Final Report.doc

Chapter-One INTRODUCTION

1.1 Prelude

Internship is an assigned work performed usually by the students of BBA at the end as partial fulfillment of the requirements for the degree of BBA in the Dept. of Business Administration of the University of Information Technology & Sciences. The aim of internship is to apply one’s theoretical knowledge in practical fields. As a student of Finance. We are interested to complete our internship program at financial institutions. And for this purpose I was sent to Rajshahi Krishi Unnayan Bank (RAKUB), Local Principle Office, Rajshahi. The program is completely supervised by our respected teacher Md. Sajedur Rahman, Department of Business Administration UITS, Rajshahi Campus. The program started from 2nd

January 2014 and continued up to 1st April 2014. After joining the branch, I was first introduced with Sudhangshu Kumer Halder, Manager, Rajshahi Krishi Unnayan Bank (RAKUB), Local Principle Office. Later on, he introduces me with other officers of the branch who accept me cordially. They were very helpful in collecting information and helped me as much as possible.

This was the first practical experience of mine, so that I have enjoyed it very much. The cordial help of manager and officers make it more enjoyable. Since I have completed a course on Bank management, I have some theoretical knowledge about different activities of bank. And practical experiences of bank activities enrich my knowledge through getting real view. The report is prepared from the knowledge which I have had from theoretical learning and practical experience which I have got from the internship program. Though I have got a conception about overall banking functions but in this report I have focused on loan management of RAKUB, Local Principle Office, Rajshahi.

University of Information Technology & Sciences 1

1.2 Objective of the study The main objective of the study is to examine the loan management of RAKUB, Local Principle Office, Rajshahi for the period of 2009-10 to 2012-13 to achieve the objective: the study seeks to realize the following: 1. To assess the activities of RAKUB, how it contributes in agricultural development of Rajshahi. 2. To assess the loan management system during the period 2009-10 to 2012-13. 3. To assess the loan disbursement condition of Local Principle Office for the period 2009-10 to 2012-13. 4. To determine various sources of loan able fund. 5. To know the security evaluation system before providing loan to the customer. 6. To examine the loan monitoring system of the bank.7. To know the different services provided by the bank to its customers. 8. To know how they deal with problem loan.9. To know the criteria of classifying loan.10. To know the competitive position of the bank in the area with different financial institutions providing agricultural credit. 1.3 Scope of the study Evaluation of loan management is one of the most important parts for evaluating any commercial or specialized bank. Loan management mainly comprises of loan disbursement policy, at the same time it deals with classification of loan and balancing liquidity and profitability position of the bank. The study is emphasized on whether the bank providing loan considering all required aspect and recovering loan in timely manner and what initiative they are taking in respect of problem loan. That is how profitably the bank is operating with keeping loan management at optimum level. 1.4 Methodology of the study Methodology can be termed as underlying principles and rules of organization or the philosophical systems that work at the back drop of any study. To fulfill an internship program and prepare a complete report we need organizational data. The data was collected from the Rajshahi Krishi Unnayan Bank during the internship period. To make the report more


meaningful and presentable two sources of data and information have been used widely those are;

1. Primary sources of information 2. Secondary sources of information

Above mentioned sources are described below:

1. Primary sources: Primary data are measurements observed and recorded as part of an original study. Primary sources are the sources from where information is collected from Rajshahi Krishi Unnayan Bank. The ways through which I have collected information in my internship program are described below:

a. Questionnaire method: Questionnaire method is one of the most usual systems used in collecting data or information. Questionnaire is two types such as open ended questionnaire and close ended questionnaire. I have prepared an open ended a questionnaire under the supervision of my respected supervisor about different functions and mainly loan management of Local Principle Office, Rajshahi of RAKUB. The manager and specially the second officer of the branch answer most of my questions. The questionnaire is given at the end of the report.

b. Observation method: According to oxford dictionary the observation means “the act of watching something carefully for a period of time specially to learn something”. I went to the RAKUB Local Principle Office, Rajshahi and observed the different activities of officers and the different problems and requirements of customers through which I have collected some information. But one true thing is that I could not ask question to the officer in all the time when I cannot understand, the reason is that in my branch the month of loan management is going on, so most of the officer stay busy in most of the time.

c. Interview method: The interview is face to face interpersonal discussion in which one person asks pertinent question to a person called respondent about a selected topic or area. I have collected some information through asking the officers.


2. Secondary sources: When an investigator uses the data which has already been collected by others, such sources or data are called secondary sources or data. I have collected some secondary information which is already published by the bank authority. I have collected secondary information from the following sources:

a. Statement of affairs of the branchb. Documents supplied by branchc. Different articlesd. Magazines and paperse. Bank’s websitef. Rules and regulations provided by agricultural credit department of

Bangladesh bank. g. Annual report of the bank from 2007-08 to 2009-10.h. Some statistical graphs and charts of the bank.

Analysis of questionnaire: There are different techniques of analyzing questionnaire. I have asked different questionnaire about the functions of RAKUB, activities of Local Principle Office, Rajshahi and specially their credit policy, loan management initiatives taken to improve etc. I have analyzed this information giving special emphasis on loan disbursement policy.

1.5 The significance of the study Now-a-days the banks are playing a vital role in the economic development of any country. The RAKUB is a specialized bank which is established with a view to developing the agricultural condition of the northern region of our country. The success of any bank depends upon how properly they are utilizing their funds. RAKUB is Loan money to the people related to agriculture and contributing a lot in agricultural development of our country. The bank should provide loan after examining some important aspects and should recover cent percents of its loan. I have chosen the topic loan management for the reason to analyze what problems are related behind the scene.


1.6 Limitations of data collection Nothing is out of limitation. So my report also has some limitations. For these reasons, I cannot prepare it properly. The common culture of Bangladesh is that some government officers are not interested to do more than their assigned work. The major problem I have faced at the time of data collection because the manager and officers are busy and do not get enough time to discuss frankly. The major limitations are given below:

1. I have been sent to RAKUB, Local Principle Office, Rajshahi for only three months which is not sufficient to understand different activities of the bank.

2. In my branch the month of disbursement is going on, so the officers are always remain busy.

3. The reports is basically prepared on published income statement, Balance sheet, information about loan and advances but for preparing report more details information are required.

4. Since we are student so we have no in depth knowledge about preparing report.

5. The bank’s accounting period is from July to June, so now the officers are busy in making arrangements for preparing financial statement.

6. Some officers are too much conservative, they are not interested to discuss about any matter.

7. In some cases, officers are not interested to disclose information because of secrecy.

8. To prepare report minimum four to five years information is required, but the branch has no computer, all records are kept manually. So the officers are not interested to provide information other than recent year.

9. To complete internship program a lot of money is required but we do not get necessary money.

10. Information collection through observation method is possible when one’s have complete knowledge about the work, but I have no clear knowledge about different activities, so the effort to collect information through observation is go in vain.

This is the first internship program and report preparation of my life, so for the limitation of my knowledge I cannot prepare it more effectively.


Chapter- TwoAN OVERVIEW OF RAKUB

2.1 Introduction

Rajshahi Krishi Unnayan Bank (RAKUB) is a state- owned Bank in Bangladesh with regional approach. The bank emerged as a government’s plan of intensive care to agriculture of Rajshahi division providing livelihood to 55 million people of the area. The region is less developed compared to other parts, yet full of potentials in agriculture. Rajshahi division characterized by its surplus food grain production is popularly called the “granary of the country”. Besides catering to agricultural credit, RAKUB, as it is acronym renders deposit banking service through all the 364 branches. The headquarters of the bank is stationed at Rajshahi city, some 270 kilometer to the north of Dhaka.

2.2 Historical background of RAKUB Bangladesh is agriculture based country from the very beginning. Most of the people are depended on agriculture. From British period till today, farmers of this country are dominated by different quarters of the society. In village level farmers take loan from different money lenders at high interest which is totally unreasonable. To save the farmers from village money lenders, British Govt. took step under special program in order to disburse the agricultural loan to the farmers in 1905.

Later on, in 1932 India-British Govt. took a step for the socio-economic development of the small and marginal farmers, which was implemented through providing agricultural loan to them.

In 1952 the Government of Pakistan established a financial institution named “Agricultural Development Finance Corporation” (ADFC) in order to disburse loan in agricultural sector. Feeling the importance of agricultural production and agricultural loan the Pakistani Govt. established another bank namely “Pakistan Krishi Bank” in 1957.


In 1971 Bangladesh has been emerged as an independent country through a historic war of nine months. After the liberation of Bangladesh the Government renamed the Pakistan Krishi Bank as Bangladesh Krishi Bank (BKB) in 1973 according to the Presidential order 27. As Bangladesh is an agro-based country, the demand for the agricultural loan of Krishi Bank is in increasing trend. To manage agricultural loan it becomes very difficult for Dhaka based head office of Krishi Bank to serve the remote areas of the country. For this reason the government takes the decision to decentralize the Krishi Bank in the divisional areas. The people of the northern areas of Bangladesh are lagging behind in all respects than the other parts of the country. Rajshahi Krishi Unnayan Bank (RAKUB) was established by the president’s ordinance no 58 of 1986 with the aim of providing institutional agricultural credit for optimum utilization of agricultural potentials of Rajshahi division. Taking over the branches and offices along with assets and liabilities of the Bangladesh Krishi Bank within in the Rajshahi division, the bank started functioning on 15 March 1987.

2.3 Objective of RAKUBThe main objects of RAKUB are as follows:

a) To provide credit facilities for all kinds of agricultural and agro- based economic activities keeping in view the needs of small and marginal farmers.

b) To earn a normal profit for meeting the operational expenses, building of reserve and expansion of activities to cover wider geographical area.

c) To extend counseling and advisory services to the borrowers/ entrepreneurs etc. in utilizing credit facilities of the bank.

2.4 Functions of RAKUB As the largest development partner in the northwest region

Rajshahi Krishi Unnayan Bank (RAKUB) aims at overall development of farmers and all the sectors and sub-sectors of agriculture in this region. Besides, catering to agricultural credit the bank performs ancillary functions as financing agri-business and agro-based industries and poverty alleviation programs.


2.5 Management The board is vested with the responsibility of formulation of

policy in line with attainment of growth in agriculture and economic development of the region through agricultural credit support. The board of directors is constituted by seven members, all appointed by the government. Besides, for emergency decisions there is an executive committee constituted of the chairman of the board and two other members: the managing director and one of the directors elected by the board. The managing director is the chief executive of the bank.

2.6 Capital and its sources

RAKUB is a governmental banking institute. So the main sources of capital are government fund, as on 30 June 2013 the details about capital are as follows- 1) Authorized capital : Tk. 7500 million 2) Paid up capital : Tk. 5700 million 3) Reserve capital : Tk. 208.49 million

2.7 Organizational structure

The Head Office of the bank is stationed at Rajshahi. The branch-network comprises 364 branches including one in Dhaka. It has also eighteen zonal and regional offices. The bank has a training institute located at Rajshahi. Total workforce of 3410 as on 31-03-2013 was composed of 1521 officers and 1889 other staffs. Regional offices stationed in district headquarters control branches under them. There are independent regional audit offices for conducting regular audit in branches as well as in regional and zonal offices.



2.8 Organizational set up The affairs of business of the bank are managed through three functional tiers:

The Head Offices The Zonal/ Regional offices The Branches

Head office: The head office of RAKUB is stationed at 280 km far from capital city Dhaka, at North-west divisional city Rajshahi . All operation is controlled by head office. The managing Director is assisted by the three following functional divisions. Each headed by a General Manager:

Administration and Accounts Division. Operation Division. Audit and Recovery Division

The three divisions further divided into 17 departments are as follows: a) Administration Division:

Personnel Department Common Services Department Computer Department Budget and expenditure control Department Training Institute Human resource Department

b) Operation Division: Branches control Department. Loans and Advances Department-I Loans and Advances Department-II Research and Development Department.

c) Audit Accounts and Recovery Division:

Loan Recovery Department-I Loan Recovery Department-II Audit and Inspection Department Central Account Department-1 Central Account Department-2 Law Department


2.9 Branch network Region wise branches of RAKUB are given through table at

next page.Table-1: Region wise total branches (Up to 30 June, 2013)

SL. No. Zone/Region No. of Branches01. Rajshahi 2402. Naogaon 2803. Natore 2004. Rajshahi 1605. Bogra (North) 2006. Bogra (South) 1407. Pabna 2408. Jaipurhat 1509. Rangpur 2610. Gaibandha 24 11. Nilphamari 2012. Kurrigram 2113. Lalmonirhat 1714. Dinajpur (North) 1715. Dinajpur (South) 18 17. Thakurgoan 1818. Panchagarh 18 19. Dhaka 120. L.P.O (Rajshahi ) 1 21 Sirajgonj 22 Total 364

Source: Personnel department of RAKUB


2.10 Employee summery Table-2: Employee summary of RAKUB (Up to June 30, 2013)

Designation Authorized

Existing Vacant

1.Managing Director (MD) 01 01 -2.Deputy Managing Director (DMD) 01 - 013.General Manager (GM) 03 03 -4. Deputy General Manager(DGM) 36 28 85.Assistant General Manager(AGM) 66 58 86.Senior Principal officer(SPO) 147 138 97.Principal officer(PO) 336 271 658.Senior officer(SO) 620 299 3219.Officer 900 723 177 Total Officer 2110 1521 58910.Other Employee 2126 1889 237 Total 4236 3410 826

Source: Personnel department of RAKUB

2.11 Training institute The only training Institute at Rajshahi Imparts training to the

junior and mid-level officers and other staff according to the annual training program designed on such subjects of professional interest as management of credit and accounts, Commercial banking, audit and inspection etc.

2.12 0ffice automation A Local Area Network (LAN) connects all computers in

departments at head office. Internet connections in the head office as well as field offices have facilitated exchange of information through e-mail. The bank has its own website www.rakub.org.bd to represent it to the cyber world. Computerized branch banking has been introduced on experimental basis in two branches of the bank. Necessary steps have been taken to set up a complete computer department at head office. The bank has been giving much importance to training courses for enhancing computer skill of officers and other staff.2.13 Audit and inspection

Internal audit and inspection plays an important role in establishing transparency and accountability of the bank's accounting University of Information Technology & Sciences 12

http://www.rakub.org.bd/

system. Besides there are commercial audit, Bangladesh Bank inspection and external audit for detecting and checking repetition of irregularities frauds and forgeries, if any, in different levels. The government appointed M/s Zoha Zaman Kabir Rashid & Company, Chartered Accountants and M/s Khan Wahab Shafiq Rahman & Company, Chartered Accountants for conducting audit for the financial year 2010-2011. The audit report submitted by them on 13-01-2012 was sent to the ministry of finance on 19-02-2012 after approval of the Board of Directors.

2.14 Special credit programsRAKUB has taken some special programs which are mentioned

below: 1. Consumers’ credit scheme2. Credit for small holding tea plantation3. Potato seeds production4. Intensive maize cultivation project5. The production of import substitute agri-crops

2.15 Poverty alleviation credit programs The bank has been disbursing micro-credit for poverty

alleviation in the 16 northwestern districts since inception. Besides, the bank finances short term collateral free credit under select individual or group based programs for income generating activities among poor and unemployed youth in compliance with government policy. The bank has financed Tk. 289.03 million as against of Tk. 340 million annual disbursement target in 11 poverty alleviation credit programs in the year 2008-09. Following are the bank’s poverty alleviation credit program:

1. RAKUB self-help credit program(RSCP)2. Marginal & small farm system crop intensification project3. Swanirvar credit program4. Shogorip (Food grain godown credit program5. UN Capital development fund credit program6. Women entrepreneurship development program7. Pilot employment generation program8. Semi-intensive goat rearing program9. Medicinal plants/orchard nursery10. Credit program for the disable persons

Foreign aided project: RAKUB takes some project with the help of foreign aid, those are mentioned below: University of Information Technology & Sciences 13

1. Small Enterprise Development Credit Project (SECP):Small enterprise development credit project (SECP) has been lunched under Norwegian assistance to promote new small enterprises and streamline existing ones in 51 upazilas of greater Rajshahi , Bogra, Pabna and Kurigram districts.

2. North West Crop Diversification Project (NCDP): The bank has undertaken a project named North-West crop diversification project under financial assistance of Asian development bank. The project is under implementation by the department of Agricultural Extension under ministry of Agriculture in 61 upazilas of 16 districts of Rajshahi division2.16 Highlights of overall activities of RAKUB

Table-3: Highlights of overall activities as on 30th June 2013SL. No Particulars Taka1 Paid up capital ( On 31-03-2013) 570,00,00,0002 Total capital (41,94,78,056)3 Surplus capital(Deficit) 260,34,68,2064 Total assets 3765,06,32,5505 Total deposit 1538,97,55,2986 Total loan and advances 2711,20,80,4727 Total contingent liability 70,65,64,8868 Loan deposit ratio 1:0.579 Ratio of classified loan against total loan &

advances 1:0.34

10 Profit/(loss) after tax (64,08,65,618)11 Amount of classified loan 933,35,89,00012 Provision for classified loan 186,23,22,00013 Provision for surplus/deficit 89,57,93,00014 Cost of fund 8.30%15 Interest earning assets 2574,26,02,98316 Nonperforming assets 1190,80,29,56717 Return on investment(ROI) 17,40,54518 Return on assets (ROA) 197,47,18,14719 Interest on investment20 Income per share21 Income price ratio

Source: www.rakub.org.bd

2.17 RAKUB Perspective plan This is the ninth year of the RAKUB perspective plan. Bank's

operational activities tracked the directives of the perspective plan throughout the year. On the backdrop of negative impact upon overall University of Information Technology & Sciences 14


income and profit earning of the bank due to reduced interest rates of deposit and advance the bank took precautionary measures of counter balancing the shortfall by enhancing disbursement of new loans and rescheduling of classified loans and raising income from commercial banking activities. In addition, measures were taken to curtail expenditure on controllable items. The bank plans to undertake a midterm evaluation on the RAKUB perspective plan as per demand of the changed scenario. Table-4: Estimated income under perspective plan (In million Taka)

Sources of income 2009-10 2010-11 2011-12 2012-13 Average Amount %Interest on unclassified loan 760 840 920 1000 840 48Interest on fresh loan 110 120 130 140 120 7Recovery from classified loan By adjusting deferred income

200 220 230 250 230 13

By rescheduling 30 30 40 50 40 2Interest income on deposit 130 140 140 150 140 8Income from loan provisioning

260 290 310 330 280 16

Interest on staff loan 40 40 50 50 40 3Commercial income 10 10 10 20 10 1Miscellaneous 30 30 50 50 30 2Total income 1570 1720 1880 2040 1730 100 Source: www.rakub.org.bd

2.18 RAKUB at a Glance : (Up to 30th June, 2013)

01) Establishment : 15 March, 1987.


02) Authorized Capital : Tk. 7500.00 (in million)03) Paid up Capital : Tk. 5700.00 (in million)04) Reserve : Tk. 208.4 (in million)05) Area of RAKUB:

a. Area : Rajshahi Divisionb. Spread : 34,513 Square.K.M.c. District : 16d. Upazilla : 125e. Union : 1092

i) SACP : 908ii) Non- SACP : 184

f. Total Populations : about 3.50 coresg. Total No. of Family : 51 lakhs.h. Agricultural Family : 32 lakhs.

06) Total Branch : 364i) Municipal : 64ii) Union : 300

07) Total manpower : 3410i) Officers : 1521ii) Workforce : 1889

08) Zonal /Regional office : 1809) Regional Audit office : 1810) Regional officer : 1311) Zonal officer : 514) Website : www.rakub.org.bd

Chapter- Three



OVERVIEW OF RAKUB, Local Principle Office, Local Principle Office

3.1 Introduction:Rajshahi Krishi Unnayan Bank, Local Principle Office, Rajshahi starts its operation in 22 February 1957. This branch is recognized as an ideal branch of RAKUB in Rajshahi district.

3.2 Location:Rajshahi Krishi Unnayan Bank,Local Principle Office, Rajshahi

3.3 Employee of RAKUB, Local Principle Office:There are 12 people as employee in Local Principle Office. Their designation is given in below: (next page)

Employees and Designation of RAKUB, Local Principle Office.

S.L. No. Designation No. of Personnel

1. Manager (Principal Officer) 1

2. Second Officer 1

3. Junior officer 1

4. Data operator 3

5. Peon 16. Cashier 17. Supervisor 3

8. Security Guard 19. Total Employees 12

3.4 Functions of Local Principle Office, Rajshahi


Like other banks Local Principle Office does the following activities:

I. Receive deposit from customersII. Payment to customers according to payment order given

through check by customers.III. Disbursements of loan policy of the given loan.IV. Giving advice to the client of the bankV. Transfer money from one place to another place.

3.5 Services given to customers by Local Principle Office, Rajshahi.

Different deposit related services provided by the bank are mentioned below: A) Deposit Service:

1) Current Deposit Account 2) Savings Deposit Account 3) Term Deposit Account

a) Short Term Deposit Account (STD) b) Deposit Pension Scheme (DPS) c) RAKUB Deposit Pension Scheme (RDPS)

d) Fixed Deposit Account B) Commercial Service: 1) Demand Draft (DD) 2) Mail Transfer (MT) 3) Telephone/ Telegraphic Transfer (TT) 4) Payment Order (PO)

C) Loan Service: 1) Short Term Loan 2) Medium Term Loan

3) Long Term Loan The above services of RAKUB’s Local Principle Office are

discussed in following pages respectively:A. Deposit Services:

The following 3 types of accounts are available at Local Principle Office.

1. Current Account:


From this type of account any amount of money is deposited and drawn at any time in the office hours. There is no interest on current account. Bank over draft is sanctioned based on it. This account is opened with minimum deposit of Tk.1000.

2. Savings Account: Savings account opened for the individual customers except

companies, firm and Co-operative society. Money is withdrawn two times a week and deposited at any time in the office hours. If an account holder draws money from account he/she will not get interest for that month. To open an account bank requires Tk.200 only.

2. Term deposits:

a. Short Term Deposit Account (STDA): Short Term Deposit Accounts are opened for company, business

firms and government demonstrative body. This account is operated like current account.

b. Deposit Pension Scheme (DPS): It is one kind of deposit program circulated by government. In

this savings scheme a person receives the opportunity to build up saving by contributing monthly installment to get an attractive fixed amount at the end of a specific period. The size of monthly installments is Tk. 100, Tk. 200, Tk. 300, Tk. 400, Tk. 500, or which is to be deposited within the first week of each month. In this case compound rate of interest is charged

c. RAKUB Pension Scheme (RPS): RAKUB has some savings schemes to motivate the people for

savings. In this case RPS is regarded as the special product of this bank. The RPS is same as DPS. But terms of savings of RPS are 5 years and 10 years.

d. RAKUB Grameen Pension Scheme (RGPS): It is for the grameen poor people to motivate them increase in savings. It is same as DPS & RPS.e. Fixed Deposit Account (FD):

Fixed deposits are taken for the following terms:From one month to below three months


Above three months to below six monthsAbove six months to below one yearAbove one year to below three yearsAbove three years

Table-1: The rate of interest in deposit accountsSL. No Types of Accounts Interest rate1 Current Account No interest2 Savings Account 7%3 Fixed Account 7% to 8.5%4 Short Term Deposit(STD) 4%5 RAKUB Pension Scheme(RPS) 12%6 Deposit Pension Scheme(DPS) 15%7 RAKUB Grameen Pension Scheme (RGPS) 6% Source: Manager, Local Principle Office, RAKUB.

B) Commercial functions of RAKUB’S Local Priciple Office The following types of commercial service are available in

RAKUB’s Local Principle Office:1. Demand Draft (DD):

DD is the most popular instrument of remitting fund. It is an order to pay money drawn by one branch Payable to another branch on demand. DD is issued in against at Tk.20 commission up to Tk.1000. When the limit exceed commission amount increased in a certain rate.

2. Mail Transfer (MT): This branch transfer money another branch of this bank in another place in against of commission money of this security paper has to be transferred to an account of another branch. Here the bank commission is minimum Tk.30 and the postal charge is Tk.50.

3. Telegraphic Transfer (TT): It is the quickest method of remitting fund from one place to

another. In this procedure no instrument is sent to the paying branch. Only message is sent over telephone or telex and the paying branch makes payment after getting message. Due to lack of technology this branch cannot operate TT.

4. Payment Order (PO):


It is a written document. This PO can be encased on that branch from where it is issued. Several supplier organizations use this PO and here no account is needed to open with bank. It is issued locally.

Table-2: Commission charged on commercial serviceService Charge Tk.Demand Draft Tk.20+VATTelegraphic Transfer Tk.30+VATPayment Order

Up to Tk.1000 Tk.20+VATUp to Tk.1,00,000 Tk.30+VATOver Tk.1,00,000 Tk.50+VATUp to Tk.5,00,000and over Tk.100+VAT

Mail Transfer Minimum Tk.30+ Postal cost(Tk.50)+VAT

Cancellation Charge of DD, MT, TT, PO

Up to Tk.500 Tk.25+VAT

Over Tk.500 Tk.50+VAT

Source: Manager, Local Principle Office, RAKUB.

C) Loan services: Banks loan portfolio has been classified under the following

heads: 1) Short Term Loan (STL): Loan period is 1 year. 2) Medium Term Loan (MTL): Loan period is above 1 year to 5 years. 3) Long Term Loan (LTL): Loan period is more than 5 years.

3.6 Sectors in which RAKUB extend credit


Rajshahi Krishi Unnayan Bank, Local Principle Office, Rajshahi extends credit in sectors and sub sectors, which are as follows: (next page)

SL No.

Name of the Project

Description of project item

1 Tea industries Seeding production, Tea garden development, Tea marketing.

2 Rubber plantation project

Rubber garden development, Rubber production and marketing.

3 Poultry Poultry boiler farms, Poultry hatchery, Poultry feed and allied project.

4 Mixed farming Dairy live stock and Fishery based horticulture crops: Agriculture based poultry dairy and fishery project.

5 Black Bengal goat production

Black Bengal goats, Sheep & Cattle farming for quality meat production, and Meat processing and Marketing.

6 Dairy farming Milk production, Milk collection and processing.

7 Agro based industries

Commercially profitable sweet water fish and Shrimp feed production, Ice plant, Ice-cream factory and so on.

8 Agro-equipment production

Engineering work shop for Agro-equipment, Repairing agro equipment and Marketing.

9 Cold storage Cold storage for potato preservation, Specialized mini-cold storage for fruits, Vegetables and Fish preservation.

10 Export processing

Fish freezing plant, Fish dehydration plant, Leather processing and manufacturing Leather products.

11 Animal and fish feed meal production

Poultry and Fish feed meal production, Cattle, Goat, and Lamb feed meal production.


3.7 Interest rate on loan Bank determines the interest rate differently for different sector.

Considering interest rate on deposit, administrative cost, bank rate, interest rate at others bank and financial institutions, competitive money market etc, the banks use its rate of interest on loan.

Table-3: Rate of interest in different sectors.SL No Heads of loan Rate of interest1 Crops loan 10%2 Fisheries 10%3 Export credit 9%4 Working capital 11%-13%5 Commercial purpose 13%6 Agro-based industries 12%7 Cottage industries 10%8 SECP 12%9 Poverty alleviation 10%-12%10 Live stock 10%11 Irrigation equipment and firm machinery 10% Source: Local Principle Office, RAKUB.


Manager (SPO)

supervisor

Officer

Data Entry Operator

Casher

3.8 Organizational structure of Local Principle Office, Rajshahi

The organizational structure of Local Principle Office is shown below through diagram:

\


Peon

Security guard

3.9 Employee summery SLNo

Designation Authorized Existing Vacant

1 Manager( Senior Principal Officer) 1 0 0

2 Second Officer ( Senior Officer) 2 2 0

3 Officer 2 2 0

4 Supervisor 1 1 0

5 Data Entry Operator 2 1 1

6 Cashier 1 1 0

7 Peon 1 1 0

8 Security Guard 2 1 1

Total 12 10 2

Table-4: Employee summery of Local Principle Office, RAKUB

Source: Local Principle Office, RAKUB.


3.10 Books maintained by Local Principle Office, RAKUB

The main objectives of maintaining the books of RAKUB, Local Principle Office, RAKUB are to achieve the following goals.

1. to record day-to-day transaction2. To reflect the financial position periodically3. To supply necessary information for monitoring the bank activitiesIn that purposes cash transaction and other transaction is recorded in

the books of accounts under the double entry system. In this bank, generally two types of books are used.

A. Control Books: It represents the immediate accounting picture of the bank at any

time and it includes-1) Cash Scroll Book2) Clean Cash Book3) General Ledger Abstract4) Supplementary ledger Book

B. Subsidiary Books: Subsidiary Books are used to explain the total particulars in General ledger and it includes-

1) Saving account ledger 2) Fixed deposit ledger3) Income ledger4) Expenses ledger5) The general ledger of RAKUB,


3.11 Accounting procedure of Local Principle Office, RAKUB

The procedure followed in Local Principle Office is presented through diagram:


Transaction

Cash

Cash cum day book preparation

TransferClearing

Voucher

Record in Register

Posting in ledger

Supplementary sheet preparation

Summary preparation

Affairs frond page

General ledger posting

Affairs back page

Subsidiary ledger posting

Chapter- FourLOAN SANCTIONING

4.1 Definition of loan

A loan may be defined as money lent at interest or on profit. It is nothing but temporarily parting with one’s resources in order to augment the purchasing power of the receiver of such facility with a promise to return the same with interest or profit or otherwise as mutually agreed upon. It is a type of debt. Like all instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower. In banking arena, many types of financial facilities are extended to the clients with the expectation of getting the same returned along with interest. “The provided Purchasing Power” can be termed as loan, credit or advances. These three terms have similarities as well as some differences. According to the Dictionary of Banking & Finance loans can be defined as, “the Loan of a sum of money by a lender to a borrower to be repaid with a certain amount of interest”. Timothy W Koch defined loan as, “formal agreement between a bank and a borrower to provide a fixed amount of credit for a specified period”. We can say, if a bank gives its resources temporarily under certain conditions and for a specific duration, it will be called loan.

4.2 Classification of loan

A) Classification based on security:

(1) Unsecured loans : Banks provides loan without any type of collateral to the reliable persons or institutions as clients having profound goodwill, excellent track records or sometimes to the very poor clients.

(2) Partly secured loan : If the amount of loan is not fully secured, rather partial amount of collateral is provided to cover the loan sanctioned, it is called partially secured loan.


(3) Fully secured loan : Secured loan means any which is guaranteed by the borrower giving valuable property as security. If the loan is given by taking the security of the amount exceeding the amount of security is provided to cover the loan sanctioned or just equal to the amount of loan, it is called “fully secured loan.”

B) Classification based on term: According to the classification by term or periodicity, loans can be of three types:

(1) Short-term loans : This loan is sanctioned for less than one year. Short-term loans can be of two types: (a) Loans provided fir immediate use and payable on demand and (b) Loans payable on short notice.

(2) Medium-term loan : Usually, loans with the maturity of 1 to 5 years are called mid-term loans. However, commercial banks give mid-term loans of maturity of 1-3 years.

(3) Long-term loan : Loans with the maturity of more than 5 years are called long-term loans.

C) Classification based on user:1. Individual loan:

a) Consumer loan : Banks provide loans for durable goods and appliances and commodities like loans for Freeze, TV, Computer, Car, Furniture etc.

b) Housing Loan : This includes loans to the fixed or low-income people for housing purposes. This loan is usually intermediate term and/or long term.

c) Education and other loan: Some of the bank also provide loan to the people of the society in order to meet their educational and other needs after being sure about the repayment.


2. Industry loan :

a) Working capital loan : This type of loan is given to the business or industry to provide capital required for purchasing raw materials, paying wages and fuel expenses etc.

(b) Fixed capital loan: Huge amount of capital is required for procurement and replacement of machinery and equipments for the industrial organizations.

3. Loan for business person:

(a) Working capital loan : For maintaining day to day operations, business persons need a great deal of working capital. By providing working capital loans, banks help to solve the working capital necessity of the business persons.

(b)Export-import loan : Banks also help in export-import firms by issuing L/C, bill of exchange, discounting, direct loan etc.

4. Loan for farmer:

(a) Crop loan : For buying seeds, cows and fertilizers, farmers need money. They borrow the money from the bank in order to meet the expenses required.

(b)Non-crop loan : Farmers also need money for poultry, fisheries, agro-business, agro-processing and other purposes. In this case, commercial banks provide small and medium loans to farmers.

© Farming equipment loan: To purchase farming equipments, banks also provide loans to farmers. Farming equipments may include power tiller, tractors, machinery for irrigation etc.


D) Other forms:1) Overdrafts: The over drafts is a kind of loan always allowed on a current account operated upon by cheques. The customer may be sanctioned a certain limit upon which he can overdraw his current account within a stipulated period. Interest is calculated and charged only on the actual debit balance on daily product basis.

2 ) Cash credit: Cash credit is the favorite mode of borrowing by traders, industrialists, agriculturists etc. for meeting their working capital requirement because it is an elastic form of borrowing. This type of facility is always provided against pledge of goods, produces and merchandise which remain under the possession of bank with effective control but ownership remains with the borrower.

4.3 Loan handling diagram


The steps which are followed in handling loan disbursement and loan recovery are presented through diagram to the next page:

Source: Local Principle Office, RAKUB4.4 Loan sanction procedure


Based on information available in the appraisal report, credit report, legitimate credit needs of the farmer/client, the loan proposal should be carefully analyzed by the sanctioning authority. Before sanctioning loan, it is essential to make pragmatic analysis of status of applicant, credit worthiness, liabilities, project viability from technical, financial, economic, marketing and management point of view. As soon as the security is finalized and the sanctioning authority is satisfied, then the authority should proceed for sanction of loan.4.5 Feature of borrower Borrower selection is an important factor in disbursement of loan. The mentioned factors are required to be considered in selecting a borrower:

1. Borrower must be Bangladeshi. 2. Borrower must be matured.3. Borrower must have the ability to use loan in productive way and the

ability to repay the loan and should have sound transaction record.4. Borrower must not be loan defaulter.5. Borrower must be registered with Joint Stock Company, if it is limited

company.4.6 Method of loan sanctioning and application form:

Loan application should be written in a specific form of the bank it must be submitted by the loan in the bank.Various kinds of loan application forms are as follows:

Description Amount of loan in Tk.

No of necessary

Copy

Form no Price Per Copy Tk.

a) Crops loan Up to 5000 1 L.F.6 20b) Crops loan 5001 to 10,000 1 L.F.6 40c) Crops loan 10001 to above 1 L.F.6 60d) Any loan beyond special

Up to 10,000 1 L.F.1 80

e) Any loan beyond Above 10,000 ½ L.F.2 60f) Project loan - 2 L.F.4 80g) Working capital loan

Up to 10,00,000 2 L.F.8 250

h) Working capital loan

Above 10,00,000 2 L.F.8 500


At that time of submitting loan application the loan applicant should give fee at various rate. The various types of loan application fee is given below-Up to 6,000 No need6,001 to 7,500 15.007,500 to 1,00,000 2.00 Tk. Per thousand1,00,000 to above 200 and 1 Tk. Per thousand Source: RAKUB, Rajshahi Branch, Rajshahi .

4.7 Documentation of loan

Credit activity is a risky function for a bank. For a successful credit activity a bank should collect necessary documents from the borrowers. With these documents a bank can take legal action against the borrower in case of default. Both borrower and lender must sign every document. Thus the proper documentation gives the bank a right to save its interest. The following documents are commonly used for approving a loan or other types of businesses with the same nature:

1. Original loan agreement.2. Filled up the loan application form.3. Financial statements of the borrower.4. Credit analysis report.5. Proofs of certificates and documents of the collateral.6. The name and signature of the authorized person/attorney of

the borrower.7. A copy of the resolution of the board of directors of the

borrowing company.8. The copy of partnership deed and the statement of the assets in

case of partnership business.9. The surety from the authorized person of the company.10.Financial statements of the person or the company providing

surety in favor of the potential borrower.11.The copies of the written communication and exchanges of

information between the bank and the borrower.12.Mortgage and trust agreement.13.Certificate of earnest money given on assets.14.Copy of national identity card.


4.8 Security against loan Security is obtained as a line of last defense to fall back upon. It is meant to be an insurance against emergency. By taking security, bank acquires a claim upon the assets of the borrower if repayment is not made as planned. Securities taken against a loan are stated below:

1. Personal surety2. Immovable property3. Pledge4. Marketable securities5. Document of title of goods 6. Certificate of fixed deposits7. Insurance policies8. Others like gold and valuable documents.

4.9 Eligibility of applicant

To be eligible for loans from the bank, applicants meet the following basic requirement:

a) Be a citizen of Bangladeshb) An adultc) Should have repayment capacity and good reputation about financial

dealingsd) Not defaulter of bank loane) In case of corporate body equipped with manpower to carry out the scheme efficiently for which loan is required.f) Not insolvent persong) Not lunatic.


Chapter- FiveLOAN MANAGEMENT

5.1 Introduction The strong base of RAKUB, Local Principle Office, Rajshahi is totally dependent on sound investment because interest on loan is the main source of income. That is why qualitative loan management is much emphasized here as well as it leads to increase in total income of the bank. The bank authority sanction loan in compliance with the rules and regulations determined by the highest decision making authority of the bank.

5.2 Disbursement of loan policy Before releasing the sanctioned loan, all terms and conditions as laid down in the sanction letter are to be fully complied with. To that effect, the following basic requirements need to consider:

a) Terms and conditions that affect loan, whether all are complied with need to examine. b) Specific documents as specified in the sanction letter must be completed. c) Verification of encumbrances of security properties.

1. Non-encumbrances certificate. 2. Execution of halapnama.

d) Creation of charge on the collateral security: In case of limited company, the charges on the company assets should be limited e) Within 21 days from the date of creation of charge, by registered post to the register, Joint Stock Company. f) Insurance for:

1. Security properties, as applicable. 2. Assets creates or to be created out of a loan fund or with two

equity. 3. Stock of goods pledged with the bank as collateral shall be

taken with appropriate risk cover. g) Any other stipulations as per sanction letter.


5.3 Various loan program of RAKUB Agriculture and agriculturists are the facts of activities of RAKUB. The economic condition of the farmers is very dependent on the performance of agriculture. Considering these facts, RAKUB has given to priority to all the subsection and associated sectors of agriculture for achievement of desired business goal. However, a brief description of Loan programs of RAKUB is given below:A) Cash credit:

A cash credit is an arrangement by which a banker allows his customer to borrow money up to a certain limit. This is a permanent arrangement and need not to draw the full amount sanctioned at once but draw the amount as when that is required. Thus, cash credit is an active and running account to which deposit and withdrawal may be exercised frequently. Interest is charged only for the amount withdrawn. Cash credit arrangement is usually made against security of commodity hypothecated or pledged with the bank. Sometimes the bank provides the cash credit facility against personal security too. Normally, cash credit is allowed for one year.B) Over draft:

Overdraft is an arrangement between a banker and his customer by which the letter is allowed to withdraw over and above his credit balance in the current account up to an agreed limit. This is only a temporary accommodation usually granted against securities. The borrower is permitted to draw and repay any number of times. The total amount overdrawn does not exceed the agreed limit. The interest is charged only for the amount over drawn and not the whole amount sanctioned.

Overdraft facilities are generally granted to business against securities of stock in trade, debenture etc. Generally, overdraft is three types:1) Temporary overdraft2) Clean overdraft3) Secured overdraftC) Crop loan:

The bank finance all the summer crop, winter crops and nursery etc. High yielding and high value crops and seeds production is particularly encouraged. Crop sub sector alone occupies about 60% of the Loan budget the bank.


D) Fishery: The Bank attaches importance to use scientific method and

modern technology in fish cultivation. It extends adequate credit support for excavation and re-excavation of ponds, round the year cultivation of species, which have rapid growth, cultivation of sweet water prawn and other fishes. The Bank makes use of expertise of the concerned government agencies for bringing more ponds/water bodies under cultivation and increasing productivity. E) Live stock:

The bank extends credit facilities or systematic and commercial live stock farming, which includes dairy, beef, fattening poultry raising and setting up of hatcheries, which in turn is expected to increase production of milk, meat and eggs, the main sources of portion. As the marginal and small farmers’ access to mechanize farming is restrained by want of cash and collateral the bank has big Loan window of draft animals for cultivation of land has big Loan window of draft animals for cultivation of land transportation of agriculture produces and other farming activities.

F) Irrigation equipment and firm machinery: Today technology based farming for high yielding and high

volume of crops, mechanization of cultivation, irrigation and pest control is indispensable, to cope with the situation and pest control is indispensable. To cope with the situation RAKUB financing for power tillers, tractors, tube wells, power machineries are being treated as an important associated sector of Loan.G) Agro- based industries: The operational jurisdiction of the bank is noted for its agricultural potentials. This is noted for its agricultural potentials. The bank pay due importance to setup agro industries for preservation, processing and marketing of agricultural products having backward linkage with basic sub sectors of crop, fishery, live stock and forestation, manufacturing and marketing of agricultural implements are also encouraged. Agro industries for import substitution are specially encouraged by offering moderate terms of financing. H) Poverty alleviation:

The poverty strikes North West Bangladesh is characterized by comparatively lower rate of saving, inadequate capital accumulation and poor employment opportunities. The existing collateral based banking system is also of little use in respect of extending support to the millions of


landless people. To address the problem the bank has been financing collateral free micro-credit for income and employment generation through its poverty alleviation credit program.

RAKUB also gives some loan on cottage industry. We know, the industry, which is built-up in a cottage or house, is a cottage industry.

The role of cottage industries is very importance to improve the economics of Bangladesh. Usually, the main promoters of cottage industries in our country are small farmer, landless and poor people. They can build a cottage industry with own capital and some Loan capital of RAKUB.

5.4 Loan supervision and monitoring Under its charter, the bank is required, as far as possible, to

ensure that a loan is spent on the purpose for which it is made and if this requirement is not complied with by the borrower, the bank may require taking necessary measures:

1. Primary responsibility of the manager is to supervise and monitor the cash loan/working capital loan project and term loan stage by stage, ensure project constriction work, acquiring kind items and project goods as per approved arrangement specified in the sanction letter.

2. Bank finance project should be inspected by the regional manager and manager periodically, to assess physical conditions of the projects facilities and the level of the project’s capacity utilization.

3. Cash loans can be misused for unproductive process. Therefore special attention must be given on borrowers past antecedents. In case of releasing cash loans and when the borrower drawing a substantial amount at that time the authority must supervise with special attention.

4. The manager should employ a project supervision officer (PSO) after documentation and releasing the first loan installment with the assignment of overall project supervision the duties. The PSO should inspect the project site and observe the project development work and inform the progress to the manager through progress report periodically.

5. After inspection, the manager/authorized officer should countersign the borrower’s acknowledgement receipt under his signature and seal. Only after such counter-signature in the borrower’s acknowledgment receipt, supplier’s bill can be processed for payment.


5.5 Loan disbursement scenario of Local Principle Office, RAKUB The last five years loan management of Rajshahi Branch, RAKUB are shown below through table: (next page)

(Amount in lakh Taka)Financial year

Loan disbursement

target

Total loan achievement

Achievement Rate

2008-09 342.41 325.90 95.17%

2009-10 310.72 268.09 86.28%

2010-11 480.49 298.20 62.06%

2011-12 314.18 290.20 92.36%

2012-13 440.28 373.07 84.73%

Source: Local Principle Office, RAKUB. * Achievement rate = 100Comment: From the above table it is evident that the loan management target is reduced in the year 2009-10 from 2008-09. After that the target is increased in the year 2010-11 and again decreased in the year 2011-12 and increased in the year 2012-13. On the other hand total achievement is reduced in the year 2009-10 from 2008-09. After that the achievement is increased in the year 2010-11 and again decreased in the year 2011-12 and increased in the year 2012-13. The highest rate is found in the financial year 2008-09(95.17%) and the lowest rate at 2010-11(62.09%).The last five years loan disbursement positions of Local Principle Office, RAKUB are shown below through bar char.

A) Loan managementof 2008-2009


RAKUB, Local Principle Office projected a Loan target of Tk.34241000 for the financial year 2008-2009. During the year loan disbursement was Tk.32590000 which was 95.17% of the target. During the year the following seven sectors were given preference in disbursing loan:

1. Crops

2. Fishery

3. Live stock

4. Agro-based industries

5. Continuous / cash credit

6. Poverty alleviation The loan management for the financial year of 2008-2009 is shown in next table: (Amount in lakh Taka)

Items

2008-2009

Loan disbursement

target


Achievementrate

Crops 159.34 154.56 97%Fishery 15.00 15.00 100%Live stock 1.30 1.47 113%

Agro-based industries 1.50 3.00 190%Continuous loan 36.05 46.87 130%Poverty alleviation 2.32 2.25 97%Others 126.92 82.50 65%Total 342.41 325.90 95.17%

Source: Local Principle Office, RAKUB

* Achievement rate = 100Comment: From the above table it is evident that the highest loan disbursement target was in crops sector (Tk15934000).The highest


disbursement is made in crops sector (Tk15456000). The highest achievement rate is found in the Agro-based industries (190%) and the lowest achievement rare is found at others (65%).

The loan management of Local Principle Office, RAKUB during the year 2008-2009 is shown below through bar chart:

Figure: Sector wise loan disbursement of 2006-2007.

Figure: Sector wise loan management of 2008-2009

B) Loan disbursement of 2009-20010


RAKUB, Local Principle Office projected a Loan target of Tk.31072000 for the financial year 2009-2010. During the year loan disbursement was Tk.26809000 which was 86.28% of the target. During the year the following seven sectors were given preference in disbursing loan:

1. Crops

2. Live stock

3. Continuous

4. Poverty alleviation

5. Others

The loan managementfor the financial year of 2009-2010 is shown in next table:

(Amount in lakh Taka)

Items2009-2010

Loan disbursement

target


Achievementrate

Crops 164.26 131.41 80%Live stock 7.00 6.00 89%Continuous loan 18.98 18.60 98%Poverty alleviation 36.40 36.40 100%Others 84.08 75.68 90%Total 310.72 268.09 86.28% Source: Local Principle Office, RAKUB

* Achievement rate = 100

Comment: From the above table it is evident that the highest loan disbursement target was in crops sector (Tk16426000).The highest achievement is made in crops sector (Tk13141000). The highest


achievement rate is found in the Poverty alleviation sector (100%) and the lowest achievement rare is found at crops sector (80%).

The loan management of Local Principle Office, RAKUB, RAKUB during the year 2009-10 is shown below through bar chart:

Figure: Sector wise loan management of 2009-2010.

C) Loan disbursement of 2010-2011

RAKUB, Local Principle Office projected a Loan target of Tk.48049000 for the financial year 2010-2011. During the year loan


management was Tk.29820000 which was 62.06% of the target. During the year the following seven sectors were given preference in disbursing loan:

1. Crops

2. Fishery

3. Live stock

4. Irrigation equipment and farm machinery

5. Continuous


7. Others

The loan management for the financial year of 2010-11 is shown in next table: (Amount in lakh Taka)

Items2010-2011

Loan disbursement

target


Achievementrate

Crops 282.92 175.89 62.17%Fishery 43.70 3.50 80%Live stock 4.09 4.09 100%Irrigation equipment and farm machinery

1.34 1.27 95%

Continuous loan 15.05 14.00 93%Poverty alleviation 5.94 3.86 65%Others 127.45 95.59 75%Total 480.49 498.20 62.06%


* Achievement rate = 100Comment: From the above table it is evident that the highest loan management target was in crops sector (Tk28292000).The highest achievement is made in crops sector (Tk17589000). The highest University of Information Technology & Sciences 45

achievement rate is found in the live stock sector (100%) and the lowest achievement rare is found at crops sector (62.17%).


D) Loan managementof 2011-2012

RAKUB, Local Principle Office projected a Loan target of Tk.31418000 for the financial year 2011-2012. During the year loan management was Tk.29020000 which was 92.36% of the target. During the year the following eight sectors were given preference in disbursing loan:


1. Crops

2. Fishery

3. Live stock

4. Irrigation equipment and farm machinery


6. Continuous


8. Others

The loan management for the financial year of 2011-2012 is shown in next table: (Amount in lakh Taka)

Items 2011-2012

Loan Total loan Achievement University of Information Technology & Sciences 47

disbursement target

achievement rate

Crops 178.82 158.11 88.42%Fishery 2.50 2.50 100%Live stock 10.10 9.32 92.20%Irrigation equipment and farm machinery

9.30 9.20 98%

Agro-based industries 2.20 2.00 90%Continuous loan 24.71 27.25 110.25%Poverty alleviation 3.05 2.51 82.03%Others 83.50 79.33 95%Total 314.18 290.20 92.36%


* Achievement rate = 100Comment: From the above table it is evident that the highest loan management target was in crops sector (Tk17882000). The highest achievement is made in crops sector (Tk15811000). The highest achievement rate is found in the Continuous loan sector (110.25%) and the lowest achievement rare is found at Crop sector (88.42%).




E) Loan managementof 2012-2013

RAKUB, Local Principle Office projected a Loan target of Tk.44028000 for the financial year 2012-2013. During the year loan management was Tk.33705000 which was 84.73% of the target. During the year the following eight sectors were given preference in disbursing loan:


1. Crops

2. Fishery

3. Live stock


5. Continuous

6. SME


8. Others

The loan management for the financial year of 2012-2013 is shown in next table:

(Amount in lakh Taka)

Items 2012-2013(up to June)

Loan disbursement


Achievementrate


targetCrops 168.01 151.38 90.10%Fishery 2.55 2.55 100%Live stock 5.52 4.82 92.29%Agro-based industries 6.20 5.00 80.56%Continuous loan 109.00 85.55 77.50%SME 12.00 8.00 63.40%Poverty alleviation 5.00 4.35 86.70%Others 132.00 111.42 83.66%Total 440.28 373.07 84.73%


* Achievement rate = 100Comment: From the above table it is evident that the highest loan management target was in crops sector (Tk16801000).The highest achievement is made in crops sector (Tk15138000).The highest achievement rate is found in the Fishery sector (100%) and the lowest achievement rare is found at SME sector (63.40%).




Chapter- Six

Loan Recovery6.1 Introduction:

When a bank or other financial institutions distribute a loan to other organization or people, then after regaining from loan it is called loan recovery, RAKUB, Rajshahi Brach, Distributed loan to loan and recovers


this money. RAKUB, Local Principle Office, classifies loan in two categories:

a. Unclassified loan, andb. Classified loan.

a. Unclassified loan: When half or more than half of the total loan is repaid within the due dates by the borrowers then that is called unclassified loan. The duration of time in which the loan will be treated as unclassified is less than 12 months from sanctioning loan.

b. Classified loan: When more than half of the total loan or total is unpaid / due over the due date then that loan is called classified loan. Classified loans can be sub standard, Doubtful and bad. The criteria of these classification of classified loans are as follows:

1. For short term loan : Short term loan are classified by RAKUB, Local Principle Office in three categories-

i) Crop loan and micro Loan and Advance: Age of over 12 months (due): Irregular. Age of over 13-36 months (due): Substandard Age of over 36-60 months (due): Doubtful.Age above 60 months: Bad. ii) Cash Loan and Advance-and working capital From 6 months but less than 9 months- Substandard.From 9 mouths but less than 12 months-Doubtful. 12 mouths or above- Bad. iii) Demand Loan From 6 months but less than 9 months- Substandard.From 9 months but less than 12 months- Doubtful.

Above 12 months-Bad. 2. Medium loan (Up to 5 years):

From 0 month but less than 6 months-Substandard. From 6 months but less than 12 months- Doubtful.

From 12 months but less than 18 months - Bad. 3. Long term loan (Above 5 years)

From 0 month but less than 12 months-Substandard. From 12 months but less than 18 mounts-Doubtful. From 18 months but less than 24 months-Bad.


6.2 Procedure of loan recovery: The main responsibility of bank manager and loan officer is to

recovery the outstanding loan in RAKUB, Local Principle Office. Two-recovery procedures are-

a) Usual procedure.

b) Legal procedure.

a) Usual procedure: The usual loan recovery procedure is divided into several steps. They are as follows:

1. Issue of demand notice: Demand notice is issue before on month being due of outstanding loan or installment. It is sent to the borrower.

2. Legal notice: It the borrower does not repay their respective loans and interest after maturity being received the demeaned notice under registered with acknowledgement by post to the borrowers the bank should send lower notice to him.

3. Special notice: Beside the above to notice a special notice signature by DC, TNO is sent to the respective borrower to keep mental pressure on him for repaying the loan.

4. Field recovery: Loan officer recover the recovered loan through I.O. receipt by visiting the spot and source of the borrower.

5. Personal Communication: If the borrower fails to repay his loan installment, the loan officer communicates with the respected persons of that area to give mental pressure to the borrower so that he repays his respective loan.

6. Loan Recovery Camp: RAKUB, Local Principle Office made camp in various areas for the recovery of his loan, in this issue, the manager and other officer were present in the camp and communicated with borrowers. They gave them moral persuasion and tried to encourage them, so that they could repay their loan.


b) Legal procedure: When legal action for recovering loan becomes failed a case in filed against the borrowers. The case is generally filed in the following ways:

i. Unwilling to repay loan although he is financially solvent.

ii. Every effort of loan recovery becomes failure.

6.3 Rules of Recovery: Local Principle Office, RAKUB loan recovery from loan in

installment system are as follows: i) Weeklyii) Fortnightlyiii) Monthly.

6.4 Causes of defaulter:

The loan cannot loan payment in due time in various causes: i) Natural calamity destroy the crops, for this reason the loan

unable to pay loan in due time.ii) RAKUB, Local Principle Office cant takes proper steps against

the loan for influential man. iii) The loan cant use the loan in proper way. iv) The loan does not pay loan in more time.v) Lack of loan supervision.

6.5 Causes of low recovery:

i) Negative attitudes of the local elites to repay loan- In most of the cases, the influential persons due to their political and social power are not interested to repay the loan. Because of their political influence, loan officers cannot take any effective measure for loan recovery from them. Sometimes, loan received by them for a specific purpose is also diverted to other purposes.

ii) Damage of crops due to flood- Sometimes, the farmers have some valid reasons for non-repayment of loan in spites of their willingness of repayment of loan. In the case of crop failure due to natural disaster like flood, drought, etc., it becomes really difficult for the farmers to repay loan in time.


iii) Unproductive use of loan- The time involved in processing loan is such that the farmers usually receive loan at the end of the specific crop season even after harvesting of the crop. For that matter, Loan and Advance does not help in increasing production rather it is actually spent for non-farm expenses.

iv) Shortage of loan personnel- The branch has shortage of manpower to evaluate loan and advance worthiness of the borrowers, identification of real borrowers, and supervision and recovery of loan.

v) Lack of legal action by the banks against defaulters- Neither the Bank Manager nor the supervisors have any authority and power to take effective measures or administrative action against defaulters. For that reason, the defaulters do not bother for requests of loan repayment by them. Moreover, legal action against defaulters has rarely been taken.

vi) Corruption of the bank employees- In some cases, the bank officers take bribe from the defaulters and avoid responsibilities of realization of loan from the borrowers.

vii) Inability of the farmers to repay loan- Farmers need loan not only for agricultural production but also for consumption for their survival, particularly by marginal farmers. This sometimes compel them to divert agricultural loan to consumption and other unproductive purposes which ultimately lead to their low repayment capacity.

viii) ‘Benami’ loan received particularly by U.P. chairman/Member- Sometimes the rural influential, particularly Union Parishad Chairman and Members receive ‘Benami’ loan. It happens particularly due to shortage of loan personnel who have to disburse Loan and Advance in a short notice and do not have enough time to identify genuine borrowers.

ix) Accessibility to alternative Loan and Advance institutions- There is a number of financial institutions, which are working independently. So non-repayment of loan to one institution does not affect in receiving loan from another institution.

x) Evaluation of banker efficiency- The performance of bank personnel is judged on the basis of amount deposited by him, not on the amount of loan recovered. Further, there is practically no incentive for him to increase recovery amount.

xi) Inadequate training facilities for Loan and Advance officers and their qualifications- The persons involved in agricultural Loan and Advance operations in rural bank branches have poor educational


background with inadequate training. Banking training program has hardly anything regarding agricultural loan and advance operation, which affects loan recovery performance of the Banks.

6.6 Loan Recovery scenario Local Principle Office, RAKUB:

a) Last four years Loan Recovery. (Amount in Lakh Taka) Financial year Target Achievement Recovery rate

2009-2010 59.57 104.37 175%2010-2011 90.28 108.76 120.46%2011-2012 102.50 134.89 131.60%2012-2013 135.00 150.88 112%

Source: Rajshahi Brach of RAKUB * Recovery rate = 100

Comment: It is evident from the above table that 2009-2010 to 2012-2013 Loan Recovery Target and achievement are increased by amount gradually. But its Achievement performance is fluctuated. Highest Achievement in 2009-2010 financial year which is 175% and lowest in 2012-2013 Loan financial year which is 112% .

b) Loan Recovery for 2009-2010Loan Recovery target was TK 59.57Lakh and Loan recovery achievement was

TK 104.37 Lakh (175 percent of target) Major items wise loan recovery position 01-07-2009 to 30-06-2010

Items Achievement (Amount in Lakh TK)

Percentage of Total achievement (%)

Crops 28.52 27.32Continuous loans 7.7 7.38Poverty Alleviation 45.68 43.76Fishery 0.28 0.26Live stock 15.59 14.93Irrigation equipment and farm machinery

0.37 0.35

Agro-based industries 0.65 0.62Others 10.58 10.13Total 104.37 100Source: Local Principle Office, RAKUB

Comment: From the above table it is shown that Poverty alleviation loans is the highest achievement amount of TK 45.68 lakh which is 43.76% of the


total achievement and fishery is the lowest achievement which is 0.26% of the total achievement. Others recovery items is not considered here.

Pie diagram Presentation of loan Recovery 2009-2010 financial year (Sector wise)

c) Loan Recovery for 2010-2011Loan recovery target was TK 90.28 Lakh and Achievement was 108.76 Lakh

(120.46 percent of the target) Major items wise position of Loan Recovery 01-07-2010 to 30-6.2011



Crops 38.42 35.32Continuous loans 3.68 3.38Poverty Alleviation 31.11 28.60Fishery 1.36 1.25Live stock 12.97 11.92Irrigation equipment and farm machinery

2.45 2.25

Agro-based industries 2.34 2.15


Others 16.43 15.10Total 108.76Source: Local Principle Office, RAKUB

Comment: From the above table it is shown that Crop loans recovery is the highest achievement amount of TK 38.42 Lakh which 35.52% of total achievement and Fishery is the lowest achievement, which is 1.25% of the total achievement. Others recovery items is not consider here



d) Loan Recovery for 2011-2012Loan recovery target was TK 102.50 Lakh and Achievement was

134.89 Lakh (131.60 percent of the target) Major items wise position of Loan Recovery 01-07-2011 to 30-6.2012



Crops 45.94 34Continuous loans 17.21 13Poverty Alleviation 18 13Fishery 0.48 0.36Live stock 25.03 18Irrigation equipment and farm machinery

- -

Agro-based industries 2.32 1.27Others 25.91 19.20Total 134.89 100Source: Local Principle Office, RAKUBComment: From the above table it is shown that Crops loans recovery is the highest achievement amount of TK 45.94 lakh, which is 34% of total the achievement, and Fishery is the lowest achievement which is 0.36% of the total achievement and there is no target and achievement in the irrigation equipment and firm machinery sector. Other recovery items is not consider here.



e) Loan Recovery for 2012-2013Loan recovery target was TK 135 Lakh and Achievement was 150.88

Lakh (112 percent of the target) Major items wise position of Loan Recovery 01-07-2004 to 30-6.2005



Crops 41.36 27.41Continuous loans 35.31 23.40Poverty Alleviation 19.48 13Fishery - -Live stock 32.86 21.78Irrigation equipment and farm machinery

3.33 2.20

Agro-based industries 2.42 1.60Others 16.12 10.68Total 150.88


Comment: From the above table it is shown that Crops loans recovery is the highest achievement amount of TK 41.36 Lakh, which 27.41% of total achievement and Agro based industry is the lowest achievement, which is 1.60% of the total achievement, and there is no target and achievement in the Fishery sector. Others recovery items are not consider here.

Pie diagram Presentation of loan recover 2012-2013 financial year (Sector wise)


Chapter- Seven

FINDINGS AND RECOMMENDATIONS

7.1 Findings

Rajshahi Krishi Unnayan Bank has been established for agricultural development as well as to serve the farmer of north-west region of the country. The bank reached record high loan disbursement and played a positive role in the financial development of the country. During my internship program at RAKUB, Local Principle Office closely observed all banking activities of this branch and my study is concentrated on loan management.

RAKUB, Local Principle Office playing a vital role in agricultural development to the surrounding area of Local Principle Office. During the days of internship I have observed some drawbacks which are creating trouble in achieving its objectives, those are mentioned below:

1. Shortage of efficient credit personnel.2. Inadequate training facilities for credit personnel.3. The lengthy loan disbursement process creates drawback in

getting loan in time.4. Lack of proper planning and efficient fund management.5. Loan is not paid through proper assessment.6. Insufficient fund of the bank creates problem in loan

disbursement policy.7. Lack of proper security against loan.8. Sector wise loan disbursement scenario is much fluctuated.9. Lack of proper supervision and monitoring.10.The political and frequent government interference in the

operation of agricultural credit policy is one of the main causes of poor recovery of agricultural loans.

11. In the institutional credit delivery system credit is provided for crop production but do not meet the credit requirement for other purposes for which the farmers have to go to the money lenders to borrow at exorbitant rate of interest.


12. The farmers do not get a fair and reasonable price for their production. The term of trade between agricultural and manufactured goods always goes against the agriculturist, particularly the price of the agricultural commodities remain very low during harvest season. So it’s difficult for farmers to repay loan from incremental income.

13. The agricultural credit institutions disburse credit to the farmer mainly against the security of their land. But in the real sense of the term land cannot be used as appropriate security as it is not possible to realize the loans and interest from land which is not easily saleable.

14. Major share of the institutional credit is taken by the wealthy influential rural elites by exercising their social and political power and influences.

15. Sometimes the dishonesty of officer leads to inappropriate Loan.

16.The notice is not issued to the borrower in just time, for that reason, recovery is hampered.

17. All the transitions are recorded manually, so information is not organized which creates problem in decision making.

18. Fund diversion i.e. taking loan for one purpose and using it in another purpose.

7.2 Recommendations University of Information Technology & Sciences 63

Based on the findings of the study, the following recommendations are feasible:

1. The rural financing activity of RAKUB by increasing credit deployment needs to be increased.

2. Diversified sectors are to be identified and financed.3. Where the short term loans constituted most of the loan

portfolio, the medium and long term loans should be provided more and more for true rural development.

4. Since crop and draft animal sectors both constituted two-thirds of the total loan portfolio, emphasis should be given to other sectors equally in financing.

5. In disbursing loan, the economic position of the borrower should be kept in view.

6. Borrower should be provided with small sized loans for better results.

7. Educated borrower should be preferred in loan sanctioning.8. In providing loan, land mortgaged security should be

preferred for best results.9. Timely and direct delivery of loan to the borrower must be

ensured for better result.10. Adequate amount of loan to the borrower should be

provided to minimize diversion although it does not necessarily effect good repayment.

11. Small sized loans should be disbursed to the small landholders obviously in time and directly for best result.

12. Short-term credit should be provided to the borrowers having small sized land holdings.

13. Smaller sized loans are not being provided adequately for which these should be considered accordingly.

14. Monitoring and supervision of agricultural loans means the mechanism or process through which RAKUB can ensure the disbursement of credit to the genuine borrowers.

15. The bank branch must take responsibility for its loans. It needs to develop systematic and continuing relationship with its loan.

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7.3 Conclusion

Rajshahi Krishi Unnayan Bank should look forward. They have to change and reform in keeping with the current and emerging requirement. They will do well to take lesson from the best practices of micro credit operation, and customize these for their credit operation in line with international best practices. They should make good loans and explore new avenues for investment. Small loans have vast potential in this regard. Lessons from micro credit institutions strongly indicate that RAKUB need to reform their Loan strategy, increase small loan portfolio, utilize the potential of credit officers, establish accountability for enforce compliance.

This branch has yet produces any better performance in disbarment those loans given to borrowers. The major cause behind this low recovery is poor implementation of credit policy of the bank. RAKUB as well as the Local Principle Office should take effective measures as recommended in disbursing loans which will lead to earn profit and help in smooth survival in the coming day.

References University of Information Technology & Sciences 65

1. Chowdhury, L R. A Text book on banker’s advances, Dhaka: Fair corporation.

2. Chowdhury, Omar, (2003) “Bank’s non performing loans- some lessions for bank Loan.” Journal of institute of bankers, Bangladesh Vol-50, No-2Dec-2003, Pp- 183-193.

3. Khan, Dr. A R, Bank Management: A fund emphasis, Dhaka: Ruby Publications.

4. Khan, Dr Majibur Rahman, (1989) “Agricultural credit in Bangladesh: some issues and considerations in policy planning.” Krishi Bank Paraikrama, Vol.-9 & 10, June- Dec.-1989, pp-70-84.

5. Rajshahi Krishi Unnayan Bank, Annual report (2012-2013)

6. Rajshahi Krishi Unnayan Bank, Local Principle Office, Statement of affairs (2008-2012s).

7. RAKUB’s web site: http:// www.rakub.org.bd

Questionnaire

Questions about the bank

1. What are the historical backgrounds of RAKUB? University of Information Technology & Sciences 66


2. What is the vision of the bank? 3. What is the mission of the bank?

4. What are the main objectives of the bank?

5. How many branches are under RAKUB?

6. What the amount is of authorized, paid up and reserve capital of RAKUB?

7. What is the main function of the bank?

8. How many employees are involved with RAKUB?

9. What is the accounting period of the bank?

Questions about the branch and its functions

10.When has the branch been established?

11.What is the organizational structure of this branch?

12.How many employees are of your branch?

13.How many unions and villages are under your branch?

14.What are the different rates of interest of different account?

15.What is the minimum deposit of different accounts?

Questions about loan disbursement policy


16.What are the main purposes to provide loan?

17.What are the different rates of interest?

18.What are the different terms and conditions of loan?

19.What documents do you judge in sanctioning loan?

20.What types of securities are accepted by the bank?

21.What type of person can be grantor?

22.What are the major heads of loan disbursement policy?

23.What are the programs under poverty alleviation?

24.How do you evaluate feasibility before sanctioning loan?

25.Is loan disbursement higher or lower than target, why?

26.How do you fix up installment?

GLOSSARY & ABBREVIATION

RAKUB Rajshahi Krishi Unnayan Bank

SITS University of Information Technology & Sciences


ADFC Agricultural Development Finance corporation

BKB Bangladesh Krishi Bank

LAN Local Area Network

RSCP RAKUB Self-help Credit Program

NCDP North West Crop Diversification Project STD Short Term Deposit Account DPS Deposit Pension Scheme RDPS RAKUB Deposit Pension Scheme DD Demand Draft MT Mail TransferTT Telephone/ Telegraphic Transfer PO Payment Order STDA Short Term Deposit AccountDPS Deposit Pension Scheme RPS RAKUB Pension SchemeRGPS RAKUB Grameen Pension SchemeFDA Fixed Deposit AccountMT Mail Transfer DD Demand Draft TT Telegraphic TransferPO Payment OrderSTL Short Term Loan MTL Medium Term LoanLTL Long Term Loan

SPO Manage

PSO Project Supervision Officer
