Internship Report

ON

YOUR INVESTMENT PARTNER.

Internship Report

ON

Sick Industry Rehabilitation

Of Bangladesh Shilpa BankSubmitted To

Mr: Mamtazuddin Ahmed Professor Department of Accounting & Information SystemsUniversity of Dhaka

Submitted By

Md. Zakir HossainBBA (AIS), 8th BatchRoll-161Department of Accounting & Information SystemsUniversity of Dhaka.

DEPARTMENT OF ACCOUNTING & INFORMATION SYSTEMSUNIVERSITY OF DHAKA

May 10, 2007

LETTER OF TRANSMITTAL

Date: 10/05/2007

Mr: Mamtazuddin Ahmed Professor Department of Accounting & Information SystemsUniversity of Dhaka

Sub: Submission of internship report on “Sick Industry Rehabilitation Of Bangladesh Shilpa Bank”

Dear Sir,

Here is my internship report on “Sick industry Rehabilitation of Bangladesh

Shilpa Bank.” While preparing this report, I tried my best to follow the

instructions that you have given me. This report is prepared for the fulfillment the

requirement of the BBA Program.

The entire report is based on my practical experiences in bank. I have furnished

all the things what I have learnt during the internship program at Bangladesh

Shilpa Bank, Head Office, Dhaka.

I shall be highly encouraged if you are kind enough to receive this report.

Thanking you.

Sincerely yours,

--------------------------

Md. Zakir HossainBBA (AIS), 8th BatchRoll-161Department of Accounting & Information SystemsUniversity of Dhaka.

A C K N O W L E D G E M E N T

At first, I would like to express my gratitude to almighty Allah for enabling me the

strength and opportunity to complete the report with in the schedule time

successfully.

I like to thank from the core of my heart to the internship Supervisor, honorable

teacher, Mr Mamtazuddin Ahmed, Professor, Department of Accounting &

Information System, University of Dhaka, who helped me in every steps of my

internship.

I am very much grateful to H M Fazlur Rahman Azad,Assistant General

Manager, Bangladesh Shilpa Bank, Head Office, Dhaka, for giving me the

opportunity to complete my internship. I am sure that their dynamic managerial

activities with give inspiration to anybody to build one’s career properly.

. In this regard I also express our heartiest gratitude to the officials of the various

departments of the bank. Mrs, Nioti Rani Deb, Manager, of the Department of

Project Rehabilitation also deserves to get special thanks for her kind discussion.

Especially I am grateful to Mrs. Nurjahan begum, Officer, Training Department

who provided various information and materials. I am also thankful to the

Department of Accounting, University of Dhaka for giving me such exposure to

the practical business world.

.Then at last I shall be grateful to those persons who read this report and who

shall get benefit from this report at present and in future.

Executive SummaryExecutive Summary

The Bachelor of Business Administration (BBA) program is a professional program. This

program is designed to meet the needs of the students who want to develop their career as

executives in the fields of different business areas as well as teaching and research

positions in different institutions. To obtain this degree, Internship Program is an integral

part.

This report is organized as following: Chapter (1) Covers: the background of the study,

Methodology of the study, Objectives of the study & Limitation of the study. Chapter (2)

contains: Overview of Bangladesh Shilpa Bank. Chapter (3) covers: Various functional

departments of Bangladesh Shilpa Bank. Chapter (4) covers: The details about sick

industry and a case study about sick industry. Chapter (5) Contains: Rehabilitation of sick

industry , past and present condition. Chapter (6) covers: Findings, Recommendation and

conclusion.

All information included in this study is taken mainly from various appraisal report of

BSB, loan sanctioning letter, annual report, manuals of various departments, Internet etc.

Certainly there are some drawbacks in their rehabilitation of sick industries. In order to

overcome these drawbacks, some suggestions have been made in my study.

CHAPTER ONECHAPTER ONEINTRODUCTION OF THE REPORTINTRODUCTION OF THE REPORT

YOUR INVESTMENT PARTNER

1.1 BACKGROUND OF THE STUDY

The perfect coordination between theory and practice is of paramount importance in the

context of the modern business world in order to resolve the dichotomy between the

theoretical and practical areas. Any academic course of the study has a great value when

it has particular application in the real life. Only theoretical knowledge bears little

importance unless it is applicable to the practical life. When theoretical knowledge is

obtained from a course study it is only the halfway of the subject matter. So we need

proper application of our knowledge to get some benefits from our theoretical knowledge

and to make it more fruitful. Such application is made possible through internship. For

the completion of this internship program, the author of the study was placed in a bank

namely, “Bangladesh Shilpa Bank”. Internship Program brings a student closer to the real

life situation and thereby helps to launch a career with some prior experience. My

internship is on the evaluation of Project Rehabilitation Department’s functions of BSB.

Bangladesh is one of the countries of manifestation. Here industrial sector is very weak.

So government has established Bangladesh Shilpa Bank to stimulate industrialization.

Since Bangladesh is a developing country and the present economic condition of

Bangladesh is of open market in natures, in this situation, the specialized bank like BSB

can play necessary role toward the economic improvement of BSB is to provide term

loan to different industries and entrepreneurs in Bangladesh. The purpose of BSB is not

only to grant credit but also to develop the country through industrialization. But all

industries are not always successful. Some industries become sick due to technical,

management, economic & political reasons. In my report rehabilitation

Procedure of such sick industries has been analyzed

1.21.2 OBJECTIVE OF THE STUDYOBJECTIVE OF THE STUDY

The objective of the report is to comprehensive study on Bangladesh Shilpa Bank and to

find out the problems and opportunities for the industrial development. The objective of

the study is also to find out to what extent it is successful to achieve its goals and why

many of its industries are become sick. The prime objectives of this report are as follows:

To get an overview of the operations of Bangladesh Shilpa Bank

To acquire practical experience about working environment, to know discipline and

behavior of an organization that will help me to buildup my career.

To evaluate the success and status of loan recovery

To understand the criterion on the basis of which the industries are identified as a sick

industry

To know the rehabilitation program taken by BSB to rehabilitate these sick industries

To know the firms which are rehabilitated and which are not rehabilitated.

Finally to recommend necessary steps to overcome the problem of sickness of

industries

1.31.3 METHODOLOGY OF THE STUDYMETHODOLOGY OF THE STUDYCorrect and smooth completion of research work requires adherence to some rules and

methodologies.

In order to conduct the report, the decision had been taken to collect various types of

primary data and secondary data. Data have been collected by oral interviewing the

responsible officers. Different form of statistical configurations such as table percentages

rates and ratios has been used to make the study meaningful and realistic.

After collecting data from the interview and material provided by them, data was first

carefully scrutinized. Then the data was organized as required.

In order to make the study effective and efficient, following two sources of data and

information have been used widely.

(a) Primary information/data

(b)

The primary data have been collected by oral interviewing the responsible officers and

staffs of the BSB, practical deskwork, direct observation of the functions of various

departments of BSB and relevant document’s studies as provided by the officers

concerned.

(b) Secondary Information/data

The secondary information comes from annual report of the BSB, relevant papers/books

and periodicals publication and manual of different departments.

Primary Sources Secondary Sources

Sources of Data

1. Practical desk work2. Oral interview of the respective officers

and staffs of BSB 3. Direct observations of the functions of

various departments of BSB 4. Relevant document’s studies as

provided by the officers concerned

1. Annual report of the BSB2. Annual budget of the BSB3. Various documents of the BSB4. Extensive literature search on the

basis of these documents of publication

5. Shilpa Bank’s Website (www.shilpa bank.com )

1.41.4 LIMITATIONS OF THE STUDYLIMITATIONS OF THE STUDY

This internship report is my first assignment outside our course curriculum in the

practical life. In performing this report our lack of proper knowledge greatly influenced

in this performance. Beside this, some limitations in preparing this report have been

faced. The main limitations are as follows:

Confidentiality is the main problem; as a result some confidential facts were not

sufficiently disclosed by the respective personnel.

Lack of available up-to-date information

Only few days internship’s experience is not enough to find out all the pros and

cons of such a vast project.

The employees of BSB had no eagerness to supply more information because of

extra hardness

Most of the manual of BSB is maintained in Bengali. To translate these terms into

English is very difficult and technical words are not understandable.

As Bangladesh Shilpa Bank is a large financial institution; it is very difficult to

understand each and every aspect of its operation within a very short period of

time.

Lack of previous practical experience in this concern, as I am a newcomer

CHAPTER-TWOCHAPTER-TWO

OVERVIEW OF BANGLADESH

SHILPA BANK

YOUR INVESTMENT PARTNER

2.1 BACKGROUND

Industries play a pivotal role in the economic development of every country. This is why Industrialization has been adopted as a vital instrument of economic development in many developing countries. Realizing this, government of Bangladesh created a development financing institutions named Bangladesh Shilpa Bank (BSB) on 31st December, 1972 under the presidential order no. 129 of 1972 with a view to providing long term and intermediate term loan to the entrepreneurs for accelerating the process of industrialization of the country by providing financial assistance and equality support.

2.2INSTITUTIONAL OVERVIEW

Established: October 31, 1972

Organization

Head Office DhakaDivision 5Department 21Zonal Office 3Branch Office 15Personnel 743

Capital Structure and Sources of Fund:

Authorized capital TK 2000 millionPaid up capital TK 2000 million

The sources of Bank’ fund are the government, Bangladesh Bank, Commercial Banks, local\ overseas Financial Institutions and Suppliers’ Credit.

2.3FUNCTIONS:

BSB extends mainly long and medium term loan facilities in local and foreign currencies to industrial projects (both new and BMRE) in the private and public sectors. Besides the Bank also performs the following:

Provides working capital loans to industrial projects

Provides equity support in the form of underwriting and bridge finance to the public limited companies Issues guarantee on behalf of the borrowers for repayment of loanExtends commercial banking service along with deposit mobilizationPurchases and sales shares\ securities for BSB and on behalf of its customers as a member of Dhaka Stock Exchange(DSE) Ltd and Chittagong Stock Exchange (CSE) Ltd for capital market development and Conducts projects promotional activities along with preparation of various sub-sect oral study reports.

2.4Ownership:

At least 51 per cent of the authorized capital of BSB is subscribed by the Government and the remaining 49 per cent be subscribed by Bangladesh nationals or by local or foreign Financial Institutions. Presently ,100 per cent ownership of the Bank belongs to the Government.

2.5Mission:

Accelerating the process of industrialization of the country by providing financial assistance and equity support.

2.6Management:

The overall policy formulation and the general direction of the Bank’s operation vest in a Board of Directors appointed by the Government. This Board of Directors consists of 9(nine) members including the chairman and the Managing director. Non-Government shareholders subscribing to the capital of the Bank shall eventually elect 4 directors amongst themselves. The Managing Director is the Chief Executive of the Bank. The General Managers assist the Managing Director in conducting overall business of the bank.

2.7Audit CommitteeAn audit committee has been constituted by the Board of Directors of the Bank in its 400th meeting held on 06 April, 2003 which position as on 30-06-2005 as under:

SI.No Name Status with the Bank

Status With the Committee

Qualification

1 Professor Abu Ahmed

Chairman Chairman M.A in Economics, York University, Toronto, Canada. M.sc. in Economics.Islamabad University ,Pakistan

2 Mr. Md. Nural Amin

Director Member B.Sc. Engineer (Civil)

3 Mr. Liaquat Ali Khan

Board Secretary

Member-Secretary

M.A in Economics

Name of the Directors and the entities in which they have interest as on 30 June, 2005:

SI. No. Name Status with the Bank

Name of the firms\ companies in which interest as proprietor, partner, director, managing agent, guarantor, employee, etc.

1 Professor Abu Ahmed Chairman -2 Dr. Nazmul Bari Managing

director (Current Charge)

Investment Corporation of Bangladesh (Director as Govt. Representative)

3 Mr.Mokbul Hossain Director -4 Md. Nural Amin Director -5 Mr. Syed Abdul Director Chairman, Kushiara

Muqtadir Service Ltd.

2.8 BSB: AT A GLANCE

2000-01 2001-02 2002-03 2003-04 2004-05Loan application received 13 31 31 51 83Term loan sanctionedNew 5 5 18 21 34BMRE - 1 2 3 1Additional 3 2 1 3 3Total 8 8 21 27 38Term Loan Disbursed 10 8 11 14 23Working capital Loan sanctioned

2 1 3 5 3

Start of commercial operation

5 2 2 4 7

Entrance into Loan portfolio 3 2 7 6 14Repayment\ Rescheduling 47 52 27 17 23Liquidation of Loan liabilities

32 21 31 22 41

Total Loan portfolio 532 513 461 308 166(Million Taka)

Term loan sanctioned 293 189 1418 989 1009Term Loan Disbursed 134 84 170 297 144Working Capital Loan Sanctioned

9 4 30 19 14

Working capital Loan Disbursed

15 1 9 28 21

Loan Recovered 1400 1198 1316 1124 1391Rephrased\ Rescheduled 574 1833 507 149 259

CHAPTER- THREECHAPTER- THREE

FUNCTIONS OF VARIOUSFUNCTIONS OF VARIOUS

DEPARTMENT OF BSBDEPARTMENT OF BSB

YOUR INVESTMENT PARTNER

3.13.1 DIFFERENT FUNCTIONAL DEPARTMENT OFDIFFERENT FUNCTIONAL DEPARTMENT OF

BANGLADESH SHILPA BANKBANGLADESH SHILPA BANK (BSB) (BSB)

There are eight functional departments of Bangladesh Shilpa Bank. The operational

activities of Bangladesh Shilpa Bank have operated by these departments in different

way. Every department has its own policies, procedure, and strategy to lending, and

implementing credit. Each of the department is depends on each other for sanctioning

loan for propose industries, which applied for loan. Loan Operation Department is the

first step of loan sanction procedure and it is comparatively most important department of

Bangladesh Shilpa Bank.

(1) Loan Operation Department (LOD)

(2) Documentation and Machinery Procurement Department

(3) Project Implementation Department (PID)

(4) Central Recovery Department (CRD)

(5) Central Accounts Department (CAD)

(6) Human Resources Management Department (HRM)

(7) Law Department

(8) Project Rehabilitation Department (PRD)

3.2 LOAN OPERATION DEPARTMENT

Bangladesh Shilpa Bank (BSB) grants loan on the basis of certain criteria. The loan

operation department does the first activities of loan granting. Any entrepreneur who

wants to borrow money, from Bangladesh Shilpa Bank must fulfill at first Bank Standard

Questionnaire Form (BSQF) in terms of Tk. 1,000. These processes are as follows:

i. At first an application form is supplies to the entrepreneur (required Tk. 1,000);

ii. After filling up the application form it is submitted by the entrepreneur;

iii. A project appraisal letter is supplied by the entrepreneur;

iv. After analyzing the project appraisal, the board decides the loan should be sanctioned

or not;

v. If the loan is sanctioned it is forwarded to the project implementation department.

Figure: Overview of Loan Operation Department

Start with BSQF

Submission of BSQF with Proposed projects

Put Up Appraisal Report

Ends of this department

Evaluation of proposed project by a team member

Passed process to PID dept. documentation and as well of

other department

The process of appraising a report:

The bank authority makes the report, which consists of three (3) types of analysis, is as follows:

(a)Technical analysis

(b)Financial analysis

(c)Economic analysis \ market analysis

(A) Technical analysis:

The technical engineer does this report whether the proposed project is viable or not. It gives indication about the project technically sound or not. Here engineer justify several aspects are as follows:

The project will be established which is suitable or not for the project whether the road, railway, riversides or airport etc that are precondition for establishing the project situates this place. He also justifies the types of machines, capacity, types, production capacity etc and gives permission for that company.

(B) Financial analysis:

A financial analyst of the responsible officer makes financial analysis. He will examine prospect of the company about the demand of the product, marketability of the product, profitability of the product, supply and production capacity of the product to meet the market demand through various a financial analysis such as current ratio, profitability ratio, asset management ratio etc.

(C) Economic \ Market analysis:

This analysis is also made by an economist or market analyst that is feasibility report of the product of related company. This study comprises of whether the product will be launched that’ acceptability of the product, supply and production capacity of the product to meet the market demand.

3.3 DOCUMENTATION AND MACHINERY PROCUREMENT DEPARTMENT

After sanctioning loan by Loan Operation Department, it issues a letter to documentation

department, parities and after concerned departments. The documentation department

issues a letter to the parties to produce necessary documents. Those documents are:

i. Memorandum of Association Articles of Association

ii. The loan upon which the project will be established, document of this land

must be produced.

iii. Receipts of rent

iv. Documentation fee

v. Mouja Map

vi. The documents that reveal that the land revel that the land were not sold

within preceding two years.

Then a form is filled up. These documents are sent to lawyer. It every thing is OK it is

transferred to project implementation department.

In the documentation process the borrower are required to submit a cop of memorandum

of association and articles of associate. It is returned after the confirmation that in has

been submitted according to the rules the borrower company must submit it after the

authorization by direction of registration of Joint Stock Company and firm. The

following activities are performed during the time of documentation process:

The borrower company must submit necessary documents

Verification of documents by documentation and machinery department and

law department.

Preparation of all documents of the borrower company director.

3.4 FUNCTIONS OF MACHINERY PROCUREMENT DEPARTMENT:

Machinery schedule preparation and approving for tender

To assist the promoters to invite tender and other formalities.

Necessary advice given to investor’s about tender invitation to collect project

machinery.

Offered machinery and related document evaluation and necessary

information collection about supplier.

To analyses the tender price, quality of machinery among the bidders and

taking approval from the authority.

Preparation of list of pre-shipping investigator through notice and receive

approval.

Arranging investigation procedure of importable machinery.

To make the rules and procedure of machinery procurement and co-ordinate

the activities of branch and zonal offices.

Information collection about different price of machinery different capacity in

industrial production.

To give opinion about technical aspects of loan operation department and

braces.

3.5 PROJECT IMPLEMENTATION DEPARTMENT

When the loan operation department it is forwarded to project sanctions the loan

implementation department (PID) performs the following activities:

i. Undertaking necessary initiative after granting loan in favor of the project.

ii. Taking necessary action to make the factory lay-out.

iii. Making necessary adjustment in case of change of the project place, change of board

of directions and change/extension product mix etc.

iv. Making necessary attempt to give the loan a stage by stage after the loan granting.

v. To ensure that necessary capital has been supplied by the entrepreneur and to ensure

its proper utilization.

vi. To give necessary assistance in the case of Bridge loan from any financial institution.

vii. Taking necessary indicatives to construct the lay-out of the project according to

construction cycle.

i. Monitoring the machinery of the project, inspection and taking any kind of advice

regarding to any machine related problem from machinery department.

ii. Verification of new material process of project ensuring the cash capital according to

the loan terms and condition and providing necessary assistance in this matter.

iii. Inspection and monitoring experimental production extension of loan period.

iv. Making the final construction report (FCR) and transferring it to central recovery

department (CRD) and concerned department/authorities.

v. Determination of the construction period of the project preparing loan repayment

schedule and taking after necessary action regarding this.

vi. Monitoring and inspecting the project to see whether the project is implementing

according to time schedule and taking necessary initiatives to solve any kind of

problem arising out there form and providing necessary advice to the entrepreneur.

vii. Receiving insurance letter against the predetermined risk of the implementation

project assets n ensuring its deposit to bank.

viii. Inspection of the utility of the principles regarding the project implementation and

presiding up to date principles.

STAGES OF IMPLEMENTATION OF PROJECTS

2003-2004 2004-2005Position of Projects Under Implementation

Number of projects Number of projects

Started Commercial Operation 4 7Under Construction 6 11Documentation Completed 15 10Awaiting Documentation 22 27

3.6 CENTRAL RECOVERY DEPARTMENT

Project implementation department make a repayment schedule and given it to the borrower. Normally the interval is 6 months. This department inspects the project after every 6 months to see whether there is any leakage. If the borrower fails to repay the loan as the application of the borrower it is rescheduled. Sometimes a portion of interest is exempted. If the borrower fails to repay the loan than it is transferred to law department to take legal action on the application of the borrower. Sometime the project is transferred to project Rehabilitation Department to restore the project. Principles of classification of loan and provision:For the purpose of classification all loans and advances are divided into 4. These are:

a. Continuous loan,b. Demand loanc. Term loand. Short-term agricultural and micro-credit.

a. Continuous loan: The loan which can be granted and recovered without any repayment schedule but have an expiry date and maximum limit are called continuous loan.

b. Demand loan: The loan which mist be repaid as the bank calls it is demand loan. c. Term loan: The loan which must be repaid as the banks cal it is term loan. d. Short-term agricultural and micro-credit: The loan which is paid in less term

and condition is known as short-term agricultural and micro-credit loan.

Criteria for Classifying Loan on the Basis of Repayment If any continuous loan is not repaid within the expiry date that it is called irregular loan. The classification of loan re as follows:

6 months > continuous loan > 3 months = sub topped 12 months > continuous loan > 6 months = doubtful Continuous loan > 12 months = bad

If any installment of any term loan is not repaid within specific date it is treated installment default. Maintenance of provision:

1. On the basis of the equity of the loan the following precession are maintained:A. Substandard 20%B. Doubtful 50%C. Bad debt 100%

2. On short term agricultural and micro-credit the following provision to be kept:A. On all debt other than bad debt 5%B. On bad debt 100%

3.7 LOAN ACCOUNTING DEPARTMENT

Loan Accounting Department is the department which centrally maintains all loan amounts of the bank. There are 4 sections which performs the activities of the department.

1. Not due section: Not due is the installment not yet due for payment in schedule time fixed by the project department/Branch officer.

2. Amount due section/overdue section: The payment of installment and interest in not paid/cleared in time is overdue. The functions of this section are:

a. accurately list of balance preparationb. advice sending to borrowerc. Quarter/half year by interest charge.

3. Replacement section: When the overdue is rephrased or waived then the replacement section will do the needful activities.

4. General and policy section: General and policy section do the following:

d. To prepare the monthly Trial balance.e. Monthly recovery statement.f. Monthly disbursement schedule g. To make entry all the transaction as per daily statement received from the

branch officer. h. All list of balances of not due send to the Head Office and branch Office.I. To prepare distribution of work among the officers and staff as specific

guidelines of the authorities.

3.8 LAW DEPARTMENT

In the Bangladesh Shilpa Bank fails to recover its loan in the normal way, it must under taken alternative action and file case in the court. The cases which Bangladesh Shilpa Bank files are:

1. Recovery case Section 332. Financial Loan Case Section 5(a)3. certificate Case Section 354. Bankruptcy Case Section 9 (1)5. Case if Check is not cashed Section 198

(Petition Case)6. Case if machinery of project

is transferred form the project Section 377. Case if false properties are mortgaged

Section -----

Functions of Law Department:(I) Declaration of legal notices to the loan defaulters and take legal action against

loan defaulter.(II) Suit against loan defaulter and arranging all necessary activities to final

dismissal according to Bank ordinance.(III) To take case of the field suit\ litigation sued by the bank and to file suit in

high court and Supreme Court for the defaulted project.(IV) Managing the cases that filling by loan holder against Bank with the help of

law year.(V) To invite auction to sale assets after receiving degree from the court and

maintain relations with the court and co-ordinate the activities.(VI) Managing case against advance defaulter and filling of case against them.(VII) Preparation of Bank’s special consultant\ legal adviser and panel lawyer’s

schedule and make communicate with them to supervise suit and also monitoring and co-ordination their operation.

(VIII) Recommendation to change existing law to recovery of loan(IX) To keep the interest of Bank and provide legal advice.L

Legal actions taken

Position of projects under litigation

2003-2004 2004-2005

Number of projects Number of projects

Legal notice issued 126 33

Filling of suit 205 23

Cases settled outside the court 6 11

Auction 2 11

3.9 HUMAN RESOURCE MANAGEMENT DEPARTMENT

Bangladesh Shilpa Bank has total 794 personnel. It divided into two categories. These are:A. Job-wise distributionB. Profession-wise distribution:

Bank has a Training Department for upgrading the professional competence and skills of its Officers and Staff. Below are the main functions of Training Department: -

To prepare & implement Annual Training Program.

To impart training of the Officers/Staff regarding business & operations of the Bank.

To adopt measures to hold in-house training and make arrangements to send Bank's Officers to overseas training programmers.

To establish liaison with domestic & overseas organizations relating to training. To send Officers to local training institutions for improving professional skills;

and To organize seminar/workshop/symposium on key economic/banking issues.

3.10 PROJECT REHABILITATION

DEPARTMENTThe objective of BSB is to stimulate industrialization of the country. But many of the projects, which are loaned by BSB, become sick and cannot carry on their projects. There are many reasons, so government tries to revive the proposed project for greater advancement of the country.

In these types of cases, BSB provides assistance to rebuild their structure to restart their businesses. Additional financial assistance may be required moreover, more information and advice may given so that the entrepreneur may run the business more efficiently, sufficient return & contribution to the economy.

Functions of Project Rehabilitation Department

1. Recommendation and taking to rehabilitate a project after tracing the cause of sickness if the files are transferred to Project Rehabilitation Department from the ensured department/ branch/ zonal office after the primary analysis of the project. The rehabilitation process starts after the recommendation of the advisory committee formed by the General Managers.

2. The files of the projects are transferred to Law Department to take necessary actions, which are deemed not to be rehabilitated. Again if there is no opportunity to rehabilitate any it also rejected.

3. Verification of the proposal regarding rehabilitation recommendation preparing the implementation schedule and taking necessary initiatives to take care the project and deciding the single or joint management system of the bank and performing other activities regarding these.

4. Production of the rehabilitated project, making of the products analysis the targeted loan recovery and actual situation and taking necessary initiates regarding these

5. Making recommendation to restructure the capital to ensure fund management, profit sharing and loan recovery and making recommendation on the management and direction of the acquired project.

6. Reaction of bank participation stage by stage from the project, which is profitable

7. In case of apply right management after the certification that it will be effective and efficient.

Relation with other departments

Loan Operation Department is the starting department of sanctioning loan to the sponsors and in this department various analyses are made for making decision whether the proposed projects are viable or not. Anyone who wants loan from BSB, he has to fulfill certain criteria and a team evaluates the project. If the sponsors fulfill the entire requirements then his/her project will be approved for giving loan.Then the Loan Operation Department sends documents to Documentation & Machinery procurement Department for proper documentation and procurement of machinery. After documentation and machinery procurement the project is sent to Project Implementation Department.After sanctioning loan by Loan Operation Department a project is forwarded to Implementation Department. Project Implementation is one of the most important tasks done by BSB. Project Implementation Department conducts all the works according to the sanction letter, which is made according to appraisal report. Providing consultancy services and other necessary assistance implementation process is going on. They inspect and monitor physically whether the project is implementing or not. If not Project Implementation Department report to the authority to take necessary action. When the project started commercial production implementation process is completed and it refers to Central Recovery Department to recover installment money.Then Central Recovery Department starts to collect the loaned money. The project recovers the banks loan as per repayment schedule by Project Implementation Department. The sponsor default to pay their dues twice at a time then the bank goes to legal action. If the project stuck-up during construction or could not operate successfully after implementation then the sponsor will be unable to repay the dues and the project is sent to Project Rehabilitation Department. Project Rehabilitation Department first identified the sick firms of BSB, causes of sickness, impacts. This department also describes the rehabilitation policy of BSB, whether all sick firms are rehabilitated or not, management, rehabilitation program of Bangladesh Shilpa Bank.

CHAPTER- FOURCHAPTER- FOUR

SICK INDUSTRYSICK INDUSTRY

YOUR INVESTMENT PARTNER

4.1 WHAT DO WE MEAN BY SICK INDUSTRY

Industrialization is the prime concern of all the economies, especially in developing countries. Since the independence, numerous policies and efforts have been made to accelerate the pace of industrialization in Bangladesh. Bangladesh government has established specialized financial institution named Bangladesh Shilpa Bank on 31st

October 1972 with view to providing long term and intermediate term loan to the entrepreneurs for accelerating the process of industrialization of the country by providing financial assistance and equity support.

At the very beginning of Bangladesh Shilpa Bank, it was the only institution without whose support industrial project was impossible to build up. About the entire industrial unit established up to 1990 is the output of Shilpa Bank. It is the bank whose main objective is to encourage and motivate the potential entrepreneur to set up the new industry in the various part of the country. Although some commercial banks are providing short as well as long term industrial support to potential entrepreneurs, but still, Bangladesh Shilpa Bank is on the prior position. For the industrial development the contribution of BSB is incomparable.

Bangladesh Shilpa Bank undertakes various projects by providing finance, machinery and other aids, some projects are implemented successfully and some projects are failed to attain the goal and these firms are called sick firms according to the BSB language.

Sick industries mean the industries, which either become stuck-up during construction or could not operate successfully after implementation. These projects could either pay back the bank’s dues or make any contribution to the national economy. These projects were identified as sick due to their inability to generate sufficient fund for debt servicing. There are so many sick industries in Bangladesh, which has no specific statistical data. Here the main objective is to identify the causes of sickness of these industries.

4.24.2 SICK SITUATION OF A INDUSTRYSICK SITUATION OF A INDUSTRY

Normally BSB meets the long-term credit needs for implementation of the projects. BSBNormally BSB meets the long-term credit needs for implementation of the projects. BSB charter provides for extending working capital to its financed projects only to a limitedcharter provides for extending working capital to its financed projects only to a limited scale. While sanctioning loans by BSB provision is made for commercial banks toscale. While sanctioning loans by BSB provision is made for commercial banks to provide 70% of the working capital needs. But in most cases it is found that the projectprovide 70% of the working capital needs. But in most cases it is found that the project management either can’t raise the required working capital from the commercial banks,management either can’t raise the required working capital from the commercial banks, or they can’t raise required amount in due time. As a result these projects could not goor they can’t raise required amount in due time. As a result these projects could not go into operation on schedule time and they become unable to pay the interest and theinto operation on schedule time and they become unable to pay the interest and the principal amount. At last they are treated as sick industryprincipal amount. At last they are treated as sick industry

4.3 METHOD USED TO IDENTIFY A SICK INDUSTRY

There are some specific criteria to identify a sick industry. Two types of factors can be considered to identify the sick industries. They are-

Quantitative factors Qualitative factors

A.A. Quantitative factors:Quantitative factors:To identify a sick industry the following quantitative factors are considered-

a) On the basis of Cost- Benefit Analysis

For identifying a sick industry the following criteria may be considered by cost- benefit analysis. If the cost of the project is more than the benefit then the industry is to be considered as a sick industry. Sometimes the industry can’t recover the cost of labor, material. For this reason the industry goes into loss.

b) On the basis of Break Even Analysis

O

An industry should produce up to break-even point due to recover the fixed cost or overhead cost. If they can’t recover fixed cost then this industry can be considered as a sick industry.

FC

Cost

Production

VC

TR Profit

Break-Even Point

c) c) On the basis ofOn the basis of Financial Problems/Shortage of Working CapitalFinancial Problems/Shortage of Working Capital

The shortage of working capital is the most acute problem for majority of the sick industries. Working capital is required to finance purchase of required raw materials and other short term needs of a project after it is implemented. A survey shows that 28% of the projects suffer due to shortage of capital. The problems, which lead an industry toward sick, are as follows-

Measurement of investment outlay and cost of the project are not appropriate

When the means of financing is not available

When the project is not profitable

When the production is not reached at the break-even point

When they can’t calculate appropriate risk level of sick

Loan application with insufficient amount of money that would not meet fixed

and operation cost

Cash flow of the project is not available

If actual cost of the project is more than the budgeted cost

Shortage of working capital, i.e. if they do not manage the sufficient working

capital

If interest rate increases the cost of working capital then the project may become

sick

Lack of adequate operating capital

Higher fixed cost, i.e. increase the fixed cost as a result of increasing of the price

of machinery, land or other fixed items

When variable cost increases

When there is no sufficient mortgage

Improper inspection of bank financed project

Insufficient insurance facility

Economic problem comes from the social cost benefit analysis.

B.B. QUALITATIVE FACTORS:QUALITATIVE FACTORS:

To identify a sick industry the following qualitative factors can be considered-

1. The symptoms of Sick Industry

Sick industry is difficult to define. Nonetheless the symptoms of sick industry are as

follows-

The initiator is unable to pay sufficient money at the implementation stage

The delay of implementation increases the project cost. It also creates many

problems and the burden of loan interest is increased.

Lack of full production or frequent obstruction of industry

The initiator is unable to pay the loan installment and other liabilities

The failure of payment of loan installment in time increases the burden of loan

amount

Inability to submit the financial statement in time

Increase the tendency of undertaking unfair means in preparing the papers of

stock materials

Goods of the stock increase of unsatisfactory sale

Profit from investment decrease gradually

The production level decreases gradually

Taking loan from various sources at a high rate

Applied for a large amount of loan

Non-cooperating tendency with the loan providing bankers

Lacking of perfection in the market.

2. Technological problems

Machinery imbalance causing lower capacity utilization is the major technical

problem of many projects. Some also suffer from faulty technical design.

Whether the preliminary test and studies are not appropriate

Availability of raw materials, powers and other infrastructural facilities are

not established.

The selected scale of operation is not optimal

The production process chosen is not suitable

The equipment and machine chosen are not appropriate

Lack of modern technology like incapable to use the computer and modern

machinery

If the selection of machinery becomes faulty, it will not ensure the

achievement of objectives

Wrongly or inappropriate selection of the machinery

Lower capacity of the machine resulting price will be higher, i.e. production

cost higher

Inconsistency between the origin of raw materials and the factory location

Production of products and final consumption adversely affect the business

Lack of infrastructure facility

Selection of old and backdated technologies to be used in production

Delay of machinery procurement & rapidly change in technological

environment

Unavailability of supply of gas, electricity and water etc

3. Administrative and Managerial problems

Success of a firm largely depends on management. There are some internal conflict between the workers and managers. A survey reveals that 30% of the projects suffer due to administrative and managerial problems. The administrative problems, which lead an industry towards sick, are as follows-

When the management is not capable to manage all the managerial aspects; management should have proper planning, organizing, controlling, administrating and monitoring.

Weak management of the projectLack of efficiency of employment as well as managementsConflict and also death of management’s partnerDeath of main entrepreneur of the projectInsufficient employeesUnskilled human resourcesCorruption and intentional misuse of organizational assets

Lack of proper planning, organizing, controlling, administratingLack of proper planning, organizing, controlling, administrating and monitoring.and monitoring.

1. Marketing Problems

If the aggregate demand of products of proposed project is not possible to fill up.

If due to national financial crises product demand decrease

Introduction of new brand product

Wrong forecasting about the market

When change the consumption trends in the past and present consumption level

If change occurs in the Import and export policy

When market share of the project is under low appraisal

Smuggling of substitute goods

If the raw material of the product is not purchased at appropriate tim

Improper market justification

If production cost is high resulting selling price high which ultimately decreases the demand

Lack of market expansion and production diversification

Shortage of raw material supply

High competition in the market

Cheap price of the foreign product

2. Economic Problems

]The economic problems, which lead an industry toward sickness, are as follows-

Economic problem comes from the special cost benefit analysis

It does not impact of the project on the distribution of the income in the

society as well as the level of saving and investment.

3. Political problems

The political problems, which lead an industry toward sick, are as follows-

Political pressure

Political instability, which hampers the production

Insufficient facility provided by govt. to industrialist like tax rebate

Political problem like worker unrest, hartal

Political pressure to loan procurement

Inappropriate action taken by govt. to protect smuggling

Political terrorism.

4.4. Other Reasons of SicknessOther Reasons of Sickness

Except the above problems there are also some problems, which leads an industry

towards sickness. A survey reveals that 13% of the projects suffer due to other problems,

which are as follows-

Selection of inappropriate industrial unit, which is not financial and logically

viable in concerned country

Delay of loan application

Internal delay of industries construction after loan sanction

If a portion of loan amount used for personal use

Delay of operation start

Over estimation of mortgage value

Delay of loan procurement and sanctioning process

Delay of documentation formalities in respect of loan

Causing of rehabilitation measure

Insufficient enforcement of law for recovery of loan

Inappropriate location of industries

Natural disaster that hampered production

Terrorism that hampered to establish an industry

Delay of implementation

4.4 IDENTIFIED SICK INDUSTRIES

In Bangladesh there are so many sick industries. The sick industry concept is not the

newest one. It is occurring from the pre-independence of Bangladesh and Bangladesh

inherent some sick industries from its birth. After independence this is also continuing.

The exact figure of sick industry is not identified.

Some Sick Industries

G.M.K Textile Ltd. Ali & Sons Ltd. Malik Auto Rice Mill

Meraj Fabrics Ltd. Shardar Textile Mills Ltd. Al-Amin Lee Factory

Jahan Group of printing &

packaging

Nima Corporation Ltd. United company

Al-Amin Printing &

packaging

J.K.K Industry Ltd Mitaly Enterprise Pvt. Ltd

Riad Products Pvt. Ltd Grand Dhaka Hotel Pvt. Ltd Helal Engineering Pvt. Ltd

Tas Toys Pvt. Ltd Hotel Konic Pvt. Ltd Quick Carrier Ltd

Micro Aliment

Manufacturing Co. Ltd.

Toronody Water Ways Pvt.

Ltd

Tempkul Ltd

Hasan Agro Engineering

Workshop Ltd

Companygonj Rubber

Industry

Tito Textile Ltd

Pioneer Iron Foundry &

Engineering

Padma Tyre Retarding

Industry

Brick Linker Ltd

Diamond Industry Pvt. Ltd Shovo Auto Rice Industry

Ltd

Nakko Ice Ltd

Jahanara Moulding &

Engineering Workshop

South East Enterprise Oriental Foundry

Allama Nails Allied

Industry Pvt. Ltd

Coxbazar Aqura Resources Khan & Khan

North Bengal Silicate

Industry Pvt. Ltd

D & S Auto Rice Mill Uttaran Engineering

complex

4.54.5 IMPACT OF SICK INDUSTRY INIMPACT OF SICK INDUSTRY IN

BANGLADESH OR BSBBANGLADESH OR BSBIncrease of non-performing assets in organizational level as well as national level

Decrease contribution in GDP and GNP

Decrease in productivity at national level

Average effect in banks profitability

Increases the classified loan

Increase the lending rate of interest, which adversely affect the new and regular

borrowers

Affects adversely in the economic growth rate of the country

Create adverse psychological impact on the prospective entrepreneurs.

4.6 LOAN PORTFOLIO: During FY 2004-05, loan liabilities of 41 projects were liquidated and 14 new projects were included in the Bank’s loan portfolio. As on 30th June, 2005 total number of projects in the loan portfolio stood at 166 with a total loan outstanding of TK 7441.91 million compared to that of 308 projects having a total loan outstanding of TK 13998.11 million in the preceding year. Out of 166 projects in the loan portfolio, 60 were exported-oriented, 72 import-substituting, and 34 service\ other industries.

SECTOR-WISE POSITION OF BANK’SLOAN PORTFOLIO(AS ON 30-06-2005)

Sectors No. of Projects Total Loan Outstanding(million taka)

Food & Allied Products 31 491Jute & Allied Products 3 538Cotton, Woolen & Synthetic Textiles 53 5304Paper, Paper Products &Printing 6 177Tannery & Leather Products 4 100Non Metallic Mineral Products 2 100Forest & Wooden Products 1 7Rubber &Rubber Products 0 0Basic Metal Products 1 2

Metal Products 5 31Electrical Machinery & Goods 0 0Machinery & Spare Parts 6 45

Transport Equipment 6 16Chemical &Pharmaceuticals 15 198Petro Chemical Products 5 133Service Industries 18 204Miscellaneous 7 96Total BSB Projects 163 7442Total BSCIC Sponsored Projects 3 0Grand Total 166 7442

Sectorwise loan outstanding

7% 8%

75%

3%3%3%1%

Food & Allied Products

Jute & Allied Products

Cotton, Woolen &Synthetic Textiles

Paper, Paper Products&Printing

Chemical&Pharmaceuticals

Service Industries

Miscellaneous

4.7 LOAN RECOVERED: Loan recovered is a crucial index to measure the success of a lending organization. Like previous years, this year too, the Bank has strengthened its recovery drive for realizing loans and dues from its borrowers and significant success was achieved. Total recovery target of loans during the FY 2004-05 was TK. 1400.00 million, against which actual cash recovery was TK.1391.44 million constituting 99 per cent of the target. During the reporting year, outstanding loan of TK. 259.48 was regularized through rescheduling and replacement of bad and doubtful loan accounts

The amount regularized through cash recovery and rescheduling were TK.1124.20 million and TK.149.40 million respectively in FY 2003-2004. During FY 2004-05, the recovery drive was affected to some extent, among others, due to the ever memorable serious flood, the country experienced. During 2004-05, the percentage of classified loan stood at 41% with a 21% decrease over the 62% of the preceding year. In other words,

with a decrease of TK. 6359.69 million during reporting year, the classified amount of loan stood at TK. 3664.71 million from TK 10024.40 million in the previous

RECOVERY OF LOAN

Category of Loans Amount Recovered (million taka)(A)

(B)

Long Term Loans:Long Term Project Loans

915 1061

Bridge Loan 1 3Staff Loan 35 34Administered Loan 105 98Sub-Total: 1056 1196Short Term Loans:Working Capital LoansOthers(Debenture\ Share\ Loans against FDR\ Write off)

27

41

45

150

Sub-Total 68 195Grand Total (A+B) 1124 1391

Legal Actions Taken for Recovery of Loans:

The Bank initiates legal actions under the BSB Order 1972 and Artho Rin Adalat Aien- 2003 against those defaulting and recalcitrant borrowers who fail to come up with any satisfactory proposal for settlement of Banks dues after all normal recovery efforts have been exhausted.

In FY 2004-2005, legal notices were issued against 33 defaulting companies for recovery of Bank’s dues while law suits were filed against 11 companies. Besides, 79 sale notice were published in the national dailies for auction. At the same time efforts were made for settlement of disputes outside the court through negotiation. As a result, 23 litigated companies settled the disputes outside the court and assets of 11 projects were sold through auction during the year.

Loan written off:During FY 2004-05 the Bank had written off a total loan liability of TK. 6155.28 million of 171 projects. Out of which 116 for long term, 52 for bridge & 3 for short term Loan.

4.8 RISK MANAGEMENT: The bank is primarily subject to interest rate, credit and currency risks. The policies and procedures for managing these risks are outlined in the notes below. The bank has designed and implemented a framework of controls to identify, monitor and manage these risks, which are as follows:

CREDIT RISK MANAGEMENT

Credit risk is the risk that one party to a financial instrument will fail to discharge and obligation and cause the other party to incur a financial loss. Concentration of credit risk arises when a number of counter parties are engaged in similar business activities or activities in the same geographical region or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions.

CONCENTRATION OF CREDIT RISK (CRM) Out of the total financial assets of TK. 8911 million, the financial assets that were subject to credit risk associated to total credit. The bank’s major credit risk is concentrated in textile sector. To manage credit risk, the bank applies credit limits to its customers and obtains adequate collaterals.

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Credit risk in the Bangladesh Shilpa Bank’s portfolio is monitored, reviewed and analyzed by the Credit Risk Management (CRM).

CRM determines the quality of the credit portfolio and assists in minimizing potential losses. To achieve this objective, CRM formulates appropriate credit policies and procedures for the bank to ensure building and maintaining quality credits and an efficient credit process.

Bangladesh Shilpa Bank has formed Asset Liabilities Committee (ALCO) to screen out the banks / financial institutions and determine the maximum risk exposure on each of them. ALCO also assesses recommends and controls cross border / country risk. To manage the Non-performing Loans (NPLs), Bangladesh Shilpa Bank has in place comprehensive remedial management policy, which includes a framework of controls to identify weak credits and monitoring of these accounts.

INTEREST RATE RISK MANAGEMENT

Interest risk is the risk that the value of a financial instrument will fluctuate due to changes in the market interest rates. The risks are inherent on deposits, liabilities, loans/ advances and investment of the Bank.

The Assets and Liabilities Committee of Bangladesh Shilpa Bank regularly reviews the total portfolio of the bank to ensure that risks are minimized and remain within acceptable limits.

LIQUIDITY RISK MANAGEMENT

Liquidity risk is defined as potential loss arising from the Bank’s inability to meet its contractual obligations when due. Liquidity risk arises in the general funding of the Bank’s activities and in the management of its assets. Bank maintains sufficient liquidity to fund its day to day operations, meet customers deposit withdrawals either on demand or at contractual maturity meet customers demand for new loans participate in new investments when opportunities arise and repay borrowing they mature. Hence liquidity is maintained to meet known as well as unanticipated cash funding need.

Important factors in assuring liquidity is funded on the Bank’s good reputation, the strength of its strong financial position and credit rating. Liquidity risk is managed in accordance with a framework of liquidity polices, contracts and limits approved by ALCO. These polices controls and limits to ensure that Bank maintains well diversified sources of funding as well sufficient liquidity to meet all its contractual obligations when due. The bank can meet the liquidity crisis by taking call loan, short term deposit from other Bank and Financial Institutions.

A CASE STUDY ABOUT SICK INDUSTRY

1.1 NAME AND LOCATION OF THE PROJECT[

M/S J.K.K Industries Limited11, DARUS SALAM MIRPUR DHAKA.LHead Office : Paribahan Bhaban,21, Rajuk Avenue Dhaka.

1.2 BOARD OF DIRECTORBorrowers and their net worth (position as on: October-1990)

S.LName Of Father’s Name

DesignationTaka in ‘Lac’

Immovable assets

Investment LiabilityNet Worth

1.

2.

MD. SIDDIQUK BHUIYANFather: Late. Mojibur Rahman bhuiyan

Managing Director

18.30 2.00 - -

MD. ABU AHMED JAGLUL KARIMFather: late, Dr.

Director 0.75 - - -

Faziul KarimTotal

1.3 Classification of project and production capacity: The project wanted to produce various types of zipper

1.4 P roject Execution and ImplementationThe construction period for the project was 8 months. The wanted to go in production in September 1992. But the company could not go in production by January 1994- Which was time for repayment of loan. As the imported machinery were identified as unable to produce good quality of zipper. The entrepreneurs could not go for commercial production.

Sector & Product Mix Sector tick Product MixManufacturing √ServiceOthers

1.5 Securities Against BSB’s Loan (Position as on 19-12-93)

Description of security

Value in ‘Lac’original Present Forced Sale

(a) Land With area(b) Building(c)Machinery 24.70 14.58 10.00(d) Others

1.6 Credit Information Board (CIB) On Director’s Credit Exposure (Position as on 30-06-99)

Name of Business Concern

Mature of Loan

Date of Sanctiondate of Expire

Taka in Lac

Loan overdueJ.K.K Industries Limited

Term Loan 2-11-90 01-07-04 27 15

0

10

20

30

Am

ou

nt

Loan overdue

Catagory

Credit Information

Type of loan Sanction DisbursementDate Amount Date Amount

(a)Term loan 01-12-90 18.07 21-04-92 21.15Sub total(b)cash credit PledgeOthersGrand Total 18.07 21.15

1.7 Type of loan Total amount paid so far Amount of last payment

&dateA.Term loan 12.64 0.5 lack Date:05-04-99B.Cash creditC.OthersTotal 12.64

(2.0) Position of loan A\C S (As on 01-01-99)

Item Taka in lack Grand TotalNot due Overdue Total

Term Cash Term Cash Term CashPrincipal 14.05 10.54 24.59 24.59Interest 4.93 4.93 4.93Penal InterestOthers if any

0.04 0.04 0.04

Total 14.05 15.51 29.56 29.56

(2.1)Loan Classification Status (As on 31-12-98)

Status Term loan Cash credidUnclassidfiedSubstandardDoubtfulBad\Loss √

(2.2)Provision (As on 31-12-98) including cash credit

Item Taka in lackTerm Cash credit Total

Provision 6.72 - 6.72Interest Suspense 12.20 - 12.20Total 18.92 - 18.92

(2.3)Downpayment

(a)Required tk ---------------------- lack

(b) Deposited tk --------------------- lack

(c) Shortfall tk -----------------------lack

(2.4)Reasons for short fall: The company could not paid any down payment because the borrowing company could not start their commercial operation to the specified period.

(2.5) General remarks if any:The company could not start their production for the problem of machinery so that it could be consider as sick industry.

(2.6) Steps taken to recover the loan by BSB

(1) TO recover the loan , the bank will exert continuous pressure on all companies director. (2)The borrowing company paid loan to the BSB from other sources of income i,e trading business.(3)Because the loan borrowing company was not sincere to refund the loan.So a notice was served on the company on 30-06-99.(4)The loan amount which was paid by the loan borrowing company after deducting the principal amount, the rest of the amount could be paid within 90 days.(5)Recommendation of the special committee of BSB for waiver of interest.

(2.7)Recommendation of the special committee regarding waiver of interest

(1)To waiver of the penal interest (if any) and general interest 100%(2)Payment after deducting waiver of interest should be paid within 30 days in accordance with repayment schedule stipulated by the bank.

(3)At first the borrowing company have to pay the down payment (5% of principal amount , litigation & other cost) to apply for waiver of interest facility .They have to apply within 30days of getting the letter from the bank.

(4) The afore mentioned recommendation will be implemented and then the law suit will be revoked.

(2.8)Circumstances under which rebate facilities had been allowed:

(1)They could not go for operation in spite of assembling machinery in the factory.(2)The imported machinery was identified as unable to produce good quality of zipper.

(3)The imported machinery was considered as obsolete.(4) The borrowers were inclined to repay the loan from their personnel sources in accordance with recommendation of special committee for waiver interest.(5)The subsidies of taka 15.36 lack will be received from the governme

(2.9) The estimated value of the assets of the project was taka 8 lack to 10 lack on 19-10-99.

3.0 Statement of Outstanding Loan:Types Amount (in Lackh)A). Long term Loan:Non expired Loan 12. 18B). Expired Loan Principle 9.61Interest 16.48IDCP 0.93Others .05Total expired Loan 27.09Total (Long and expired Loan ) 39.25

0

5

10

15

20

Am

ou

nt

NonexpiredLoan

Principle Interest IDCP Others

Types

Outstanding Loan

(3.1) Loan Repayment ScheduleM\S J.k.k Industries Limited

Installment Installment Date Amount1st 31-03-2001 2.122nd 30-06-2001 2.123rd 30-09-2001 2.124th 31-12-2001 2.125th 31-03-2002 2.126th 30-06-2002 2.127th 30-09-2002 2.128th 31-12-2002 2.129th 31-03-2003 2.1210th 30-06-2003 2.08Total 21.16

(3.2) Conditions for repayment of loan: (1) Interest will not be imposed on the company’s loan a\c from 01-10-2000. (2) The loan will be refunded by 10, three monthly installments of which the first 9 installments amounting to taka 2.12 lacks and the last installment amounting to taka 2.08 lacks. The date of first installment is 31-06-2003 and the date of last installment is 30-06-2003.(3) If the company failed to repay any of 2 installments then the rebate facilities will be cancelled.(4) Approval of bank is to be taken to sell the assets of the project and the selling price will have to deposit to the bank.(5) If any of installments is delayed for sometimes then interest will be charged for that delayed period.(6) At last the loan amount of the company will have to be liquidated.

(3.3) But the borrowing company could not paid the loan amount within the specified period. The loan repayment facility extended by the BSB from 30-06-2003 to 30-04-2004 by the two installments. The borrowing company paid the last installment on 17-06-2004.Finally Board of Directors meeting took the decision to refund their documents against the loan provided by Bangladesh Shilpa Bank.

(3.4) Recommendation: The recommendation to resolve sickness from my point of view is as follows:(1) There are various reasons behind the sickness of the project .To identify the reasons

why the project is sick..(2) Some employees are involved to sanction the loan to the entrepreneur. To identify

employee who is liable for this sick project.(3) Proper punishment should be given to the liable person. Otherwise they could not

change their nature.(4) Properly check the feasibility report before issuing loan.

(5) There are various polices, rules and regulations are existing in the BSB. Proper policy to be adopted and implemented.

(6) Project must be scrutinized in and appropriate manner.(7) Political pressure should be ignored.(8) BSB should give more consideration on physical investigation before issuing loan.

5.1 Introduction CHAPTER-----55.1 Introduction CHAPTER-----5

Rehabilitation means to reshape the existing industries or projects so that it may operate

successfully in future. Keeping it mind I tried my best to find the appropriate way to

rehabilitate a sick industry.

1.2 Programs taken to rehabilitate the sick industries

BSB has taken the following programs during the year 2003-2005-

Deferred payment of IDCP (Interest during construction period) after some

moratorium period in installments

Regular loan repaying projects are honored with special certificates and BSB

Crests. They are encouraged to take more loans/working capital.

Problem projects are given waiver of interest, rephasement/rescheduling, block

account facilities for easy repayment of bank’s loan.

Injection of additional funds

Balancing & modernizing of machinery

Product diversification

Strengthening or changing the project management

Restructuring of loan accounts with transferring part of loans/interest in interest

free block account.

5.3 Facilities provided under rehabilitation program 5.3 Facilities provided under rehabilitation program

We can explain with an example of Solaiman Textile Mills, Rupgonj, Narayangonj which

was a sick industry financed by BSB. BSB had given loan at the first time TK. 513 lac.

Second time BSB gave them under rehabilitation program:

Loan sanctioned TK. in lac

BSB had given loan at the first time 513.00

Under rehabilitation program:

Long term loan 163.00

Working capital 25.56

5.4 Rehabilitation Policy

All sick industry is not rehabilitated because the all-sick industry has not al l possibilities

to rehabilitate. It’s mainly depends on the nature of the sickness. The sick industry that is

probable to rehabilitate by providing and assisting some predefined criterion. The

predefined criterion are based particularly on:

1. Management perspective

2. Technical perspective and

3. Financial perspective

In the case of rehabilitating sick industries the bank takes different policies in situation

which are given as follows:

5.5 Management perspective5.5 Management perspective

Management of the project should measure the aggregate demand of the product or the

project and also maintain the market share. Consumption trends and production are to

measure for rehabilitating a sick industry. If the bank thought that a little change in the

managing committee would reestablish the project then they make a change in the

managing committee.

5.6 Technological perspective5.6 Technological perspective

Whether the raw material and technology is available or not that must be measured in the

form of price quality. If they thought that some technological change would reestablish

the project they make some technological change.

5.6 Financial perspective

In the financial measurement the project should compute the cost of capital and maintain

budgeting. The present value of net cash inflow should be higher than the present value

of cash outflow. In such case, the bank provides some financial treatment that the amount

of interest is to be waived or re-phased or providing consulting service, i.e.

1. Success about the proper way

2. Inspiration by providing motivation

After considering an industry as sick, then the industry is taken into rehabilitation by

aiding above additional support of those sick industry that can recovers the additional

investment then it seems to be as rehabilitated industry otherwise not. In some

extraordinary case they bound to take some terrible decision because of some political

pressure.

5.8 Role of Management of Rehabilitation Department of BSB5.8 Role of Management of Rehabilitation Department of BSB

Bangladesh Shilpa Bank was established to stimulate industrialization in the country. So,

it financed in various types of industries. The industries on which it financed, all are not a

successful one. Some of them have failed to gain success and identified as a sick

industry. Rehabilitation Department is mainly deals with this sick industry. They find out

the causes of sickness of a particular project. Sometimes they reschedule loan according

to the capabilities of the project. Moreover more information and advises may be given

so that the entrepreneur may run the business more effectively, sufficient return may gain

and contribute to the economy. If the project is to rehabilitate, send to the law department

and finally sued against the project. The main activities of rehabilitation department are

as follows-

The department primarily selects a sick project. PID investigates the project and

find out the causes of sickness and formed a committee to investigate the project.

Then it is taken to be considered for rehabilitation. After considering it as a

rehabiliatable industry, it is taken it the implementation after the approval of

rehabilitation consultant committee.

Take necessary action to rehabilitate sick project after appropriate investigation.

Take steps about rehabilitation document examination, recommendation

preparation, implementation and activation of plan.

Confirmation about project profitability

Take necessary steps about production, marketing of product and loan repayment.

Duties give up to the third party or previous management after successful

managing of the project.

Managing and directing recommendation preparation about take over project.

Analyze and compare the production, marketing and recovery of the rehabilitated

project and take appropriate action according.

When there is scope to rehabilitate a project, document transfer to law department

to take further steps.

5.9 Are all-sick industries are rehabilitated?5.9 Are all-sick industries are rehabilitated?

All sick industries are not rehabilitating because the all-sick firms have not all

possibilities to rehabilitate. Its mainly depends on the nature of sickness. The sick

industry which is probable to rehabilitate by providing and assisting the following

supports

5.10 Which industries are rehabilitated and which industries are not5.10 Which industries are rehabilitated and which industries are not

rehabilitatedrehabilitated

A. Sick industries, which are rehabilitable

Changing of management structure

Providing financial aids or loan without interest or lower rate of interest

Financial treatment that the amount of interest is to be released

Assisting for replacement of machine

Rehabilitation is sometimes depending on merit of the project.

Providing consulting service

A. Success about the proper way

B. Inspiration by providing motivation

B. Sick industries, which are not rehabilitable

After considering a firm as sick, then the firms are taken into rehabilitation by aiding

above additional support of those the sick firm that can recover the additional investment

then it seems to be as rehabilitated firm otherwise not.

5.10 Relationship between appraisal practices, monitoring and sickness5.10 Relationship between appraisal practices, monitoring and sickness

These three things are very much interrelated. A project goes into sickness due to

inappropriate appraisal practice and monitoring. The linkage among them is discussed

below-

5.10(a) Appraisal Practices

Appraisal practices that are done from the five aspects such as-

1. Management aspect

2. Technical aspect

3. Financial aspect

4. Economic aspect

Whether the project is feasible or not from the above mentioned perspective of aspects.

5.10(b) Monitoring

Monitoring is to supervise and control after the implementation of during the

implementation of the project. The monitoring from the viewpoint of the bank is to

proper utilization of loans and recover the loan payment with due time.

5.10(c) Sickness

When monitoring and appraisal practice is not accomplished properly then the project fall

in sickness. So, project implementation that depends on appropriate monitoring and

appraisal practice.

5.11 Rehabilitation program

The BSB also puts realistic efforts to rehabilitate its sick, problem-ridden and stuck-up

projects. In this perspective BSB has taken three-dimensional measures comprising of

1. Debt relief

2. Injection of additional funds

3. Direct management

The bank for rehabilitation of the sick projects took these three steps. It is mentionable

that with a view to making such projects capable of debt servicing through profitable

operation, the bank tried to solve their problems through a combination of measures

including a financial package.

The bank has so far rehabilitated 53 such projects. The list of these projects is already

mentioned in the sick industry chapter of this report. A summarized position of the

facilities extended under its rehabilitation program is shown below-

Types of facilities Amount involved (million taka)

Interest Waiver Allowed 880

Block Account Facility Provided 456

Loan Rephrased 258

Sanction of loan 279

The bank also makes a program of taking over management of the sick projects directly

where the above measures were not considered sufficient due to inefficient

management/mismanagement. So they created a department called “ Sick Project

Management Department” for ensuring efficient management of such sick projects. The

responsibility of this department is to make such projects capable of debts servicing

through profitable operation. So the bank continued sanctioning of term loans during FY

2003-2004. This year local currency loan of TK. 989 million, which was sanctioned to 27

projects. Of the total sanctioned amount TK 687 million was for 21 new projects and an

additional loan of TK. 302 million was for on-going projects including 3 for BMRE

purposes.

Sanction of term loan

Million TK.

2003-2004 2004-2005

Number

of projects

Number

of

projects

Local

currency

Foreign

currency

Total Number

of

projects

Local

currency

Foreign

currency

Total

New

projects

21 687 - 687 34 826 - 826

Existing

projects

(BMRE)

3 166 - 166 1 47 - 47

Additional

loans

3 136 - 136 3 136 - 136

Total 27 989 - 989 38 1009 - 1009

Under rehabilitation program BSB has taken so many measures to rehabilitate the sick

industries. Summarized measures that are taken by BSB to rehabilitate the sick industries

are given below-

5.12 Measures taken by BSB5.12 Measures taken by BSB

Loan outstanding Measures taken (Million TK.)

(Million TK.)

Ove

rdue

Tot

al

outs

tand

ing

Pro

ject

s

Rep

hase

men

t

Wai

ver

of

inte

rest

Blo

ck A

/C

Add

itio

nal

Loa

ns

Wor

king

Cap

ital

Equ

ity

part

icip

atio

n

525 950 12 37 (10) 35 (10) 28 (7) 21 (9) 2 (1) 1 (2)

411 785 21 13 (6) 13 (6) 54 (6) 161

(16)

30 (5) 4(2)

46 350 5 73 (3) 73 (3) 18 (3) 6 (4) 52 (5) 18 (2)

444 524 3 - - - 1 (1) 6 (2) -

23 40 2 - - - 14 (2) - -

51 94 2 1 (1) - - 7 (1) 2 (1) -

66 85 2 - - 4 (1) 5 (2) - -

44 53 - - - - - - -

33 45 - - - - - - -

22 28 2 - - - 33 (2) - -

165 211 1 -- - - 1 (1) 1 (1) -

70 101 1 - - - 6 (1) - -

3 30 1 3 (1) - - 8 (1) - -

3 3 - - - - - - -

1906 3299 53 118

(21)

121

(19)

104

(17)

263

(39)

93 (15) 23 (6)

Source: Project rehabilitation department of BSB

Note: Parentheses indicate number of projects

5.13 List of a few successful rehabilitated industries

After taking some initiatives and providing assistance in terms of management, technical,

marketing and financial the following sick projects financed by BSB has become

successful during the year 2003-2005.

Chemicals and Pharmaceuticals Location

01. S.S.R Chemical Industries Ltd. Dhaka

02. Islam Polymers & Plasticizer Ltd. Tangail

03. Raja Plastic Industries Ltd. Gazipur

04. KDH Laboratories Ltd. Dhaka

05. Asiatic Business Ltd. Sylhet

06. Pharmadesh Laboratory Ltd. Dhaka

Cotton, Woolen & Synthetic Textiles

01. Azim Mannan Garments Ltd. Chittagong

02. Desh Gannents Ltd. Chittagong

03. Jems Sweaters (Pvt) Ltd. Dhaka

04. Auto Spinning Mills Ltd. Gazipur

05. Techno Textile Mills Ltd. Gazipur

Food & Allied Products

01. Meenhar Sea Foods Ltd. Chittagong

02. Mimi Chocolate (Bd) Ltd. Dhaka

03. Modern Industries (Bd) Ltd. Munshigonj

04. Mustafa Cold Storage Ltd. Rangpur

05. Bangladesh Beverage Industries Ltd. Dhaka

06. Bengal Fish & Frogleg (Export) Ltd. Chittagong

Paper, Paper product & Printing

01. Eagle Box & Carton Mfg. Ltd. Dhaka

02. Holiday Printing Ltd. Dhaka

03. Toka Ink Ltd. Dhaka

04. Bangladesh Paper Product Ltd. Chittagong

05. Orient color Printers Ltd. Chittagong

06. Transfer Paper Ltd. Bogra

Tannery & its products

01. Apex Footwar Ltd. Dhaka

02. Lexco Ltd. Dhaka

03. Leather Board Ltd. Dhaka

04. Comfort Footwar Ltd. Dhaka

05. Bangladesh Chemical Ltd. Narayangonj

Non-metallic Mineral Products

01. Savar Refractories Ltd. Dhaka

02. Tajma Ceramic Industries Ltd. Bogra

03. Standard Ceramic Industries Ltd. Gazipur

Metal products

01. Rangpur Foundry Ltd. Rangpur

02. Scala Industries Ltd. Gazipur

03. Oriental Foundry & Agro Engineering Ltd. Dhaka

04. Bogra Metal Industries (Pvt.) Ltd. Bogra

Electrical Machinery & Goods

01. Bangladesh Lamps Ltd. Dhaka

02. National Fans Ltd. Gazipur

03. Eastern Tubes Ltd. Dhaka

04. National Accessories Ltd. Chittagong

Service Industries & Miscellaneous

01. Hotel Simon Ltd. Cox’s Bazar

02. Hotel Elysium Ltd. Dhaka

03. G.Q. Ball Pet Ltd. Magura

04. Rajanigandha Tankers Ltd. Dhaka

Source: Project Rehabilitation Department of BSB

Chapter-06

Findings, Recommendation &

Concluding Remark

YOUR PARTNER IN INDUSTRIALIZATION

6.1 Introduction 6.1 Introduction

Bangladesh Shilpa Bank plays a vital role for industrialization as a developed financial

institution. BSB is continuing its bolstering endeavor for up-graduation of our economy.

Although there are a lot of favorable and strengthen position of BSB in respect of its

activities. Nevertheless BSB has some drawbacks that are responsible for huge amount of

losses each year. BSB should overcome such problem as early as possible to become a

profitable one. One important problem of BSB is that it is a decentralized organization

and each department is responsible for particular activities but they have lack of co-

ordination to achieve the central objectives. We observed a large number of projects are

sick and they are loan defaulter. For that I criticize the loan appraisal procedure because it

is the vital documents for loan issue. In this situation I recommended some points that

will help BSB to overcome some of their problems.

6.2 Findings of the Study6.2 Findings of the Study

During the internship program I have found out the following findings from my study:

Sometimes improper feasibility reports are submitted by sponsors, which do not

contain adequate and reliable information.

Sometimes pressure group’s involvement in sanctioning loan

Lack of business experience of the entrepreneurs. So, when they start business

they may be failure in business and they may become loan defaulter.

Lengthy procedure and long time (more than three months) involved in the

appraisal of project.

Lack of adequate, updated and accurate information from the Management

Information System (MIS)

Unstable policy of the government due to political changes over time

Sometimes inefficient allocations of resources create a huge amount of bad debt

ty by them in future means they divert their equity in other purpose after getting the loan

amount.

Lack of effective monitoring in projected work.

Management conflict is one of another important problem in the situation of

sickness.

Lack of motivation and team speed

Lack of proper scheduling in projected work.

Absence of an up-to-date project appraisal manual, because the present manual

was designed 18 years ago. So many aspects should consider which do not cover by

the existing manual.

Dependence on imported technology and non-availability of adequate information

about that from local source. Lack of adequate, updated and accurate information in

the country. Both primary and secondary data are not readily available.

Inadequate attention is paid to analyze risk and an uncertainty associated with the

projects, means only sensitivity analysis is done to analyze the risk.

There is no system of accountability of the project appraisal team if the approved

project fails due to their improper appraisal.

Most of the personnel are not as much experienced and skilled to operate banks

activities in proper way.

Shortage of working capital is another problem because some industry may sick

for this problem.

Inefficient project cost estimation, not considering inflation, different changes in

the cost factors, waste and spoilage, personnel replacement cost etc. As a result

sometimes project become sick.

Because of country’s existing political instability, unstable tariff and fiscal policy

some industries may become sick.

No use of latest technology and permanent IT specialist

Poor quality of local machinery, equipment and construction materials is another

cause for sickness.

Lack of co-ordination among various financial institutions in exchange of information.

Lack of proper control over the project may cause of sickness.Delay in settlement of case

Project rehabilitation is one of the criteria of BSB that revives the sick project Finally contribution of BSB is the highest in the industrialization of Bangladesh

though there are some problems.

6.3 Recommendations

As a student of BBA it is very tough to give suggestions to BSB to implement a project

and to rehabilitate a sick industry. Being the prime Development Financing Institution

BSB continues its efforts to make an effective contribution towards expansion of

industrialization process of the country. With keeping this view, I recommend some

suggestions considering the noted problems. The recommendations to resolve sickness

from my viewpoint are as follows:

Sanctioning of loan to the sponsors should be made through making feasibility

report properly.

Loan appraisal procedure is time consuming and to some extent project plan

become irrelevant after getting the loan. Since all the process is completed, he is

bound to take this loan because some expenditure has already been incurred (sunk

cost). As a result loan recovery may slow and sometimes difficult. My suggestion is

that BSB should rearrange appraisal procedure so that the entrepreneurs can take loan

within short period of time.

Experienced and motivated entrepreneurs should be allowed for sanctioning the

loan.

BSB should avoid unnecessary political interfere. If political problem influences

the baking activity must create new problem, no doubt.

BSB should give more consideration on physical investigation before issuing

loan. However project appraisal should be strict so that nobody cal use its loopholes.

Sometimes real entrepreneur does not get bank loan. So actual entrepreneurs

should be identified and give loan.

The projects/industries, which are profitable, should be identified and sanctioned

loan to those projects/industries.

Risk adjusted discount rate method; program evaluation and review technique

(PERT) and probability analysis should be introduced.

Market Research Institution should be established for proper market survey.

A co-ordination cell should be established for sharing information among various

institutions.

Responsibility should be established to all employees according to their

involvement in appraisal project.

Honesty, morality, responsibility and patriotism of employees should be

enhanced.

Properly check the feasibility report before issuing loan.

Proper policy to be adopted and implemented.

BSB must have to identify viable project and make feasibility study through

efficient personnel before sanctioning of loan to an industry.

Employees who are directly involved with loan recovery should be motivated and

experienced.

BSB should introduce modern communication system so that every department or

unit can get information in his or her desk. Now one department must have to go

other departments for information. It is also time consuming. Preserving documents

also need to be computerized instead of filing.

Encouraging the borrower to repay the loan in time. Special arrangements should

be introduced in this respect. Legal steps should be dynamic so that default loan

recovery should be accelerated. And security against the loan should be sufficient to

recover the loan.

Project must be scrutinized in and appropriate manner as well as the sponsor

taking into consideration on the changing environment and economic reforms and

globalization.

National observation committee can be established to analyze, evaluate and solute

proper loan recovery.

In selecting borrower, 5C’s (capital, capacity, character, condition, collateral)

must be considered.

Proper communication should be established with the clients.

Ensure accountability among the appraisal team who appraise the sick industry.

Number of trained supervisor to be revised

Both primary & secondary database of the BSB should be improved &

strengthened.

6.4 Some other important recommendations 6.4 Some other important recommendations

On the basis of interest rate

The interest rate of the bank in different sectors is not favorable to the new entrepreneur.

So the interest rate in priority sector should be truncated to a minimal percentage.

This should be reduced to encourage agro-based industries, small & cottage industries,

which are very much viable for the economic development of a country.

Promoting new entrepreneurs

No collateral

Tolerable interest rate

No bureaucratic problem

Encouraging existing entrepreneurs

Lesson the red tappism

Awarding the good entrepreneurs

Incentives such as lowering interest rate for the existing customer for their better

repayment behavior.

A CASE STUDY ABOUT SICK INDUSTRY

1.4 Name and Location of the Project

M/S J.K.K Industries Limited11, DARUS SALAM MIRPUR DHAKA.LHead Office : Paribahan Bhaban, 21, Rajuk Avenue Dhaka.

1.2 Board of directorBorrowers and their net worth (position as on: October-1990)

S.LName Of Father’s Name

DesignationTaka in ‘Lac’

Immovable assets

Investment LiabilityNet Worth

1. MD. SIDDIQUK BHUIYANFather: Late.

Managing Director

18.30 2.00 - -

2.

Mojibur Rahman bhuiyanMD. ABU AHMED JAGLUL KARIMFather: late, Dr. Faziul Karim

Director 0.75 - - -

Total

(1.3)Classification of project and production capacity: The project wanted to produce various types of zipper.

1.7 Project Execution and Implementation The construction period for the project was 8 months. The wanted to go in production in September 1992. But the company could not go in production by January 1994- Which was time for repayment of loan. As the imported machinery were identified as unable to produce good quality of zipper. The entrepreneurs could not go for commercial production.

1.5

Sector & Product Mix Sector tick Product MixManufacturing √ServiceOthers

1.6 Securities Against BSB’s Loan (Position as on 19-12-93)

Description of security

Value in ‘Lac’original Present Forced Sale

(a) Land With area(b) Building(c)Machinery 24.70 14.58 10.00(d) Others

1.8 Credit Information Board (CIB) On Director’s Credit Exposure (Position as on 30-06-99)

Name of Business Concern

Mature of Loan

Date of Sanctiondate of Expire

Taka in Lac

Loan overdueJ.K.K Industries Term Loan 2-11-90 01-07-04 27 15

Limited

0

10

20

30

Am

ou

nt

Loan overdue

Catagory

Credit Information

Type of loan Sanction DisbursementDate Amount Date Amount

(a)Term loan 01-12-90 18.07 21-04-92 21.15Sub total(b)cash credit PledgeOthersGrand Total 18.07 21.15

Type of loan Total amount paid so far Amount of last payment &date

A.Term loan 12.64 0.5 lack Date:05-04-99B.Cash creditC.OthersTotal 12.64

(2.0) Position of loan A\C S (As on 01-01-99)

Item Taka in lack Grand TotalNot due Overdue Total

Term Cash Term Cash Term CashPrincipal 14.05 10.54 24.59 24.59Interest 4.93 4.93 4.93

Penal InterestOthers if any

0.04 0.04 0.04

Total 14.05 15.51 29.56 29.56

(2.1)Loan Classification Status (As on 31-12-98)

Status Term loan Cash credidUnclassidfiedSubstandardDoubtfulBad\Loss √

(2.2)Provision (As on 31-12-98) including cash credit

Item Taka in lackTerm Cash credit Total

Provision 6.72 - 6.72Interest Suspense 12.20 - 12.20Total 18.92 - 18.92

(2.3)Downpayment

(a)Required tk ---------------------- lack

(b) Deposited tk --------------------- lack

(c) Shortfall tk -----------------------lack

(2.4)Reasons for short fall: The company could not paid any down payment because the borrowing company could not start their commercial operation to the specified period.

(2.5) General remarks if any:The company could not start their production for the problem of machinery so that it could be consider as sick industry.

(2.6) Steps taken to recover the loan by BSB

(1) TO recover the loan , the bank will exert continuous pressure on all companies director. (2)The borrowing company paid loan to the BSB from other sources of income i,e trading business.(3)Because the loan borrowing company was not sincere to refund the loan.So a notice was served on the company on 30-06-99.(4)The loan amount which was paid by the loan borrowing company after deducting the principal amount, the rest of the amount could be paid within 90 days.(5)Recommendation of the special committee of BSB for waiver of interest.

(2.7)Recommendation of the special committee regarding waiver of interest

(1)To waiver of the penal interest (if any) and general interest 100%(2)Payment after deducting waiver of interest should be paid within 30 days in accordance with repayment schedule stipulated by the bank.

(3)At first the borrowing company have to pay the down payment (5% of principal amount , litigation & other cost) to apply for waiver of interest facility .They have to apply within 30days of getting the letter from the bank.

(4) The afore mentioned recommendation will be implemented and then the law suit will be revoked.

(2.8)Circumstances under which rebate facilities had been allowed:

(1)They could not go for operation in spite of assembling machinery in the factory.(2)The imported machinery was identified as unable to produce good quality of zipper.

(3)The imported machinery was considered as obsolete.

(4) The borrowers were inclined to repay the loan from their personnel sources in accordance with recommendation of special committee for waiver interest.(5)The subsidies of taka 15.36 lack will be received from the governme

(2.9) The estimated value of the assets of the project was taka 8 lack to 10 lack on 19-10-99.

3.0 Statement of Outstanding Loan:Types Amount (in Lackh)A). Long term Loan:Non expired Loan 12. 18B). Expired Loan Principle 9.61Interest 16.48IDCP 0.93Others .05Total expired Loan 27.09Total (Long and expired Loan ) 39.25

0

5

10

15

20

Am

ou

nt

NonexpiredLoan

Principle Interest IDCP Others

Types

Outstanding Loan

(3.2) Loan Repayment ScheduleM\S J.k.k Industries Limited

Installment Installment Date Amount1st 31-03-2001 2.122nd 30-06-2001 2.123rd 30-09-2001 2.124th 31-12-2001 2.125th 31-03-2002 2.126th 30-06-2002 2.127th 30-09-2002 2.128th 31-12-2002 2.129th 31-03-2003 2.1210th 30-06-2003 2.08Total 21.16

(3.2) Conditions for repayment of loan: (1) Interest will not be imposed on the company’s loan a\c from 01-10-2000. (2) The loan will be refunded by 10, three monthly installments of which the first 9 installments amounting to taka 2.12 lacks and the last installment amounting to taka 2.08 lacks. The date of first installment is 31-06-2003 and the date of last installment is 30-06-2003.(3) If the company failed to repay any of 2 installments then the rebate facilities will be cancelled.(4) Approval of bank is to be taken to sell the assets of the project and the selling price will have to deposit to the bank.(5) If any of installments is delayed for sometimes then interest will be charged for that delayed period.(6) At last the loan amount of the company will have to be liquidated.

(3.3) But the borrowing company could not paid the loan amount within the specified period. The loan repayment facility extended by the BSB from 30-06-2003 to 30-04-2004 by the two installments. The borrowing company paid the last installment on 17-06-2004.Finally Board of Directors meeting took the decision to refund their documents against the loan provided by Bangladesh Shilpa Bank.

(3.4) Recommendation: The recommendation to resolve sickness from my point of view is as follows:(9) There are various reasons behind the sickness of the project .To identify the reasons

why the project is sick..(10) Some employees are involved to sanction the loan to the entrepreneur. To

identify employee who is liable for this sick project.

(11) Proper punishment should be given to the liable person. Otherwise they could not change their nature.

(12) Properly check the feasibility report before issuing loan.(13) There are various polices, rules and regulations are existing in the BSB.

Proper policy to be adopted and implemented.(14) Project must be scrutinized in and appropriate manner.(15) Political pressure should be ignored.(16) BSB should give more consideration on physical investigation before

issuing loan.