guarantee is of two types:
•
• Bid Bond Guarantee,
• • Performance Guarantee.

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 Bid Bond Guarantee:
• Bid Bond Guarantee is issued by the bank on
behalf of bank’s client favoring the beneficiary
(the company which has request the bids) for the
purpose of submitting Tender schedule by the
client.

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 Performance Guarantee:

• When a company (client of the bank) is

awarded a contract, then the company
(beneficiary of bank guarantee) who
awarded the contract will request the
contractor (bank’s client) to submit a
Performance Guarantee.
• On request of the bank’s client the bank will
issue a Performance bank Guarantee
favoring beneficiary.
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 Impaired Asset Management
Department
• This department of the bank looks after the default
loans and tries to recover them.
• It is said that the less job load this department has,
the better it is for the bank itself.
• The head of IAM directly reports to the Managing
Director of the Bank and this division is an
administrative division of the bank.
• This department of the bank has two wings.
• One wing looks after the impaired assets of SME wing
and another wing looks after the impaired assets of
retail business.

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• Normally if a loan installment is six months over due, then
the credit department hands over the file to IAM for
recovery.
• IAM first issues a letter in soft language.
• Then if it does not work, IAM issues further three letters to
the defaulter.
• If it does not work either, then IAM files a case against the
defaulter.
• Usually this case filing is done in the 11 month of the
default.

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 IAM Process
• Loan Admin - The posting is done in the system in the Asset
Operations Department. Then Loan Admin sends requisition to
Finance Admin.

• Finance Admin: Fin Admin take care of the other expenses.

• Recovery: Recovery Dept. prepares an overdue report and

informs the TM. Recovery dept. keeps track of the money. Legal
notices are given to the defaulters.

• MIS: MIS dept. keeps the total record of loan from its sanction
to repayment.

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