You are on page 1of 65



Rehabilitation of Sick Industries of BSB

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 Departments 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.

1.2 Statement of the problem

From the perspective of rehabilitation of sick industry in developing country like Bangladesh, BSB is a unique state owned leading financial institution. BSB provides financial and technical assistance to broaden the private as well as public sector industrial base of the country. But activities to industrial development are not emphasizing ones. 2
Rehabilitation of Sick Industries of BSB

Bureaucrat, political interference in case of project appraisal-all these problems are faced in our country.

1.3 Objective 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 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 which firms are rehabilitated and which are not? Finally to recommend necessary steps to overcome the problem of sickness of industries

1.4 Methodology of the Study

Correct and smooth completion of research work requires adherence to some rules and methodologies. In order to conduct the report, I have decided 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.

Rehabilitation of Sick Industries of BSB

In order to make the study effective and efficient, following two sources of data and information have been used widely. (a) Primary information/data The primary data have been collected by oral interviewing the responsible officers and and staffs of the BSB. Relevant documents studies as provided by the officers concerned. We also get the primary information by observing the departments of the BSB. (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.

Sources of Data Primary Sources

Secondary Sources

1. Practical desk work 2. Oral interview of the respective officers and staffs of BSB 3. Direct observations of the functions of various department of BSB 4. Relevant documents studies as provided by the officers concerned

1. 2. 3. 4.

Annual report of the BSB Annual budget of the BSB Various documents of the BSB Extensive literature search on the basis of these documents of publication 5. Shilpa Banks Website (

These reports and documents have been analyzed in the light of analytical review. Some graphical presentation, growth rate and trend analyses have also been used.

1.5 Justification of the study

As this study has been done based on imperial evidence, it will have both practical and academic value. It will help the concerned parties to get a clear picture regarding the 4
Rehabilitation of Sick Industries of BSB

contribution of BSB since its inception. From this study one can be able to know about present practice of BSB in industrial development in our country. The finding of this report will help to take appropriate actions and steps for the betterment of existing practice, which basically help the industrial development of the country. It would also be clear what procedures have BSB has followed to rehabilitate the sick industries. It is well known to everybody that institutional education and practical life is totally different. Practical life is the application of institutional education. So, it is natural to face realities of life in practical oriented life.

1.6 Report organization

The report is organized as follows: The main part of the report is the literature survey about the sick industry, methods to identify the sick industries, the quantitative and qualitative factors used for identification of sick industries, sick industry classification and the rehabilitation procedure of these sick industries by Bangladesh Shilpa Bank. The later part includes some findings as well as suggestive measures and concluding remarks.

1.7 Limitation 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:

Rehabilitation of Sick Industries of BSB

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 internships 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.

1.8 Benefits of the Study

This study bridges between practical & theoretical life. It has created an opportunity to face practical lice for the first time. I have obtained a comprehensive knowledge on the organization; it has made clear what procedures BSB follow to implement a project & to rehabilitate the sick industries, it has enriched my personal skills and knowledge on identification of the causes of sickness of an industry and measures to overcome the problem and also gained knowledge on rehabilitation program of BSB.

Rehabilitation of Sick Industries of BSB



Rehabilitation of Sick Industries of BSB

2.1 Background
Non-Bengali entrepreneurs and the public sector nearly monopolized economic activity in the Pakistan era. Of the very few business professionals are active in East Pakistan fewer yet survived after the war. Post independence Bangladesh therefore presented a unique set of opportunities and problems for the private sector. The good news was that without the stranglehold of the elite Pakistan business family the field was wide open for the development of a homegrown Bengali private sector, but that both a capital base and an entirely new entrepreneurial class would have to be developed out of an economic vacuum. Capital formation rapidly occurred and the newly nationalized banks found themselves with serious asset management problem because there were few professional entrepreneurial risk takers with business skills and proven track records to whom this capital could be made available under normal and prudent banking practice. Under this sort of circumstances, the former Industrial Development Bank of Pakistan (IDBP) and the Equity Participation Fund (EDF) both of which were established for the industrial development of Pakistan were converted into single institution named Bangladesh Shilpa Bank. Bangladesh Shilpa Bank comes into existence on October 31, 1972 by the Promulgation of Bangladesh Shilpa Bank order 1972 (presidents order no 129 of 1972). The BSB order, 1972 was amended subsequently by the parliament to provide more operational autonomy to its management. The main objective of BSB is to provide finance both in local and foreign currencies for establishment of new industrial projects as well as balancing, modernization, replacement and expansion of existing industrial units in Bangladesh both in private and public sectors. It provides other types of financial assistances like guarantees for credit/loans; equity support and working capital loan to BSB financed projects.

Rehabilitation of Sick Industries of BSB

2.2 Institutional Overview

Bangladesh Shilpa Bank comes into existence on October 31, 1972 by the Promulgation of Bangladesh Shilpa Bank order 1972. The head office of this institution is in Dhaka. Presently, Bangladesh Shilpa Bank has five divisions, twenty-one departments, three zonal offices and fifteen branch offices. Total number of employees of the organization is 794, as on the date up to June 30, 2004.

Table 01 Established Organization : October 31, 1972 : Head Office Division Department Zonal Office Branch Office Manpower : TK. 2,000 million : TK. 1,320 million

Dhaka 5 21 3 15 794

Capital Structure: Authorized Paid-up

Authorized capital of Bangladesh Shilpa Bank is Tk.. 2000 million and the amount of paid up capital Tk.. 1320 million. Other sources of Banks fund are the Government, Bangladesh Bank, Commercial Banks, local/overseas financial institutions and suppliers credit. At least fifty one percent of the authorized capital of Bangladesh Shilpa Bank must be subscribed by the government and remaining forty nine percent may be subscribed Bangladeshi nationals or by financial institutions local or foreign. Presently, 100 percent ownership of the bank belongs to the government

Rehabilitation of Sick Industries of BSB

2.4 Ownership
At least the government subscribes 51% of the authorized capital of BSB and the remaining 49% is subscribed by Bangladeshi Nationals or by local or foreign financial institutions. Presently, 100% ownership of the bank belongs to the Government.

2.5 Zonal & Branches offices of BSB

2.6 Mission of BSB

Bangladesh Shilpa Bank (BSB) is the state owned Leading Development Financial Institution (DFI) of Bangladesh. 'Shilpa' means industry. BSB provides financial and technical assistance to broaden the private as well as public sectors industrial base of the country. It prioritizes, especially, Export Oriented/Export Linkage industrial units, Efficient Import Substitution, Joint Ventures, Commercialization of local technology and promotion of agro-based industry. 10
Rehabilitation of Sick Industries of BSB

2.6 Management
The overall policy formulation and the general direction of Banks operation vests 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-Governments shareholders subscribing to the capital of the bank shall eventually elect 4 directors from amongst themselves. The Managing Directors is the chief executives of Bank. The General Managers assist the Managing Director in conducting the overall banking business.

2.7 Functions
BSB extends term loan facilities in local and foreign currencies to industrial projects (both new and BMRE) in the private and public sectors. Besides Bank also performs the following activities: Provides working capital loans to industrial projects; Provides equity support in the form of underwriting and bridge finance to public limited companies. Issues guarantees on behalf of borrowers for repayment of loan; Extend commercials banking services along with deposit mobilization; Purchases and sales shares/securities for BSB and on behalf of customers as 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 subsectoral study reports.

2.8 Activities of BSB A

The activities of Bangladesh Shilpa Bank is given below in figure-

Rehabilitation of Sick Industries of BSB

Activities of BSB



Profit and loss Deposit Mobilization Loan application receive Term loan sanction Commitment & disbursement of term loan Working capital sanction Other investing Project implementations Loan portfolio Loa recovery Legal action for recovery loan Loan written off

Advisory services Training Computerization Human resources Board news Annual general meeting Observance of National Days

2.9 Interest Rate on BSB Loan

In BSB interest rate is not same in all sectors. There are differences in interest rate. Export oriented industries are charged 9% interest rate. Agro based industries, small & cottage industries, large & medium industries are charged 10% interest rate in case of long-term loan. In Export loan interest rate starts from 7% to 11% from different case. On the other hand, in commercial, bridge & other loans interest rate starts from 10% to 14.50%. Note: the actual interest rate to be charged to the borrower company shall be the rate prevailing on the date of signing the loan agreement and the same will continue till liquidation of the loan.

2.10 SWOT Analysis of BSB

The comparison of strengths weaknesses, opportunities, and threats is normally referred to as a SWOT analysis. The central purpose of the SWOT analysis is to identify strategies that align, fit or match a company's resources and capabilities to the demands of the 12
Rehabilitation of Sick Industries of BSB

environment in which the company operates. To put it an other way, the purpose of the strategic alternatives generated by a SWOT analysis should be to build on company strengths in order to exploit opportunities and counter threats and to correct company weakens. SWOT analysis explains in two broad ways on viewed of organizations environment. These are: A. Internal Environment Analysis: It includes Strength Weakness B. External Environment Analysis: It includes Opportunity and Threats

SWOT analysis -BSB points of view

During my internship period in BSB I have found some aspects relating to the Bank's strength, opportunity, weakness and threats, which are more or less. I think affecting the Bank's performance in total. Which are explained thorough SWOT analysis below: Strength of BSB: As a prime DFI, it has a large number of qualified & experienced professionals. Structural set-up & business location is Strategic. BSB's assets position is quite satisfactory and BSB has requisite strength and opportunity to sustain the challenge of the market economy. Weakness of BSB: Normally in BSB mid and low-level personnel are less qualified and experienced. Bureaucracy official process hampered the daily internal workflow. 13
Rehabilitation of Sick Industries of BSB

The prime weakness I found lack of motivation of workers, interpersonal clash, work environment and low salary structure. Absence of teamwork because of interpersonal clash Management - employee relation is bad in some cases. Political influence both in the time of recruitment & promotion Opportunity of BSB: To make the bank a vibrant one, a pragmatic business programme is now under implementation. The main features of the plan are as under: Gear-up recovery through setting up of pragmatic recovery targets Expansion of new area of investment Cleaning of loan ledger with exit facilities. All out efforts for deposit mobilization. Undertake need-based training programme including computer training To all officers & develop a computerized data-base system and Full computerization of bank's activities Threats of BSB: Loan recovery systems are very weak. Loan recovery policies are not practices properly in some cases. Introduction of certain harder banking rules and regulation Third Party (Bangladesh Bank, Ministry of Finance etc.) regulates the overall internal activities of the bank and bank must be bound to follow the rules of Bangladesh Bank. Some times without proper investigation loan is sanctioned to different employees relatives.

2.11 Business Programmes of BSB

There are six criteria of business program existing in Bangladesh Shilpa Bank. These are: List of Business Programmes 14
Rehabilitation of Sick Industries of BSB

A. Industrial Credit programmes Long term Finance (up to 10 Years & up to 10 cr.) Medium term Finance (up to 3 Years) Short term Finance (up to 1 Year) (working capital) Syndication Finance (up to 10 Years & more than 10 cr.) B. Commercial Banking Services Maintaining all kinds of general banking accounts with one stop service for payment of cheques. All kinds of Letter of Credit (L/C) opening with nominal commission (0.5% for 1st quarter and 0.25% for subsequent quarter, not less than TK. 250.00). Issue of pays Order/Bank draft, DD/MT/TT. Guarantee issue, selling and encashment of Bangladesh savings certificates & Prize Bonds, etc C. EEF Programme EEF (Equity Entrepreneurship Fund) is a equity support program sponsored by Bangladesh Bank (Central Bank) with a view to inspire the risky but potential sectors like: Software Industry (for the projects costing not less than Tk 10.00 million) Food Processing and Agro-based Industries (excepting the traditional Sub-sectors like Rice / Flour Mills, Fishing Trawlers, Potato Cold Storages etc.) For the projects costing not less than Tk. 15.00 million.

2.11 Limit of equity support:

Not more than 49% of equity or 33.33% of project cost for bank financed units. But up to 49% of project cost for borrowers' own financed units.

D. Share Trading Service BSB Provides Trading facility and client service as well of DSE (Dhaka Stock Exchange) at its share-trading cell of head office with nominal commission 237 15
Rehabilitation of Sick Industries of BSB

members are presently enjoying this facility here. No fees required being a member of BSB share trading cell. CDS (Central Depository System) Service initiated in the cell for providing online Delivery of Shares in both ways. E. Incentive Programme for Loan Recovery 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 l working capitals. F. Deposit Mobilization Programme Bank tries to meet its fund requirement from various sources like private, government and non-government organizations for lending and investment.

Rehabilitation of Sick Industries of BSB



3.1 Introduction
Rehabilitation of Sick Industries of BSB

Bangladesh Shilpa Bank is the prime concern of development financing. It provides various functions continued its efforts to make an effective contribution towards expansion of industrialization process of the country. It emphasizes on the long term lending to the viable new projects having comparative advantage, export prospects, forward and backward linkage & local technology as well as raw material based projects. Bangladesh Shilpa Bank encompasses various department and zonal offices to discharge its activities. To perform efficient and effectively Bangladesh Shilpa Bank in its board meeting has determined the schedule activities of various departments and zonal offices and they supposed to perform the task accordingly and the respective employee have to report according to organizational hierarchy. 3.2 DIFFERENT FUNCTIONAL DEPARTMENT OF BANGLADESH SHILPA BANK (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 2. Project Implementation Department 3. Human Resource Management Department 4. Law Department 5. Loan Accounting Department 6. Project Rehabilitation Department 7. Central Recovery Department 8. Documentation and Machineries Procurement Department 3.2A LOAN OPERATION DEPARTMENT 18
Rehabilitation of Sick Industries of BSB

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. Overview of Loan Operation Department

Start with BSQF

Submission of BSQF with proposed projects

Put up appraisal report

Evaluation of proposed project by a team member

Passed process to PID dept. documentation as well as other department

Ends of this department

3.2A(1) Functions of Loan Operation Department:

Rehabilitation of Sick Industries of BSB

i. At first an application form is supplied to the entrepreneur (required Tk. 1,000), after the entrepreneur submits filling up the application form. After filling up the application form it is submitted by the entrepreneur. A project appraisal letter is supplied by the entrepreneur ii. To give advice to the entrepreneur about industrial investment. To give loan from and to appraise the proposed project from various aspects- Management & organizational appraisal, technical appraisal, marketing appraisal, economic appraisal & financial appraisal. iii. To take clearance from privatization board for proposed project, if necessary. iv. To take necessary action to process and approve co-financing project v. Loan sanction letter send to subsequent department vi. To take necessary action to implement the project vii. Re-evaluate the project on the basis of past evaluated loan agreement if necessary, according to the updated information viii. To issue gazette notification about loan procedure on behalf of government ix. To examine and appraise the joint venture proposal of Bangladeshi and foreign investors x. Advise about preparation of loan application form to non-resident people of Bangladesh xi. To encourage foreign lease-financing organization who provide equipment and new technology to set up business in our country. xii. Keeping of non-resident Bangladeshi and joint investment guarantee statement preparation, memorandum and approved letter xiii. To evaluate and give opinion about zonal office sanctioning loan and their lending activities xiv. After analyzing the project appraisal, the board decides the loan should be sanctioned or not; xv. If the loan is sanctioned it is forwarded to the project implementation department.


Rehabilitation of Sick Industries of BSB

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.


Rehabilitation of Sick Industries of BSB

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. ii. iii. iv. v. vi. Memorandum of Association Articles of Association The loan upon which the project will be established, document of this land must be produced. Receipts of rent Documentation fee Mouja Map 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. Function of Machinery Procurement & Documentation Department 1. Documentation schedule preparation/selection and approving for tender 2. To assist the promoters to invite tender and other formalities 3. Give advice to investors/entrepreneurs about tender invitation to collect project machinery 4. To analyze the tender price, quality of machinery among the bidders and taking approval from the authority 5. Documentation and contract completion with loan recovery after loan sanction 22
Rehabilitation of Sick Industries of BSB

6. Examination of project memorandum and statement of affairs 3.2D 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 loan c. Term loan d. 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 that 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

Rehabilitation of Sick Industries of BSB

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 B. Doubtful C. Bad debt 20% 50% 100% 5%

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

3.2E 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 preparation b. Advice sending to borrower c. 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: 24
Rehabilitation of Sick Industries of BSB

General and policy section do the following: a. To prepare the monthly Trial balance. b. Monthly recovery statement. c. Monthly disbursement schedule d. To make entry all the transaction as per daily statement received from the branch officer. e. All list of balances of not due send to the Head Office and branch Office. f. To prepare distribution of work among the officers and staff as specific guidelines of the authorities. 3.2F 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 Shilp Bank files, are: 1. Recovery case 2. Financial Loan Case 3. Certificate Case 4. Bankruptcy Case 5. Case if Check is not cashed (Petition Case) 6. Case if machinery of project is transferred form the project Section 37 7. Case if false properties are mortgaged -Section -----47 Section 33 Section 5(a) Section 35 Section 9 (1) Section 198

Legal action taken during the year 2003-2005 Position of projects under litigation 2003-2004 Number of projects 2004-2005 Number of projects 25
Rehabilitation of Sick Industries of BSB

Legal notice issued Filling of suit Cases settled outside the court Auction

126 205 6 2

33 23 11 11

3.2G HUMAN RESOURCE MANAGEMENT DEPARTMENT The department of Human Resource Management was not it name as now. Modernizing the structure of the administration of the bank and development the skill of the human resources and reducing operating cost of the organization. The directors 244th meeting was conducted on 23rd April 1996. In this meeting, rename of the Administration Department as Administration & Human Resources Department and Department of Labor as Department of Human Resources Management. There are five sections in department SL. No. 01 Section General administration & policy section Activities 1. Fixing principle relating to human activities/position 2. Fixing principle relating to organization 3. Fixing principles relating to delegation of power 4. Activities relating to trade union 02 Management section 1. Provide employment policy 2. Provide transfer policy 3. Provide promotion policy 4. Fixing pay scale 03 04 Disciplinary section Welfare section 5. Fixing annual increment policy Mitigate the compliant against personnel 1. Provide scholarship policy 26
Rehabilitation of Sick Industries of BSB


2. Assist the helpless personnel 05 Leave & medical section 3. Provide retirement benefit 1. Provide medical facility & allowance 2. Provide vacation opportunities 3. Provide conveyance facility & allowance 4. Provide house rent allowance

Bangladesh Shilpa Bank has total 794 personnel. It divided into two categories. These are:

a) Job-wise distribution
b) Profession-wise distribution: Training & Development of Human Resource: 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 programmes. 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. Types of Training: There are as many as 3 (three) types of training as under: 27
Rehabilitation of Sick Industries of BSB

In-house. Local and Overseas. Logistic support: Training Department has the following logistic support: Training Hall with Air-condition facility accommodating about 25 (twenty five) participants. Multi-media Projector. Flip Chart. Mini Computer Lab and In-house Resource Persons.

3.2H Project Rehabilitation Department

The 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.

3.2H(1) 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. 28
Rehabilitation of Sick Industries of BSB

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.

3.2H(2) 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 29
Rehabilitation of Sick Industries of BSB

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.

Rehabilitation of Sick Industries of BSB



4.1 Introduction
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 31
Rehabilitation of Sick Industries of BSB

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 means the industries, which either become stuck-up during construction or could not operate successfully after implementation. These projects could either pay back the banks 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.

4.2 Practical Observation of Special Committee of BSB regarding Sick Industries

Managing Director of the bank in order to examine the affairs or current status of the company and to make recommendation during the period 2002-2003 constituted a special committee headed by a Deputy General Manager. The committee has found the possible causes, symptoms, and identification method of sick industries. The committee has also identified some sick industries financed by BSB. 32
Rehabilitation of Sick Industries of BSB

4.3 Method used to identified a Sick Industry

There are some specific criteria to identify a sick industry. They areOn 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/greater than the benefit then the industry is to be considered as a sick industry. Sometimes the industry cant recover the cost (labor, material) for this reason the industry goes into loss. a) On the basis of Break Even Analysis An industry should produce up to break-even point because to recover the fixed cost or overhead cost. If they cant recover fixed cost then we can consider this industry as a sick industry. To support the above definitions and to identify which industry is sick, I include here a model. In 1977, Argenti developed the model called A Score Model. This model is discussed with a list of drawbacks, which hindered the success of an industry. All the drawbacks carry some points, which are used to identify a firm as sick or not.

4.4 Argentis Score Model to identify a Sick Project

The model is based on1. Defects 2. Mistakes 3. Symptoms Weight Defects 8 C.E.O is an Autocrat 33
Rehabilitation of Sick Industries of BSB


Pass 10

Total Mistakes

4 2 2 2 1 3 3 15 43 15 15 15 45 4 4 4

C.E.O is also the Chairman Passive Board of Directors Imbalanced Board Weak Financed Director Poor Management Depth No Cash flow Plan No Budgets/Budgetary Controls Poor Response to change 10 High Leverage (debt/equity) Overtrading Big Project Gone Wrong Financial Signs Weak Creative Accounting Rumors/Staff Turnover/Low Morals/Untidy Offices/Frozen Salaries

Total Symptoms

Total Total possible score:

12 100

Pass: 25 or less

According to above model it is clear to identify the sick industry. The industry, which gets score less than 25, is not considered as sick industry. But the industry, which gets more than 25 score, is considered as sick industry.

4.5 Precaution about sick industry

Sick situation arises in an industry in some abnormal period. But if the rate of sickness is overwhelming then it becomes a matter of fact. So before providing loan importance must be given on correct evaluation procedure. So at pre-investment stage the following things must be consideredExamine the project appropriately The project cost is calculated in a proper way The proper place is selected Defect machinery must not be purchased Ensure that skilled and experienced personnel are easily found. 34
Rehabilitation of Sick Industries of BSB

Proper steps are taken to protect uneven breakdown of electricity Ensure that proper people are involved in the managing committee Ensure the financial capability of the initiator Ensure the procedure of makeup the preliminary cost and the doubtful loss Ensure the quality of the produced product Ensure the proper way to marketing the produced product Consider the change of test of customer Proper plan is taken to implement the project Steps are taken to avoid the potential conflict.

4.6 The symptoms of Sick Industry

Sick industry is difficult to define. Nonetheless The symptoms of sick industry are as followsThe 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 liability The failure in payment of loan installment in time increases the burden of loan 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.

Rehabilitation of Sick Industries of BSB

4.6 Sick Industry Classification

The Ministry of Finance and the Ministry of Industries co-operate to provide debt relief and other financing assistance to bail out failing firms in a specific industry that has been identified by the government as a Sick Industry. Assistance may include waiver of interest, reduction in principal, repeated rescheduling of overdue loans, of combination of these. A Sick Industry classification may be purchased with a suitable bribe to the appropriate ministry, Ministries, the PMO and the Standing Committee of Parliament on Finance may be lobbied and bribed to obtain such a classification. Billions of BDT of NCB loans are written down using this technique.

4.7 Causes of sickness

Bangladesh Shilpa Bank undertakes various projects providing finance, machinery and other aids, some projects are implemented and successful and some projects are failed to attain the goal and these firms are called sick firms. These are various reasons of sick firm. But to discuss it easily we classify it in two classes The reasons that are beyond the control of the project owner and The reasons that are under the control of the project owner. The above causes are further divided into seven causes. The causes are discussed below according to their importance though all of the causes are important.

4.7(a) Financial 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 followsMeasurement of investment outlay and cost of the project are not appropriate When the means of financing is not available 36
Rehabilitation of Sick Industries of BSB

When the project is not profitable When the production is not reached at the break-even point When they cant 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 marketing interest rate increase cost of working capital increase as a result of the project may become sick Lack of 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.

4.7(b) Technological problems

A survey reveals that 18% of the projects are suffered due to technological problems, which lead an industry toward sick, are as followsMachinery imbalance causing lower capacity utilization is the major technical problem of many projects. Some are also suffered for faulty technical design. Whether the preliminary test and studies are not appropriate Availability of raw materials, powers and other infrastructural facilities have not been established. The selected scale of operation is not optimal The production process chosen is not suitable The equipment and machine chosen are not appropriate 37
Rehabilitation of Sick Industries of BSB

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 communication system Lack of infrastructure facility Unavailability of supply of gas, electricity and water etc Selection of old and backdated technologies to be used in production Delay of machinery procurement & rapidly change in technological environment

4.7(c) Marketing Problem

A survey reveals that 11% of the projects suffer due to marketing inefficiencies, which lead an industry toward sick, are as followsIf the aggregate demand 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 time Improper market justification If production cost is high resulting selling price high which ultimately decreases the demand Lack of market expansion and production diversification 38
Rehabilitation of Sick Industries of BSB

Shortage of raw material supply High competition in the market Cheap price of the foreign product

4.7(d) Administrative and Managerial problem

Success of a firm largely depends on management. There are some internal conflict between the worker and manager. A survey reveals that 30% of the projects are suffered due to administrative and managerial problem. The administrative problems, which lead an industry towards sick, are as followsSuccess of the firm largely depends on management. 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 project Lack of efficiency of employment as well as managements Conflict and also death of managements partner Death of main entrepreneur of the project Insufficient appointment of employee Unskilled human resources Corruption and intentional misuse of organizational assets Lack of proper planning, organizing, controlling, administrating and monitoring.

4.7(e) Economic Problems

The economic problems, which lead an industry toward sick, are as followsEconomic 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.

4.7(f) Political problem

The political problems, which lead an industry toward sick, are as followsPolitical pressure Political instability, which hampers the production Insufficient facility provided by govt. to industrialist like tax rebate 39
Rehabilitation of Sick Industries of BSB

Political problem like worker unrest, hartal Political pressure to loan procurement Inappropriate action taken by govt. to protect smuggling Political terrorism.

4.7(g) Other Reasons of Sickness

Except the above problems there are also some problems, which leads an industry towards sick. A survey reveals that 13% of the projects are suffered due to other problems, which are as followsSelection 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 Insufficient infrastructure facilities Natural disaster that hampered production Terrorism that hampered to establish an industry Delay of implementation

4.8 Sick situation

Normally 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 limited scale. 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 project 40
Rehabilitation of Sick Industries of BSB

management either cant all raise the required working capital from the commercial banks, or they cant raise required amount in due time. As a result these projects could not go into operation on schedule time and they were unable to pay the interest and the principal amount. At last they are treated as sick industry. According to the bank statement, BSB has so far finance about 459 projects in which: The running projects In the implementation stage Stuck-up Existence less Sold projects : 176 : 09 : 214 : 26 : 34 Sick Industries

4.9 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. There are 274 sick industries that are financed by BSB. Some of them are stated below:

4.9(a) Some sick industries G.M.K Textile Ltd. Meraj Fabrics Ltd. Jahan Group of printing & packaging Al-Amin Printing & packaging Riad Products Pvt. Ltd Tas Toys Pvt. Ltd Micro Aliment Manufacturing Co. Ltd. Hasan Agro Engineering Workshop Ltd Ali & Sons Ltd. Shardar Textile Mills Ltd. Nima Corporation Ltd. J.K.K Industry Ltd Malik Auto Rice Mill Al-Amin Lee Factory United company Mitaly Enterprise Pvt. Ltd

Grand Dhaka Hotel Pvt. Ltd Helal Engineering Pvt. Ltd Hotel Konic Pvt. Ltd Quick Carrier Ltd Toronody Water Ways Pvt. Tempkul Ltd Ltd Companygonj Industry 41 Rubber Tito Textile Ltd

Rehabilitation of Sick Industries of BSB

Pioneer Iron Foundry & Padma Engineering Diamond Industry Pvt.


Retarding Brick Linker Ltd Nakko Ice Ltd Oriental Foundry Khan & Khan Uttaran Engineering

Industry Shovo Auto Rice Industry Ltd

Ltd Jahanara Moulding & South East Enterprise Engineering Workshop Allama Nails Allied Industry Pvt. Ltd North Bengal Silicate Coxbazar Aqura Resources D & S Auto Rice Mill

Industry Pvt. Ltd Complex Mohadevpur Auto Rice Bancharampur Textile Rangpur Food Company Hossain Electric Com. Agro Producer Ltd Mocca Mills Ltd Laksham flour Mills Altaf Rice Mills Noor Rice Mills Noor Cold Storage Rangpur Poly Com. Mrs. National Cold Storage Shovo Rubber Industry From the above statistics it is clear that there are so many projects in Bangladesh are sick. 4.9(b) Table: Causes of sickness of BSB financed projects SL N O 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Sectors No. of pr oje cts Food & allied Textile Metal products Jute Engineering Paper printing Service Electrical Petrochemicals Non-metallic Chemicals Pharmaceuticals Tannery Transport Total Percentage 71 61 17 19 14 11 13 10 11 9 9 10 13 6 274 15 11 3 4 1 5 1 3 2 1 2 48 18% 14 9 5 3 5 3 5 3 11 1 59 22% 13 30 2 1 2 1 5 1 1 56 21% Technica l Managemen t Marketin g Workin g cap ital 24 6 13 6 3 2 2 1 2 5 64 24% 17 7 1 11 1 2 1 6 46 17% Others

Rehabilitation of Sick Industries of BSB

An analytical discussion makes it clear to us that the reasons of their sickness and which projects are sick for which causes although the general causes of sickness are stated earlier.

Rehabilitation of Sick Industries of BSB

If we further analyze it we find a clear picture of the sick projects and their relevant causes. These things are explained below under a table:

Rehabilitation of Sick Industries of BSB

Tech. + Mkting

Tech. + Mgt+ + W/C

Mgt. + W/C+Mkting

Tech. + Mgt.

Mgt. + W/C

Mgt. + Mkting

Mkting + W/C

Working Cap.

Tech. + Mgt.

Tech. + W/C



Others 13 3 1 5 1 5 4 33 9 5


Food allied Textile Metal

& 3 9 -

8 3 5


9 33 -

19 3 2

3 -

1 -

6 7 2

5 1

3 1

75 64 13

- 1 1

product s Jute Engineerin g Paper printin g Service Electrical Petrochemi cals Nonmetalli c Chemicals Pharmaceu ticals Tannery Transport Total No. of proble ms 1 3 25

4 1

3 3 1

7 4

3 1

2 -

2 -

1 1

1 1

3 -

20 16 12

2 2

1 2 1 1

3 2 1 -

1 4

1 2 -

2 1

1 2 -

1 -

3 1 -

2 -

1 -

9 13 8 10

3 31

2 1 51

1 2 3 46

1 11

1 7


1 13

1 8

1 7

1 8

1 11

1 1 5

6 14


Rehabilitation of Sick Industries of BSB

Total number


4.10 Which cause mostly affects the sick industries in Bangladesh

A survey reveals that30% of the projects suffer due to administrative and managerial problem. 18% of the projects suffer due to technological problems. 28% of the projects suffer due to shortage of capital. 11% of the projects suffer due to marketing inefficiencies. 13% of the projects suffer due to other problems. So, we see that only one reason does not affect the sick industries. All the above-mentioned reasons are responsible for sickness of industries in Bangladesh.

4.11 Impact of sick industry in Bangladesh or BSB

Increase 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.

Rehabilitation of Sick Industries of BSB



Rehabilitation of Sick Industries of BSB

5.1 Introduction
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.

Programs taken to rehabilitate the sick industries

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

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 BSB had given loan at the first time Under rehabilitation program: Long term loan Working capital TK. in lac 513.00 163.00 25.56

Rehabilitation of Sick Industries of BSB

5.4 Rehabilitation Policy

All sick industry is not rehabilitated because the all-sick industry has not al l possibilities to rehabilitate. Its 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 4. Marketing perspective In the case of rehabilitating sick industries the bank takes different policies in situation which are given as follows:

5.5 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 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. 49
Rehabilitation of Sick Industries of BSB

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.

5.7 Marketing perspective

The employees of project rehabilitation department are employed in this case. Value delivery sequence of Project Rehabilitation Department is shown below-

Choose the value 1. Segmentation 2. Targeting 3. Positioning

Provide the value 1. Product/Service develops 2. Pricing 3. Distributing

Communicate the value 1. Sales force 2. Promotion

Choose the value 1. Segmentation the reasons of sickness Uncontrollable Controllable The causes behind sick industries are discussed belowShortage of working capital Lack of marketing knowledge Technological obsolesces Administrative and managerial inefficiencies Present economic situation of home and abroad Political condition Other reasons behind sickness 2. Targeting to rehabilitate 50
Rehabilitation of Sick Industries of BSB

1. Management perspective 2. Technical perspective and 3. Financial perspective 3. Positioning in the market BSB rehabilitates the sick industries of their financed projects. Provide the value Their products areSupporting the management Providing the working capital Technological enrichment Their programs areDebt relief Injection of additional funds Direct management Communicate the value The personnel of Project Rehabilitation Department are employed for this purpose.

5.8 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 51
Rehabilitation of Sick Industries of BSB

finally sued against the project. The main activities of rehabilitation department are as followsThe 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?

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.

Rehabilitation of Sick Industries of BSB

5.10 Which industries are rehabilitated and which industries are not rehabilitated
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 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 below5.10(a) Appraisal Practices Appraisal practices that are done from the five aspects such as1. 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

Rehabilitation of Sick Industries of BSB

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 belowTypes of facilities Interest Waiver Allowed Block Account Facility Provided Loan Rephrased Sanction of loan Amount involved (million taka) 880 456 258 279

The bank also make a program of taking over management of the sick projects directly where the above measures were not considered sufficient due to inefficient 54
Rehabilitation of Sick Industries of BSB

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 Number of Number Local projects New projects Existing projects (BMRE) Additional loans Total 3 27 136 989 136 989 3 38 136 1009 136 1009 of projects 21 3 Foreign currency currency 687 166 687 166 of projects 34 1 2004-2005 Total Number Local Foreign Total currency currency 826 47 826 47

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 BSB

Loan outstanding (Million TK.) 55
Rehabilitation of Sick Industries of BSB

Measures taken (Million TK.)

Total outstanding

Block A/C

Additional Loans

Working Capital

525 411 46 444 23 51 66 44 33 22 165 70 3 3 1906

950 785 350 524 40 94 85 53 45 28 211 101 30 3 3299

12 21 5 3 2 2 2 2 1 1 1 53

37 (10) 13 (6) 73 (3) 1 (1) -3 (1) 118 (21)

35 (10) 13 (6) 73 (3) 121 (19)

28 (7) 54 (6) 18 (3) 4 (1) 104 (17)

21 (9) 161 (16) 6 (4) 1 (1) 14 (2) 7 (1) 5 (2) 33 (2) 1 (1) 6 (1) 8 (1) 263 (39)

2 (1) 30 (5) 52 (5) 6 (2) 2 (1) 1 (1) 93 (15)

1 (2) 4(2) 18 (2) 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 01. S.S.R Chemical Industries Ltd. 02. Islam Polymers & Plasticizer Ltd. 03. Raja Plastic Industries Ltd. 04. KDH Laboratories Ltd. 05. Asiatic Business Ltd. 06. Pharmadesh Laboratory Ltd. Location Dhaka Tangail Gazipur Dhaka Sylhet Dhaka 56
Rehabilitation of Sick Industries of BSB

Equity participation

Waiver of interest




Cotton, Woolen & Synthetic Textiles 01. Azim Mannan Garments Ltd. 02. Desh Gannents Ltd. 03. Jems Sweaters (Pvt) Ltd. 04. Auto Spinning Mills Ltd. 05. Techno Textile Mills Ltd. Food & Allied Products 01. Meenhar Sea Foods Ltd. 02. Mimi Chocolate (Bd) Ltd. 03. Modern Industries (Bd) Ltd. 04. Mustafa Cold Storage Ltd. 05. Bangladesh Beverage Industries Ltd. 06. Bengal Fish & Frogleg (Export) Ltd. Paper, Paper product & Printing 01. Eagle Box & Carton Mfg. Ltd. 02. Holiday Printing Ltd. 03. Toka Ink Ltd. 04. Bangladesh Paper Product Ltd. 05. Orient color Printers Ltd. 06. Transfer Paper Ltd. Tannery & its products 01. Apex Footwar Ltd. 02. Lexco Ltd. 03. Leather Board Ltd. 04. Comfort Footwar Ltd. 05. Bangladesh Chemical Ltd. Non-metallic Mineral Products 01. Savar Refractories Ltd. 02. Tajma Ceramic Industries Ltd. 03. Standard Ceramic Industries Ltd. Metal products 01. Rangpur Foundry Ltd. 02. Scala Industries Ltd. 03. Oriental Foundry & Agro Engineering Ltd. 04. Bogra Metal Industries (Pvt.) Ltd. Electrical Machinery & Goods 01. Bangladesh Lamps Ltd. 02. National Fans Ltd. 03. Eastern Tubes Ltd. 04. National Accessories Ltd. Service Industries & Miscellaneous 01. Hotel Simon Ltd. 02. Hotel Elysium Ltd. 03. G.Q. Ball Pet Ltd. 04. Rajanigandha Tankers Ltd.

Chittagong Chittagong Dhaka Gazipur Gazipur Chittagong Dhaka Munshigonj Rangpur Dhaka Chittagong Dhaka Dhaka Dhaka Chittagong Chittagong Bogra Dhaka Dhaka Dhaka Dhaka Narayangonj Dhaka Bogra Gazipur Rangpur Gazipur Dhaka Bogra Dhaka Gazipur Dhaka Chittagong Coxs Bazar Dhaka Magura Dhaka 57

Source: Project Rehabilitation Department of BSB

Rehabilitation of Sick Industries of BSB

Chapter-06 Findings, Recommendation & Concluding Remark


Rehabilitation of Sick Industries of BSB

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 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 groups 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 Lack of financial commitment on the part of the borrower, the result being the failure of mobilization of equity by them in future means they divert their equity in other purpose after getting the loan amount. Lack of effective monitoring in projected work. 59
Rehabilitation of Sick Industries of BSB

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 countrys 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. 60
Rehabilitation of Sick Industries of BSB

6.3 Recommendations
As a student of MBA 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. 61
Rehabilitation of Sick Industries of BSB

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 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, 5Cs (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. loan should be sufficient to

Rehabilitation of Sick Industries of BSB

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.

Rehabilitation of Sick Industries of BSB

6.5 Conclusion
Bangladesh Shilpa Bank is a well-known special bank of our country. We cannot think industrialization in our country without meaningless contribution of Bangladesh Shilpa Bank. Although there are some drawbacks of BSB activities nevertheless it plays an important role in the industrial sector of Bangladesh. We get clear idea about this contribution through the analysis of the BSB activities from 1972 to till now. Although some unexpected political pressure hamper such activity but BSB always tries to overcome these sort of problem by his own policy and procedure. We observed that BSB able to contribute to GDP through their industrialization. It is clear that industrialization is the base of the economy of the economy. I observed that the loss of BSB is 100 crore less than that j of previous year. It present that the position of BSB is more strength than previous year. Another notable thing is that BSB reduces their loan sanctioning area. As a result their loan sanctioning reduced to 429 million taka. I think it is not good news for our economy. Because new industry essential for employment generation. At present BSB carefully takes steps for sanctioning loan because of a huge fund become irrecoverable due to sickness of various projects. It is indeed that sickness is the consequences of unconscious and lack of investigation in case of issue of loan. We know sick project is the burden of bank as well as overall economy of Bangladesh. So, now-a-days BSB is reducing rehabilitation of sick industries. Because those industries, which are unable to pay their previous loan amount, if they are rehabilitate by the BSB most of them will not be able to pay the rehabilitated money also. So there was huge amount of loss occurred and for this reason project rehabilitation of sick industry and the work of this department is decreasing day by day. So I think BSB will close their rehabilitation to reduce their loss. I think proper scrutinizing of project proposal and careful physical verification may make sure to be profitable of that industry as well as Bangladesh Shilpa Bank. Bangladesh Shilpa Bank should concentrate on loan recovery that is necessary for long-term profitability and sustainability. Without pros and cons everybody should to confess of BSB contribution. We expect continue their operations without influence and contribute more and more to our industry that brings good luck to the nation. 64
Rehabilitation of Sick Industries of BSB

1. Bangladesh Shilpa Bank "Annual Report 2004-2005" 2. Different Project Appraisal reports of BSB. 3. Loan sanctioning letter of BSB. 4. Bangladesh Shilpa Bank Ordinance 1972. 5. Manual of different departments of BSB. 6. BSB web side "" 7. Manual of Project Rehabilitation Department.

Rehabilitation of Sick Industries of BSB