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Internship Report

on

L/C Operation of

Janata Bank

Internship Report on
Career Plan and development

Submitted to
Mr. Md Moqbul Ahmed
Assistant Professor
Department of Management Information Systems
University of Dhaka
Dhaka

Prepared by
Mohammad Mohiuddin
SL No-15
MBA 2nd Batch
Department of Management Information Systems
University of Dhaka

Date of Submission
30th September 2006

L/C Operation of Janata Bank

Letter of Transmittal

30th September 2006


Moqbul Ahmed
Assistant Professor
Department of Management Information Systems
University of Dhaka
Dhaka
Dear Sir,
I hereby present the internship report entitled Career Plan and Development, which is
an integral part of the MBA program.
I have tried my best to gather the most complete information available in order to prepare
this report. I have prepared this report using the experience that I have gained during my
internship. As you will see, my observations pointed out to the relevant information about
Foreign Trade especially Letter of Credit.
I appreciate having this task. If you need any kind of assistance in interpreting this report
or further explanation, I will be glad to provide it accordingly.
Sincerely yours,
Mohammad Mohiuddin
Sl No - 15
MBA Program 2nd Batch
Department of Management Information Systems
University of Dhaka

Table of Contents

L/C Operation of Janata Bank

Contents

Page No.

Executive Summary

VIII

INTRODUCTION TO THE INTERNSHIP REPORT


Origin of the Report
Objective
Scope
Limitation
Research Design
Report Organization

1-3
2
2
2
2
3
3

CHAPTER 1 : GLOBAL AND BANGLADESH ECONOMY


Global Economy
Bangladesh Economy
Banking Sector

4-6
5
5
6

CHAPTER 2 : OVERVIEW OF THE JANATA BANK


History of the Bank
Functions of the Bank
Branch network
Management system
Products and Services
Import-Export Business

7-10
8
8
8
8
8
9

CHAPTER 3 : L/C OPERATION : A THEORITICAL REVIEW


Letter of Credit : Definition
Advantages of L/C
Parties to a Letter of Credit
Uniform Customs and Practices of L/C
Regulatory Provisions Regarding L/C

11-16
12
13
13
14
15
16

BIBLIOGRAPHY

L/C Operation of Janata Bank

List of Tables
Contents

Page No.

Table-1 : Information of ICC& UCPDC


Table-2 : Major charges in different steps for L/C processing
Table-3 : Avg. Time requirement for the basic activities of L/C issuing
Table-4 : Month-wise income from Import L/C
Table-5 : Month-wise income from BTB Export L/C
Table-6 : Major charges for L/C processing in different Banks
Table-7 : Avg. Time requirement in different Banks
Table-8 : Number of Import L/C Issued Per Month
Table-9 : Number of BTB Export L/C Issued Per Month
Table-10: Number of Import L/C Issued Per Country
Table-11: Number of Import L/C Issued Per Item
Table 12: Import, Export and Profit of 2001 to 2005

15
28
29
32
32
33
34
35
35
36
36
38

List of Charts
Contents

Page No.

Chart-1 : Operational Flow of the Import-Export Process


Chart-2 : Flow Chart mentioning Steps in issuing an L/C in Janata Bank
Chart-3 : Comparison of Sources of Income from Import L/C
Chart-4 : Comparison of Sources of Income from BTB Export L/C
Chart-5 : Month-wise income from Import L/C
Chart-6 : Month-wise income from BTB Export L/C
Graph 7: Number of Import L/C Issued Per Month
Graph 8: Number of BTB Export L/C Issued Per Month
Graph 9: Number of Import L/C Issued Per country
Graph 10: Number of Import L/C Issued Per Item
Graph 11: Import, Export and Profit of 2001 to 2005

L/C Operation of Janata Bank

16
22
31
31
32
32
35
35
36
36
38

Preface
An individual can expect to have a good understanding and knowledge on the various
methods of operations performed by the Janata Bank in case of Trade Finance operations,
i.e., Import and Export , going through this report. Everything is tried to include here in
precise form. This report is to be used only for the academic purpose. I have collected all
the necessary and relevant data and information from various primary and secondary
sources. The data and information is truly and strictly confidential and no one can use its
components in full or partial. I would like to give thanks to everyone who has helped and
encouraged me in the process of preparation of this report.

L/C Operation of Janata Bank

Acknowledgement
First of all I would like to thanks to the all mighty for special blessing in completing the
report. This project work is an accumulation of many peoples effort. So, with my honesty
I would like to show my gratitude to them who helped me through kind advice,
suggestions, directions and co-operations in preparing this report.
I am thankful to the Department of Mis, University of Dhaka for giving me such exposure
to the practical business world. My warmest thanks go to Mr. Md. Abul Kashem,
Assistant Professor of Dhaka University.
I am thankful also to my class-mates for their help in preparing this report.
Finally, I am thankful to my internal supervisor Mr. Md. Abul Kashem, Assistant
Professor of Dhaka University, for his appropriate suggestions, moral support and
invaluable co-operation from time to time in completing the internship program and
submitting the report.
However, the responsibilities of errors and omissions in the report, if any, lie with me.

Md. Majidul Hosain

L/C Operation of Janata Bank

Executive Summary
This internship report is prepared on the basis of one year long theoretical knowledge and one
months long practical experience at the Dilkusha Corp. Branch of Janata Bank. This internship
program and preparation of this report helped me a lot to learn about the practical environment
and situation of a financial institution and also make up a bridge between the theoretical and
practical aspects.
Bank provides the means and mechanisms of transferring resources over the country. Currently it
is playing an important role in Foreign Trade. Higher import demands in china and continued
higher domestic consumption in USA sustained the growth momentum resulting 10.2 % increase
in world trade volume.
Janata Bank has already established a world wide network and relationship in international
Banking through its 4 (four) overseas branches and 1221 foreign correspondents. The Bank has
earned an excellent business reputation in handling and funding international trade particularly in
boosting export & import of the country. The Bank finances exports within the frame-work of the
export policy of the country. It is one of the pioneers in promoting back to back Letter of Credit
for the RMG (Ready Made Garments) sector.
In order to avoid differences in interpretation of letter of credit terms, the International Chamber
of Commerce has formulated a set of rules to guide banks in the use of documentary letter of
credit, although the first attempt in this direction was made as early as 1933, the latest version is
contained in publication No. 290 which has come into operation from October 1, 1975.
In processing L/C, Janata Bank earns income through charging various activities relating to it
such as L/C opening charge, postage charge including Telex and SWIFT, amendment charge, and
miscellaneous charges which include issuance of Bank Certificate, advice etc. L/C opening charge
acts as the major source of income from import L/C.
In February the income from import L/C was highest and afterwards the income is decreasing
gradually. And again in October the income raises suddenly. In April the income from BTB
Export L/C is highest and afterwards the income is decreasing gradually. The charges charged by
Sonali and Janata Bank are almost the same in most services but PCB charges more than NCB.
The highest no. of import L/C opened in the month march and most of the L/C is opened during
month February to June. The highest no. of BTB Export L/C opened in the month February and
most of the L/C is opened during month January to May. China and India dominate the import
market. Accessories dominate the import market.
Correlation analysis shows that there is a high degree of negative correlation exists between
Import and Profit; a low degree of positive correlation exists between Export and Profit, and a
very low degree of negative correlation exists between Foreign Trade and Profit.
The initial part of the report contains the global & Bangladeshs economy, Janata Banks history,
operations & activities, financial condition and services. The main part of the report includes
theoretical overview of L/C, L/C related operations practiced in Janata Bank, analysis of gathered
information and finally recommendations depending on analysis.

L/C Operation of Janata Bank

INTRODUCTIO
N
INTRODUCTION TO THE INTERNSHIP REPORT

Chapter Hints

Chapter Contents

This section is designed to


introduce you with the
report. You will learn here
the origin, objective, and
scope of the report. The
limitation the author faces
are included here also. You
will know in this section,
how
the
research
is
performed and how they are
described.

Origin of the Report


Objective
Scope
Limitation
Research Design
Report Organization

L/C Operation of Janata Bank

INTRODUCTION
TO THE INTERNSHIP REPORT

Origin of the Report:


As a mandatory part the MBA Program, all the students of the faculty of Business
Studies, University of Dhaka have to undergo a three month long internship program with
an objective of gaining practical knowledge about current business world. After this
internship program each and every students have to submit an internship report
mentioning their activities during the internship program.
Ive started my internship at the Janata Bank, Dilkusha corporate branch, Dilkusha on 3 rd
January 2006 and at the end of the program I am submitting my internship report focusing
on the contribution of Export-Import Business to the overall performance of bank
especially on profitability perspective.
Objective:
The main objective of this report is to reflect the practical knowledge that the author
gained during his internship and to relate the one year long theoretical learning of MBA
Program. Besides this broad objective, the followings were given emphasis Define Letter of Credit and different stages of L/C processing
Analyze the entire process of L/C issuing in Janata Bank
Identify the sources of income from L/C operations in Janata Bank
Identify the general behavior of the L/C issuance
Scope:
A comprehensive knowledge on the organization and a thorough knowledge on the
Export-Import operation of the organization have come under the scope of the report.
The report is limited only to Import-Export Business of the Janata Bank, Dilkusha Corp.
Branch in last 4 years and L/C operations during January 2005 to December 2005.
Limitation:
The organization maintains confidentiality in providing some relevant information, so the
author could not incorporate those.
Information regarding L/C is not maintained in a structured manner and they are so
though to gather.
The project covers only 12 months data gathered from the Dilkusha Corp. Br. of the
Janata Bank. It may not represent the overall scenario.

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10

Research Design:
Data collection: Both primary and secondary data is used for this report writing.
Primary Data: Most of the information was collected from primary sources. This
includes the interviews with the managers and officials of the bank.
Secondary Data: This includes a number of books, journals, handbooks, annual
report and websites.
Research Approach and Instrument: In this research informal questionnaire was used
to interview the bank officials instead of structured questionnaire. Observation and
experience of month long internship served as a major source of information.
Sample unit and sample size: Only the L/C issued from January 2005 to December 2005
in the Dilkusha Corp. Branch of Janata Bank is taken as the sample unit and the sample
size includes all those L/Cs.
Report Organization:
The report is organized as follows:
The initial part of the report includes the global & Bangladesh economy and
overall organization; which describes overall global and national situation,
banking sector as well as the history, background, operations & activities,
financial conditions and the products & services offered by the Janata Bank at a
glance.
The later part is the main project part, which includes five chapters describing
theoretical overview, practice in Janata Bank, behavior analysis, recommendations
regarding L/C operation and overall profitability point of view.
CHAPTER 1 : GLOBAL AND BANGLADESH ECONOMY
CHAPTER 2 : OVERVIEW OF THE JANATA BANK
CHAPTER 3 : L/C OPERATION : A THEORITICAL REVIEW
CHAPTER 4 : L/C OPERATION : PRACTICED IN JANATA BANK
CHAPTER 5 : L/C OPERATION : ANALYSIS
CHAPTER 6 : RECOMMENDATION AND CONCLUSION
APPENDIX AND BIBLIOGRAPHY

L/C Operation of Janata Bank

11

CHAPTER 1
GLOBAL AND BANGLADESH ECONOMY

Chapter Hints

Chapter Contents

This section is designed to


introduce
the
overview
scenario of the Global
Economy
especially
in
World Trade. The later part
is on Bangladesh Economy
which includes the current
situation and growth rate of
overall
GDP,
Industrial
Production, and ImportExport. Major changes in
banking
sector
are
explained here.

Global Economy
Bangladesh Economy
Banking Sector

L/C Operation of Janata Bank

12

Global Economy
The year 2004-2005 was eventful in the world scenario. Events like natural disaster,
political instability, surging oil price, declining exchange value of US Dollar had great
impact on world economy. Despite these impediments, world economy had grown by 4%
during the year of 2004-2005. Among the major factors in this growth were the on going
economic boom in china, surges in economic activities in Japan and the USA. During this
period European high income countries experienced less growth rate and slower
economic recovery. Higher import demands in china and continued higher domestic
consumption in USA sustained the growth momentum resulting 10.2 % increase in world
trade volume.
According to the global outlook 2005, a report published by World Bank, GDP growth
rate was 6.00 % in south Asian countries except India, compared to 5.6% in the previous
year. Productive growth in industrial sectors of Bangladesh & Pakistan, development of
services & agricultural sector of Nepal and Srilanka were the major contributors to such
growth.
The experts believe that global economic growth might slow down in 2006 and 2007.
Several factors may contribute to the expected slower growth. Some of the notable causes
for slower will be the investment cycle in the USA may reach its peak, the world demand
may grow much higher than supply resulting in substantial increase in prices of oil and
other essential commodities. As a result it may imply a decline in income. Central banks
around the world may continue to take more neutral stance in their monetary policies,
which may hinder the investment. Besides this chinas effort to achieve a sustainable pace
of growth should contribute to lesser demand in the medium term. Moreover predictions
are that chinas aggressive presence in the world trade may a continuous opportunity for
improvement.

Bangladesh Economy
During the year 2004-2005 the growth rate of GDP was 5.52% as against 5.20% of
previous year. Rising oil price and price hike in essential commodities could not weaken

L/C Operation of Janata Bank

13

the growth rate. Steady growth in the industrial and service sector contributed to this
achievement.
Growth rate in agricultural sector declined to 2.41% in financial year 2004 as against
3.29% of previous year. Despite favorable weather conditions there was significant
reduction of growth in crops and horticulture sub sector. As a result in financial year 2004
the growth of agriculture sector was hampered. The forestry and fishing sub-sector
marked a sharp growth due to increase in domestic demand. While growth rate remained
unchanged in animal farming sector.
Overall growth in the year 2004-2005 was substantial. Exports increased by 16.1% to US
$7603 million against US $6548 million of financial year 2003-2004. Ready made
garments sector had substantial contribution to this growth.
Import increase by 12.9% in financial year 2004-2005 over the previous year. Sugar
import increased by 6.3%, edible oil increased by 29.1%, fertilizer by 37.8%, capital
goods by 5.1%, plastic and rubber articles by 30.5%. While import of rice declined
significantly.
At the same time wage earners remittance by Bangladeshis working abroad increased by
9.7% resulting current account surplus of 0.20 billion. Consequently foreign currency
reserve increased significantly. Anti money laundering measures also contributed
significant increase in foreign remittance and foreign exchange reserve.
Broad money (M2) growth stood at 13.8% in financial year 2004-2005, higher than the
projected growth of 12.2% but lower than 2003-2004 growth o f15.65%. Despite various
adversities economic growth was substantial.

Banking Sector:
The banking sector of Bangladesh played an important role towards economic growth of
Bangladesh. From the beginning of financial year 2003 Bangladesh Bank took initiatives
in reforming financial sector. Steps for prevention of money laundering, loan write off
policy and effective measures to gain accountability and transparency made banking
operations more acceptable. As a result, the image of banking sector has been elevated.
Bangladesh Bank also identified five core risks areas for management of the banks and
L/C Operation of Janata Bank

14

provided necessary guidelines for implementation. Those are: Foreign Exchange Risk
Management, Asset Liability Management, Prevention of Money Laundering, Credit Risk
Management, Internal Control and Compliance. This initiative will bring overall
discipline in the sector and enhance operational profit.

L/C Operation of Janata Bank

15

CHAPTER 2

OVERVIEW OF THE ORGANIZATION : JANATA

BANK
GLOBAL AND BANGLADESH ECONOMY

Chapter Hints

Chapter Contents

This section is designed to


introduce the Janata Bank
at a glance. All about the
bank is bring here together
in a summary form. History,
function,
management
system, network of its
Branch, and the services it
offered
includes
this
chapter. The prospect of
Import-Export Business of
total
Bank
is
also
summarized here.

History of the Bank


Functions of the Bank
Branch network
Management system
Products and Services
Import-Export Business

L/C Operation of Janata Bank

16

History of the Bank

www.janatabank-

bd.com
Janata Bank established under Bangladesh Bank (Nationalization) Order 1972, is one of
the leading Government Owned Commercial Banks in Bangladesh. The Bank's
Authorized and Paid-up Capital as on 31st December 1994 was Tk. 800.00 crore and Tk.
259.40 crore respectively. Reserve Fund of the Bank as on 31st December 1994 was Tk.
12.20 crore. The Bank is governed by the Bangladesh Bank (nationalization) Order 1972
and also by its own internal regulations.

Functions of the Bank


Janata Bank provides complete range of services to its customers both domestic and
foreign. Rendering of General Banking Facilities & Utility Services, Deposit
Mobilization, providing various Credit Facilities including Working Capital to Industries,
Investment, Outward & Inward Remittances, Financing Import & Export etc. are the
major functions performed by Janata Bank. In order to provide better services to its
Customers and Correspondents Janata Bank is now more organized to handle
sophisticated operations through a well trained and efficient Manpower. Recently Janata
Bank has entered into computer operations to provide prompt and efficient services to the
Customers.
Janata Bank has been involved in Micro financing since 1973 through its vast branch
network spread all over the country. Bank has launched these micro credit
programs/projects on its own initiative and also in collaboration with local and foreign
agencies.

Branch network
Janata Bank is one of the largest Nationalized Commercial Bank of Bangladesh. Presently
the bank has been functioning with a network of total 904 branches. The Bank has been
functioning with a net work of Total 897 Branches including 4 Overseas Branches in
U.A.E. Besides Janata Bank, has, at present 780 Foreign Correspondents abroad. It has 44
Authorized Dealer Branches and 29 Branches to deal with Wage Earners' Remittances.

Management system
The Bank's present Board of Directors comprises of One Chairman and Six Directors
appointed by the Government.

Products and Services

Financing IT sector
Financing of industry
Ready cash
Windows for SMEs
Loan to travel agencies
Loan to diagnostic center
NRB escrow account
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NRB gift cheque

Import-Export Business
Janata Bank has already established a world wide network and relationship in
international Banking through its 4 (four) overseas branches and 1221 foreign
correspondents. The Bank has earned an excellent business reputation in handling and
funding international trade particularly in boosting export & import of the country. The
Bank finances exports within the frame-work of the export policy of the country. It is one
of the pioneers in promoting back to back Letter of Credit for the RMG (Ready Made
Garments) sector.
Janata Bank always aims to increase its foreign exchange business. The Bank has been
doing international banking with all major Banks of the world. It has been, however,
handling bulk of the international businesses with the following multinational Banks:
Citibank N. A.
American Express Bank Ltd.
Standard Chartered Bank
HSBC.
The Chase Manhattan Bank
Through quite a good number of Authorized Dealer Branches and 1221 nos. foreign
correspondents world wide Janata Bank has been extending full range import and relevant
finance facilities.
To boost up country's Export, Janata Bank has been providing different kinds of
assistance to exporters. Some of which are as under: Providing Pre-Shipment and Post-Shipment Finance, Export Guarantee and
bonding facility etc.
Concessional rate of interest for exports Finance.
Back to Back L/C under bonded Warehouse facility
Sight & Unasked L/C against Firm Contract for import of raw materials.
Sight L/C under EDF
Exporter's Retention Quota A/C both interest bearing and non-interest bearing.
Export incentive Program.
Banking at Export Processing Zone
Scope for establishment of export oriented industry by 100% foreign investment
and by joint-venture

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The sole bank to disburse Government Export Promotion Fund against export of
Computer Software & Data Entry Processing
Providing services to the exporter by utilizing most modernized technology like
Swift, Reuters, Internet, Fax etc. Any latest business information will be available
at their website; http://www.janatabank-bd.com/
Consultancy and advisory services by an expert group of officials.
Special export financing program towards computer software, data entry and
service.
Facilities Offered:
Opening of L/C at competitive/ reasonable margin and commission
Concessional rate of interests on import finance to the prime customers & interest
rebate facilities.
Import Items:
Capital Machineries and Industrial raw materials.
Fuel & Lubricants.
Intermediate goods.
Consumer durable, spare parts and equipments.
Consumer goods: Baby food, Petroleum, CDSO (Crude Degummed Soyabean
Oil), Oilseeds, Cement, Construction Materials, Fertilizer, Chemicals, etc.
Salient Features:
A Firm or Company having valid ERC, necessary infrastructural and technical
facilities and sufficient skilled man power related computer.
Member of BASIS or BCS.
Having Computer Literacy or related professional background.
Preference to the firm/company having prior experience
Satisfactory performance Certificate/Acceptance Letter from Counterpart abroad.
Valid Export Orders are in hand.

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CHAPTER 3
L/C OPERATION : A THEORITICAL REVIEW
GLOBAL AND BANGLADESH ECONOMY

Chapter Hints

Chapter Contents

This section is designed to


review
the
theoretical
understanding of the Letter
of Credit. The relevant word
about ICC & UCPDC is
included here in brief. Local
&
International
rules
currently in action and
uniform
process
or
operational flow in L/C
processing
is
described
briefly with the help of a
graph.

Letter of Credit : Definition


Advantages of L/C
Parties to a Letter of Credit
Uniform Customs and Practices
of L/C
Regulatory Provisions Regarding
L/C
Operational Flow of the Process

L/C Operation of Janata Bank

20

Letter of Credit
A letter addressed by a bank, at the insurance and responsibility of a buyer of
merchandise, to a seller, authorizing him to draw drafts to a stipulated amount under
specified terms and undertaking conditionally or unconditionally to provide eventual
payment for drafts.
Letter of credit is a documentary credit of a bank. This is a kind of pre-shipment
financing. Through this letter bank assures the exporter to give acceptance of his/her bills
or pay the value of the bill when importer fails to do so. In international trade, there is the
peculiar of distance and unfamiliarity between parties concerned exporter and importer.
If the importer fails to pay price, the exporter will find it difficult or too costly to recover
the amount. The importer is generally required to open a letter of credit with a certain
bank having branches or agent thereto in both the importing and exporting countries.
Thus the importer proves his creditworthiness to the foreign exporter by obtaining a letter
of credit from the bank and sending the same to the foreign dealer.
Trade between countries is mainly financed through letter of credit. The international
chamber of commerce has defined a letter of credit as:
Any arrangement however named or prescribed whereby a bank (the issuing
bank) acting at the request and in accordance with the instructions of a customer
(the applicant of the credit), is to make payment to or to the order of a third party
(the beneficiary ) or is to pay, accept or negotiate bills of exchange (drafts) drawn
by the beneficiary, or authorize such payments to be made or such drafts to be
paid, accepted or negotiated, by another bank, against stipulated terms and
conditions.
Letter of Credit is quite literally a letter that extends a line of credit to an individual or
business entity. A bank on behalf of one of its customers writes it. A letter of credit is a
banking mechanism that allows importers to offer secure terms to exporters.
Every Letters of Credit contain these elements:
A payment undertaking given by the bank (issuing bank)
On behalf of the buyer (applicant i.e.; importer)
To pay a seller (beneficiary i.e.; exporter)
A given amount of money
On presentation of specified documents representing the supply of goods
Within specific time limit
These documents conforming to terms and conditions set out in the letter of credit
Documents to be presented at a specified place.
Thus when a stipulation is incorporated in the sale contract that the goods shall be paid by
a bankers letter of credit , the seller need not to worry whether the goods will be cleared
by the buyer on arrival at the destination and the buyer need not block up his funds by
making payment in advance. As a matter of fact, a commercial letter of credit substitutes
the creditworthiness of the banker issuing the letter of credit since it is a promise by the
bank to pay or accept the bill, provided the exporter (the beneficiary) fulfills the terms
and conditions set out in the credit.
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Advantages of Letter of Credit


L/C as a means of finance international trade provides benefits to both the exporter and
the importer.
Advantages of L/C to the exporter:
Eliminates credit risk
Reduces ambiguity regarding transaction because terms are specified
in the L/C
Facilitates pre-shipments financing through packing cash credit or
Back to Back L/C
Advantages of L/C to the importer:
Ensures that the goods sent by the exporter comply with the
specifications
Facilitates financing.

Parties to a Letter of Credit:


The buyer, the seller, the issuing bank, the notifying bank, the negotiating bank, the
confirming bank and the paying bank are the parties to a letter of credit.

Buyer/importer: the buyer/importer, who is applies to the bank for the opening
of a letter of credit
Seller/exporter: the seller/exporter is the beneficiary of the letter of credit
Issuing Bank: the bank, which issues the letter if credit at the request of the
buyer, is the issuing bank. The buyer gives instructions regarding the terms
and conditions of the credit.
Notifying Bank: the correspondent bank situated in the same place as that of
the seller, which advices the credit to the beneficiary. But the notifying bank
does not commit itself to any liability under the credit. Generally, the services
of a notifying bank are utilized when the credit is advised to the seller through
a cable message.
Negotiating Bank: the bank which negotiates the bills or drafts under the letter
of credit. Generally, the same bank acts as the notifying and the negotiating
bank.
Confirming Bank: usually, the seller insists that a bank in his own country
must confirm the credit. Such a bank is known as the confirming bank. The
advantage of this confirmation from the sellers point of view lies in the fact
that he is assured of payment as soon as the shipment documents are presented
his own centre. It may be noted that, the primary liability lies with the
confirming bank, once the credit is confirmed by it, provided the seller fulfills
the terms and conditions of the credit.
Paying Bank: the bank on which the bill or draft is drawn. It can be the issuing
bank, the notifying bank or the confirming bank.
L/C Operation of Janata Bank

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The following section will gives a more detailed overview of how these parties participate
in the L/C operations.
A Letter of Credit, simply defined, is a written instrument issued by a bank at the request
of its customer, the Importer (Applicant), whereby the bank promises to pay the Exporter
(Beneficiary) for goods or services, provided that the Exporter presents all documents
called for, exactly as stipulated in the Letter of Credit, and meets all other terms and
conditions set out in the Letter of Credit. A Letter of Credit is also commonly referred to
as a Documentary Credit.

Uniform Customs and Practices of L/C


In order to avoid differences in interpretation of letter of credit terms, the International
Chamber of Commerce has formulated a set of rules to guide banks in the use of
documentary letter of credit, although the first attempt in this direction was made as early
as 1933, the latest version is contained in publication No. 290 which has come into
operation from October 1, 1975.
It may, however, be pointed out here that the uniform customs and practice for
documentary credits are not law as such. The parties have voluntarily agreed to apply the
set of rules. Banks in 153 countries adhere collectively to the rules laid down in uniform
customs and practice. Bank in another 23 countries adhere individually to them. Banks in
these countries expressly state that the letters of credit issued by them are in accordance
with uniform customs and practice, publication no. 290.
UCPDC-500 is a set of rules formulated by International Chamber of Commerce (ICC) to
apply to all transactions in Letters of Credit carried out by banks. The purpose of the rules
is to bring about uniformity in the form of Letters of Credit and the practice and
Procedures adopted by banks in handling the instruments. Banks all over the world handle
letters of credit, and variations in forms and procedures and the civil and commercial laws
of different countries may cause confusion in their dealings with one another. In order to
provide common understanding about the interpretation of the terms and terminology, a
uniform code is very essential. Therefore, the International Chamber of Commerce
formulated the Uniform Customs and Practice, which is universally accepted, and Letters
of Credit transactions everywhere are subject to this set of rules.
These uniform customs and practice for documentary credit were first published in 1933.
Revised versions were issued in 1951, 1962, 1974 and 1983. The last version of the
Uniform Customs and Practice for documentary credits was adopted by the ICC council
in 1993 and published as ICC publication no. 500 in may 1993.

L/C Operation of Janata Bank

23

The following table provides brief information of ICC & UCPDC-500


Table- 1 :
Information of ICC& UCPDC
ICC
Founded
Membership and Association
Purpose
ICC publication
UCPDC
Application
1st publication
Revised versions were issued
Latest version
Effective from (in force)
Number of Articles
UCPDC-500 contains

(International Chamber of Commerce) world


business organization
1919
Thousands of members companies and associations
of over 153 countries.
To promote international trade, investment system
and market economy worldwide.
UCPDC-500, URR-525, URC-522 etc.
Uniform Customs and Practice for Documentary
Credits.
Import and export through L/C
1933
1951, 1962, 1974, 1983 and 1993
UCPDC (Rev. 1993)
January 01, 1994
49
Definition, liabilities and responsibilities of all
parties involved in L/C, Rules and Guidelines for
L/C operation (issue, advise, negotiation and
reimbursement).
Source : Secondary Data

Regulatory Provisions Regarding L/C


Local Rules:
Guidelines for foreign exchange transaction regulation on import
(guideline-chapter-XV)
The Import/Export Act 1950
Import policy for the concerned year
Customs duty, VAT, SRO, Tariff
Rate of exchange and its application
Fe Circular, IBD Circular
Public notice issued by CCI&E Office
Uniform Rules:
L/C Operation of Janata Bank

24

UCUDC-ICC Publication No. 500


URC-ICC Publication No.522
URR-ICC Publication No.525
INCOTERM-ICC Publication No.560
Harmonized Commodity Description & Coding System (H.S. Code)

L/C Operation of Janata Bank

25

Operational Flow of the Process:


The complete Import and Export process in includes the following stages. Both the
importer and exporter are involved in this flow. Some tasks are done by importers side
and some are done by exporters side and some are done by others. The process is very
much like the following:
Chart-1:
Operational Flow of the Import-Export Process

Importer

Exporter

6
2

14

Ship of the
Goods

15

Issuing Bank

Advising Bank

12

4
7
Reimbursing
Bank

11

Negotiating
Bank

13
3

10

Confirming
Bank

Description of the Flow:


1. Establish a buying and selling contract between the buyer and the seller.
2. Submission of application with necessary documents to the bank to issue an L/C
3. L/C issue and advise it to the advising bank
4. Issue reimbursing instruction to the reimbursing bank
5. Advise the L/C to the exporter by the advising bank after verification of the L/C
6. Asking for the confirmation of the L/C to the importer
7. Issuing request letter by the issuing bank to the confirming bank (as per exporters
requirement) toe confirm the L/C
8. Issuing confirmation by confirming bank
9. Shipment of the goods
10. Submit required document to the negotiating bank for negotiation
11. Negotiate the bill by the negotiating bank and make payment to the exporter
12. Claim to the issuing bank or reimbursing bank for payment
13. Payment reimbursed by the issuing bank or reimbursing bank
14. Ask the importer to collect the documents from the bank
15. Collect documents from the issuing bank by paying the banks dues.

L/C Operation of Janata Bank

26

CHAPTER 4
L/C OPERATION : PRACTICED IN JANATA BANK
GLOBAL AND BANGLADESH ECONOMY

Chapter Hints

Chapter Contents

This portion of the report is


designed to describe all the
matter
about
L/C
processing,
amendment,
required
charges/time
duration in different stages.
The required documents
have to be deposited by the
clients and the forms to be
provided to the client and
the communication media is
being used currently in this
Branch of Janata Bank is
presented here in details.

Considered factors of the L/C


Applicant
Documents required for L/C
Forms provided by Janata Bank
Communication media
L/C Issuing Process
Letter of Credit in Import
Financing
L/C in Export Financing
Amendments to Letter of Credit
Bank charge in different steps
Required Time duration in L/C
Processing

L/C Operation of Janata Bank

27

Janata Bank has already established a world wide network and relationship in
international Banking through its 4 (four) overseas branches and 1221 foreign
correspondents. The Bank has earned an excellent business reputation in handling and
funding international trade particularly in boosting export & import of the country. The
Bank finances exports within the frame-work of the export policy of the country. It is one
of the pioneers in promoting back to back Letter of Credit for the RMG (Ready Made
Garments) sector. In Janata Bank, only authorized branches are allowed to open an L/C.

Considered Factors of the L/C Applicant:

Account holder of the bank: first of all, L/C applicant must be a client of the bank.
If a new client comes in for opening L/C, he/she has to open an account with
Janata bank first.
Trustworthiness: this is the vital issue while considering about opening the L/C.
the past experience of dealings with that person is considered. For a new
applicant, his/her previous dealings with other banks are considered.
Volume of business: the volume of business is also a major factor to be
considered.
Post-import retirement: Post-import retirement is another factor that will have to
be considered for opening L/C.
Detailed analysis of financial condition: Detailed analysis of financial condition of
the applicant is required for the process, especially for a new applicant.
And finally the personal relationship of the applicant with the bank or its high
officials plays a vital role in opening L/C.

Documents required while applying for L/C:


In credit operation, all parties deal with documents, and not with goods, services and/or
other performance to which documents may relate. Thus documentation has foremost
important in all types of L/C processing and operations. The following documents are
required for opening L/C with Janata bank for a new applicant.

Trade License (up to date)


Import Registration Certificate (IRC) (up to date)
Tax Identification Number (TIN) (up to date)
VAT Registration Certificate (up to date)
Membership Certificate of a bona fide trade body (up to date)
Chamber Membership Certificate
L/C Application (in letterhead pad of the client)
LCA (L/C Application) form-duly filled in and signed by the importer
IMP Form- duly filled in and signed by the importer
Charge documents
Suppliers Credit Report
Applicants Credit Report
Other necessary papers depending on the nature of import.

L/C Operation of Janata Bank

28

Forms provided by Janata Bank:


After scrutinizing the above mentioned documents carefully, the authorized officer
delivers the following forms to be filled in by the applicant of L/C.
L/C Application Form:
L/C Application Form is a sort of an agreement between the customer and the bank on the
basis of which letter of credit is opened. Janata bank provides a printed form for opening
of L/C to the importer. A special adhesive stamp of value TK. 150 is affixed on the form
in accordance with the stamp act currently in force. Usually, the importer expresses his
decision to open the L/C quoting the amount of margin in percentage. In filling up the
form, the importer has to provide the following information:

Full name and address of the importer


Full name and address of the beneficiary
Draft amount
Time bar within which the documents should be presented
Sales type (CIF/FOB/C&F)
Brief specification of commodities, price, quantity, indent No. etc.
Country of origin
Import license No.
IRC No.
Account No.
Documents No.
Insurance Cover Note/Policy No., date, amount
Name and address of insurance company
Whether the partial shipment is allowed or not
Whether the transshipment is allowed or not
Last date of shipment
Last date of negotiation
Other terms and conditions (it any)
Whether the confirmation of the credit is requested by the beneficiary or not
The L/C application must be completed / filled in properly and signed by the
authorized person of the importer before it is submitted the issuing bank.

L/C Authorization Form:


The Letter of Credit Authorization Form (LACF) is the form prescribed for the
authorization of opening Letter of Credit / payment against import and used in lieu of
import license. The authorized dealers are empowered to issue LCA Forms to the
importers on the basis of licensing of the Import Policy Order in force to allow import
into Bangladesh. If foreign exchange is intended to be bought from the Bangladesh Bank
against an LCAF, it has to be registered with Bangladesh Banks Registration Unit located
in the concerned area office of the CCI&E. The LCA Forms available with authorized
dealers are issued in set of five (5) copies each. First copy is exchange control copy,
which is used for opening of LC and effecting remittance. Second copy is the custom
purpose copy, which is used for clearance of imported goods from custom authority. Third
L/C Operation of Janata Bank

29

and fourth copies of LCAF are to be sent to concerned area of CCI&E office by
authorized dealer/Registration Unit of Bangladesh Bank. Fifth copy is kept as office copy
by authorized dealer/Registration Unit. The Letter of Credit Authorization Form (LCAF)
contains the following

Name and address of the importer


IRC No. and the year of renewal
Amount of L/C applied for (both in figure and in word)
Description of item(s) to be imported
ITC number / HS Code number
Signature of the importer with seal
List of goods to be imported

Import Permit Form


Import Permit Form contains the following L/C authorization form no.
date
value in taka
registration of LCAF
quantity of goods
invoice value
country of origin
port of shipment
name of the steamer
indenters address

Communication media:
Communication between the parties and bank involved in the process is very important
for the efficiency of L/C operation. Janata Bank has the facility to use the following
communication media:
postage for mailing
courier
cable / telex

L/C Issuing Process:


The generalized process of L/C issuing in Janata Bank is explained below. For a business
customer approached for the first time, the process will start with opening an account
with the bank.
Step 1: Application in companys letterhead pad
First of all, the person shall have to submit an application written or printed in the
companys letterhead pad. In the application he/she will have to mention the name

L/C Operation of Janata Bank

30

of the products to be imported, margin and so on. The applicant shall have to
apply for the required forms of the bank.
Step 2: Discussion between Janata Bank and the party:
After receiving the application form, the Bank pays attention to the issues
mentioned below.
The products that are going to be imported are considered. Because there
are restrictions by the government on some products.
The quoted rates are specially analyzed as there also some restrictions by
the government.
Step 3: Collecting forms and depositing those with necessary documents:
In this step, the applicant collects the L/C application form, LCA Form and IMP
Form from the bank. These forms are to be filled up by the client. The forms and
all other necessary documents are then deposited at the desk of the dealing officer.
Step 4: Checking Documents:
All the documents are checked out by the dealing officer. He/she checks specially
the quoted rates, the terms and conditions of the indent or pro forma invoice and
the validity of the documents. Generally the person from whom the forms are
collected is engaged in checking out the documents.
Step 5: Putting L/C No:
After checking the documents and L/C No. is given. Generally the officer who
checks the documents puts the L/C No.
Step 6: Preparing offering sheet:
The offering sheet is prepared by the dealing officer. Usually the officer who
checks the documents prepares the offering sheet.
Step 7: Singing offering sheet:
The offering sheet is then signed by the officer having the authority to open the
L/C of the specified amount. If it is within the maximum limit of the amount (for
which the L/C is applied) of the SAVP or branch manager, he can sign it. But if it
is beyond his/her limit proposal must be sent to the head office, either for case-tocase sanction or for credit limit. Generally, in Janata Bank, SAVP or branch
managers are empowered to open an L/C without communicating with the head
office, if the L/C amount is within his / her limit.
Step 8: Typing the L/C:
After the approval of opening L/C is given, the L/C is typed in a structured
format.

L/C Operation of Janata Bank

31

Step 9: Checking the L/C:


A final check is done to find out any discrepancies after the typing is completed.
This is done by the dealing officer who is generally in charge of the whole
process.
Step 10: Crediting the account of the customer:
On the basis of credit arrangement with the bank of r import financing, the
customers account is affected with certain credit.
Step 11: Dispatching L/C:
At the final stage, the L/C is dispatched through postage mail or telex or SWIFT
or so forth.
Although this is the generalized process for issuing L/C, for the speed of the process
sometimes the typing and checking of documents are done before the offering sheet is
signed. Then after signing the L/C it is dispatched.

Chart-2:
Flow Chart mentioning Steps in issuing an L/C in Janata Bank
Application in
companys letterhead
pad

Discussion between
the Bank and the party

Collecting forms and


depositing those

Preparing offering
sheet

Putting L/C No.

Checking Documents

Singing offering sheet

Typing the L/C

Checking the L/C

Dispatching L/C

Crediting the account

L/C Operation of Janata Bank

32

L/C Operation of Janata Bank

33

Letter of Credit in Import Financing


One of the important functions of the commercial banks in the world is to undertake the
import of merchandise into the country and payment of foreign exchange towards the cost
of the merchandise to foreign suppliers. Bangladeshs import policy requires letters of
credit (L/C) for all imports of goods. However, in certain condition goods can be
imported without L/C but within a limit of US $25,000 annually per importer. L/C, as a
tool of financing, provides benefits to both the importer and the exporter. Import
financing by Janata Bank can be shown by the diagram below:

Import Finance
Janata Bank

Pre Import Finance


1. L/C (Letter of Credit)

Post Import Finance


PAD
LIM Agreement
Forced LIM
LTR

However, post import finance is beyond the scope of this report. Thus the following few
sections will describe the import L/C processing of Janata Bank.
Import L/C The Process:
The whole process of L/C in Janata Bank completes in three stages:
L/C issuance
Lodgment
Retirement
L/C Issuance: This is the step where the importer opens an L/C with the bank.
This is the main part the report will focus on and will be discussed in detail later.
Lodgment: On receipt of the documents from the negotiating bank, the L/C
issuing bank will make entry the particulars of the documents in the Inward
Foreign Bills Register and prepare the voucher by converting the foreign
currency into Bangladeshi Taka. This stage is known as the Lodgment of import
bills.

L/C Operation of Janata Bank

34

Retirement: On receipt of the copy of lodgment from the bank, the importer will
deposit the required amount and take delivery of the shipping documents. This
stage is known as the Retirement of Import Bills.
Check list for Import L/C:
Janata Bank uses a checklist to verify the overall issuing process of import L/C. The
check list contains the following:

Written request of importer for issuing L/C is obtained


L/C application form duly filled in, signature of importer / guarantor is taken and
verified, affixing adhesive stamp with proper value & defaced.
IMD form obtained
LCAF duly filled in, signed by the importer & verified by Banks official with
proper seal
Copy of indent / pro forma invoice is duly signed & accepted
Insurance cover note obtained covering minimum B category risk
Evidence of payment of VAT registration fee through Form-Ga (VAT registration
certificate)
IRC / pass book is valid
Opening of L/C is duly approved by competent authority, as per designated power
Margin, commission, and other charges are realized as per prescribed rates
properly and timely
Proof regarding obtainment of TIN (Tax identification No.)
Valid membership certificate issued by member organization of FBCCI
Contra liability entries are passed on the same day of opening of L/C
Margin is realized on the same day of the opening of L/C
Commission and other charges are realized on the same day of the opening of L/C
L/Cs is advised promptly within 24 hours time
Amendments of L/C in respect of time, value or items are effected in accordance
with written request of L/C openers and charges thereof realized
L/C copy along with LCAF is sent to the office of the CCI&E within fifth of every
month covering the entire previous month
Registration of indenter is valid. Indenter must incorporate Bangladesh Bank
permission no. in indent
VAT is being deducted on L/C commission and sent to competent authority of
Janata Bank
Balancing of liabilities and margin is done periodically

L/C Operation of Janata Bank

35

Letter of Credit in Export Financing


Export business creates inward remittance. For that reason, government encourages
investing in export business and offers incentive like tax and duty free entrance of raw
materials in RMG business in our country. As import of one party is an export to the
other, L/C also plays a vital role in financing exports. Following diagram shows means of
export financing that Janata Bank deals with.

Export Finance
Janata Bank

Pre Shipment Finance


1. Packing Cash Credit (PCC)
2. Back to Back L/C

Post Shipment Finance


Negotiation of Export Bills
DP/DA
Collection of Export Bills

Post shipment finance has not been included for discussion in this report. Thus the
following few sections deal with the means that Janata Bank uses for pre shipment
finance, i.e. PCC and BTB L/C.
Packing Cash Credit (PCC):
PCC is a short term credit with a fixed repayment date granted by the bank to an eligible
exporter. This loan is generally given on the basis of irrevocable L/C, but sometimes it
can be given without L/C on the basis of agreement which is given to valued constituents
or exporters.
PCC is given for the following purpose:
To buy raw materials
To process raw materials
To pay freight
To pay insurance
To pay inspection fees
To pay packing charge
Documents verified for granting PCC:
After the L/C is submitted to the bank counter, the bank starts to process all the
documents as per the L/C terms and conditions. Before sanctioning the PCC, the
following points are verified in Janata Bank:
Check whether the L/C is issued by the reputed bank (1st class bank).
L/C Operation of Janata Bank

36

Obtain the credit report of importer, especially when the applied loan amount is
large.
L/C expiry date is checked and PCC is not allowed after that date.
Stock report must be submitted regularly to the bank
Loans are given for the period from the time of purchasing raw materials up to
shipment of goods.

Back To Back L/C:


Back to Back L/C may be defined as an L/C which is backed by another. In Bangladesh,
this type of L/C is being used in the form of pre-shipment finance especially against
export order of ready-made garments. BTB L/C is the highest processed L/C in Janata
Bank. Due to extensive use of BTBLC, Bangladesh Bank has introduced a special chapter
in its Guidelines for Foreign Exchange Transaction.
BTB L/C is opened against lien of another credit. It is an L/C where the beneficiary is
procuring goods from suppliers and like the suppliers to get the benefit under the credit.
Beneficiary may need to purchase the raw materials and accessories and make the
payment by opening a second L/C favoring the ultimate supplier. To do this, the
beneficiary requires Janata Bank to open another L/C in favor of the supplier on the
original credit. Such an ancillary L/C is known as Back to Back L/C.
The original or master L/C forms the security based on which the bank undertakes the
risk under BTB L/C. BTB L/C is issued in conformity of the terms and conditions as
stipulated in master L/C. In our country, BTB L/C is generally opened for reprocessing
purpose to manufacture exportable merchandise. The value of BTB L/C is restricted up to
a maximum amount of FOB value of the master Export L/C.
Documents Necessary for Export L/C:
As soon as the seller / exporter receives the credit and is satisfied that he can meet its
terms and conditions, he is in position to load the goods and dispatch them. The seller
then sends the documents evidencing the shipment to the bank. Exporter will submit those
documents in accordance with the terms and conditions as mentioned in L/C. generally
the documents observed by the bank are as follows:

Bill of Exchange
Commercial Invoice
Bill of Lading
Air Way Bill
Rail Way Receipt
Insurance Policy
Certificate of Origin
Certificate of Manufacture
Inspection Certificate
Packing List
Clean Report of Finding (CRF)

L/C Operation of Janata Bank

37

Check List for Export L/C


Like import L/C, Janata Bank officials use a checklist to make the L/C operation flawless
also for Export L/C. The points of the Export L/C checklist are as follows:
Authenticity of Export L/C established
If advised by another local bank bona fide of L/C established through paper
communication which is documented
In case of 2nd beneficiary L/C, KYC of both beneficiary established and
documented
BTB L/C pro forma invoice apparent legitimacy established by connected papers
Possible in-house L/C or BTB L/C transaction eliminated
Exporter or BTB L/C opener is not a first time client
L/C opener has established adequate collateral security with the bank
Present L/C value is not disproportionate to past business record of the client
CIB report is clean
Market report is good
BTB L/C is within the production capacity of the RMG unit/exporters unit
Quota availability and validity
Sufficient lead time is available to ensure export in time
No track record of forced payment of BTB L/C due to shortage of funds
Value addition requirement as per IPO in force.
Source: Primary Data

Amendments to Letter of Credit:


An amendment to L/C means to make a change to the terms of the credit. After opening a
L/C either beneficiary or applicant sometimes observes that the terms and conditions laid
down in the credit are not complete to serve their purpose. They need some changes or
alteration to the credit to make it workable. This is done by the way of issuance of
amendment to the L/C.
At the request of the applicant, as the issuing bank Janata Bank only can issue amendment
to the L/C. there can be more than one amendment to a credit. All the amendments form
an integral part of the original credit. L/C amendments are to be communicated by
authenticated telex, SWIFT or mail. If there is more than one amendment to a credit, all
the amendments must bear the consecutive serial number so that the missing of any
amendment can be identified by the advising bank or the beneficiary.
If the L/C is an irrevocable one, the amendment can not be done without the consent of
both the partied; i.e. he beneficiary and the applicant. Janata Bank as the issuing bank can
make amendments but if the beneficiary does not accept the amendment, it will not be
effective. If the L/C is revocable, the applicant can make any amendment to the L/C at
any time he desires and such amendment will be effective if the credit is not executed.
Janata Bank generally asks for amendment on the following points:
Extension of shipping date
Extension of expiry date
L/C Operation of Janata Bank

38

Increase or decrease of L/C value


Increase or decrease of quantity of goods
Change in description of merchandise
Name and address of the beneficiary
Inserting of new clause
Change the mode of transport
Change of the loading port or destination
Change of certain terms and conditions of L/C
Terms of delivery; i.e. FOB, CFR, CIB
Inspection clause

Bank charge in different steps during L/C processing:


The following table shows the major cost accounts that the bank charges for different
steps in L/C processing:
Table-2:
Major charges in different steps for L/C processing
L/C opening charges
Cash
1st Quarter
Subsequent Qtr.
Minimum
BTB
1st Quarter
Subsequent Qtr.
Minimum
Deferred
1st Quarter
Subsequent Qtr.
Minimum
Inland
1st Quarter
Subsequent Qtr.
Minimum
Postage charges
Mail
Courier
Telex
SWIFT
Amendment Charges
Value increased / decreased
Maturity extension
Others
Other Charges
L/C cancellation
Export L/C advising charge
L/C transfer
Issuance of Bank Certificate

.5%
.25%
Taka 250
.75%
.5%
Taka 300
.8%
.4%
Taka 300
.5%
.25%
Taka 250
Taka 100
At actual, Min. Taka 1500
At actual, Min. Taka 1500
At actual, Min. Taka 1500
Taka 250
Taka 250
Taka 100
Taka 500
Own party:
Taka 250
Other Bank party: Taka 500
Taka 500 + Actual Telex Charge
Taka 100
L/C Operation of Janata Bank

39

Stamp

Taka 150
Source: Primary Data

Required Time duration in L/C Processing:


In most cases the L/C clients of the banks are regular and old. For that reason, the bank
generally has all the required documents for opening L/C of the clients. When a regular
client applies to open another L/C, they just provide photocopies of most documents and
the bank officials do not take much long time to check those documents. Even often a
regular client first informs his intention to open another by phone and Banks officials
start the process; although this highly depends on nature of personal relationship of the
client with the back. For a regular client it generally lakes less than an hour to open
another L/C. however, in case of new client banks officials engaged in L/C issuing
process check the documents thoroughly and often it takes time to make the client
understand the banks requirements. However, it generally does not take more than two
days even for a new client applying to open an L/C.
Table-3:
Average Time requirement for the basic activities of L/C issuing process
Activity
Checking Documents
Putting L/C No.
Preparing Offering Sheet
Signing Offering Sheet
Typing the L/C
Checking the L/C
Crediting the account of the
customer
Total Time*

Average Required Time (in minutes)


10
2
12
15
15
10
15
90-120
Source: Primary Data

Total time mentioned here is not simple addition of the time required for basic activities.
Rather it is provided from the interview with the bank officials.
Relevant activities that affect the time structure:
Application for forms in company letterhead pad
Discussion between bank and the applicant
Filling in the forms
Dispatching the L/C

L/C Operation of Janata Bank

40

CHAPTER 5
L/C OPERATION : ANALYSIS
GLOBAL AND BANGLADESH ECONOMY

Chapter Hints

Chapter Contents

This portion of the report


includes all the analysis, has
performed
from
the
collected
information.
Income
of
the
Bank,
Charges of L/C processing
and
Time
Requirement
considering that of other
Banks is analyzed here.
Performance is analyzed
using some statistical tools
such
as,
Standard
Deviation,
Correlation,
Regression
and
Growth
Rate.

Analysis of Income from L/C


Analysis of Charges with
Different Banks
Analysis of Time Requirement of
Different Banks in L/C Processing
Analysis of Behavior or Trend
Analysis of Stability of ExportImport
Performance analysis
Correlation Calculation
Regression Analysis

L/C Operation of Janata Bank

41

Analysis of Income from L/C:


In processing L/C, Janata Bank earns income through charging various activities relating
to it such as L/C opening charge, postage charge including Telex and SWIFT, amendment
charge, and miscellaneous charges which include issuance of Bank Certificate, advice etc.
as the amount of income of any party is considered as confidential information and the
author committed not to disclose the figures, the following section provides only an idea
of comparison of income from L/C related activities. In case of Export L/C processing, all
most all the Export L/C are BTB L/C.
Comparison of Sources of Income from Import L/C:
The following chart exhibits a comparison of income at Janata Bank, Dilkusha Corp.
Branch, from different activities relating L/C processing without mentioning the
confidential income amounts, during the period of January to December, 2005.
Chart-3:
Comparison of Sources of Income from Import L/C

Opening
Charge
Postage
Income

Amendments

Miscellaneous

The diagram shows that L/C opening charge


acts as the major source of income from import
L/C as it provides more than half of the total.
Earnings
form
miscellaneous
charges
constitutes just below one fifth of the banks
total income whereas income from amendment
and postage charges are just more than one
tenth of the banks total income.

Comparison of Sources of Income from BTB Export L/C:


The following chart exhibits a comparison of income at Janata Bank, Dilkusha Corp.
Branch, from different activities relating L/C processing without mentioning the
confidential income amounts, during the period of January to December, 2005.
Chart-4:
Comparison of Sources of Income from BTB Export L/C
Opening
Charge
Postage
Income

Amendments

Miscellaneous

The diagram shows that L/C opening charge


acts as the major source of income from BTB
Export L/C as it provides more than half of the
total. Earnings form amendment charges
constitutes just below one fifth of the banks
total income whereas income from
miscellaneous and postage charges are just
more than one tenth of the banks total income.

L/C Operation of Janata Bank

42

Month-wise Income from Import L/C:


The following chart exhibits a comparison of month-wise income at Janata Bank,
Dilkusha Corp. Branch, from Import L/C with mentioning the confidential income
amounts, during the period of January to December, 2005.
Chart-5:
Month-wise income from Import L/C
45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
1

10

11

12

Month

The chart shows that in February the income was highest and afterwards the income is
decreasing gradually. And again in October the income raises suddenly.
Month-wise Income from BTB Export L/C:
The following chart exhibits a comparison of month-wise income at Janata Bank,
Dilkusha Corp. Branch, from BTB Export L/C with mentioning the confidential income
amounts, during the period of January to December, 2005.
Table-5:
Month-wise income from BTB Export L/C

Chart-6:
Month-w ise income from BTB Export L/C
400.00
350.00
300.00
250.00
200.00
150.00
100.00
50.00

Ju
l
Au
g
Se
p
O
ct
N
ov
D
ec

Ja
n
Fe
b
M
ar
Ap
r
M
ay
Ju
n

0.00

Month
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

Taka (in Lac)


21.33
115.88
204.51
336.21
133.00
69.50
119.02
198.99
131.37
118.57
82.37
80.17

The chart shows that income is increasing and decreasing gradually in wave form. In
April the income is highest and afterwards the income is decreasing gradually.

L/C Operation of Janata Bank

43

Analysis of Charges in L/C Processing of Different Banks


The following table shows the major cost that the different bank charges for different
steps in L/C processing:
Table-6:
Major charges for L/C processing in different Banks
L/C opening charges
Cash
1st Quarter
Subsequent Qtr.
Minimum
BTB
1st Quarter
Subsequent Qtr.
Minimum
Deferred
1st Quarter
Subsequent Qtr.
Minimum
Inland
1st Quarter
Subsequent Qtr.
Minimum
Postage charges
Mail

Janata Bank
.5%
.25%
Taka 250
.75%
.5%
Taka 300
.8%
.4%
Taka 300
.5%
.25%
Taka 250

Sonali Bank
.5%
.25%
Taka 250
.75%
.5%
Taka 300
.8%
.5%
Taka 300
.5%
.25%
Taka 250

City Bank Ltd.

Taka 100

Taka 100

Courier

At actual,
Min. Tk.1500
At actual,
Min. Tk.1500
At actual,
Min. Tk.1500

At actual, Min.
Taka 1500
At actual, Min.
Taka 1500
At actual, Min.
Taka 1500

Tk.100(Local)
Tk.300(Foreign)
At actual, Min.
Taka 1500
At actual, Min.
Taka 3500
At actual, Min.
Taka 3500

Taka 250
Taka 250
Taka 100

Taka 250
Taka 250
Taka 100

Taka 500
Taka 500
Taka 500

Taka 500

Taka 500

Taka 500

Taka 250
Taka 500
Taka 500 +
Actual Telex
Charge
Taka 100
Taka 150

Taka 250
Taka 500
Taka 500

Taka 750
Taka 1000
Taka 1000

Taka 100
Taka 150

Taka 200
Taka 150
Source: Primary Data

Telex
SWIFT
Amendment Charges
Value increased / decreased
Maturity extension
Others
Other Charges
L/C cancellation
Export L/C advising charge
Own party:
Other Bank party:
L/C transfer
Issuance of Bank Certificate
Stamp

.5%
.3%
Taka 400
.6%
.4%
Taka 500
.6%
.3%
Taka 400
.6%
.35%
Taka 400

The above table shows that, the charges charged by Sonali and Janata Bank are almost the
same in most services. But the costs charged by CBL vary in most cases from these two,
L/C Operation of Janata Bank

44

although not a great degree. In almost all cases, CBL charges higher than the two NCBs.
According to bank officials interviews, this is due to CBL being a PCB and Sonali and
Janata Bank being NCBs. the officials of CBL also claim that they provide much better
and faster service , which justifies charging higher costs.

Analysis of Time Requirement in L/C Processing of Different Banks


Table-7:
Average Time requirement for the basic activities of L/C issuing process
Activity
Checking Documents
Putting L/C No.
Preparing Offering Sheet
Signing Offering Sheet
Typing the L/C
Checking the L/C
Crediting the account of the
customer
Total Time*

Average Required Time (in minutes)


Janata Bank Sonali Bank
City Bank Ltd.
10
10
5
2
2
1
12
10
10
15
15
5
15
15
15
8
8
5
15
15
10
90-120

90-120

50-60
Source: Primary Data

Total time mentioned here is not simple addition of the time required for basic activities.
Rather it is provided from the interview with the bank officials.
From the table the following decision can be made:
City Bank Ltd. as PCB works much faster than the two NCB mentioned
Putting L/C no. is the least time consuming activity in the process
Typing the L/C and checking the L/C are the activities that do not vary much from
bank to bank in terms of time
Typing the L/C is the most time consuming activity among the mentioned.
Relevant activities that affect the time structure:
Application for forms in company letterhead pad
Discussion between bank and the applicant
Filling in the forms
Dispatching the L/C

L/C Operation of Janata Bank

45

Analysis of Behavior or Trend


Number of Import L/C Issued Per Month
The following table shows the number of import L/C issued per month at Janata bank,
Dilkusha Corp. Branch, during the period of January to December, 2005.
Table-8: Number of Import L/C Issued Per Month
Month
No. of L/C issued
8
January
22
February
26
March
23
April
17
May
12
June
8
July
7
August
8
September
10
October
9
November
10
December
Graph 7: Number of Import L/C Issued Per Month
160
Total
The table and chart shows that, the highest no. of import L/C opened in the month march
and most of the L/C is opened during month February to June. And the lowest no. of L/C
is opened in month August.
Number of BTB Export L/C Issued Per Month
The following table shows the number of BTB Export L/C issued per month at Janata
bank, Dilkusha Corp. Branch, during the period of January to December, 2005.
Table-9: Number of BTB Export L/C Issued Per Month
Month
No. of L/C issued
10
January
30
February
21
March
22
April
15
May
5
June
9
July
12
August
14
September
16
October
8
November
7
December
Graph 8: Number of BTB Export L/C Issued Per Month
169
Total
The table and chart shows that, the highest no. of
BTB Export L/C opened in the month February and most of the L/C is opened during
month January to May. And the lowest no. of L/C is opened in month June.
L/C Operation of Janata Bank

46

Number of Import L/C issued per Country


The following table shows the number of Import L/C issued to different countries at
Janata bank, Dilkusha Corp. Branch, during the period of January to December, 2005.
Table-10: Number of Import L/C Issued Per Country
Country
No. of L/C issued
India
China
Singapore
Netherlands
Thailand
Indonesia
Switzerland
S. Korea
Other
Total

42
31
12
9
3
7
4
14
38
160

Graph 9: Number of Import L/C Issued Per country


The table and chart shows that, China and India dominate the import market. The highest
no. of import L/C opened the beneficiary country India.

Item-wise BTB Export L/C


The following table shows the number of BTB Export L/C issued to different items at
Janata bank, Dilkusha Corp. Branch, during the period of January to December, 2005.
Table-11: Number of Import L/C Issued Per Item
Item
Fabrics
Yarn
Accessories
others
Total

No. of L/C issued


34
38
92
5
169

Graph 10: Number of Import L/C Issued Per Item


The table and chart shows that, accessories dominate the import market.

L/C Operation of Janata Bank

47

Analysis of Stability of Export-Import:


Standard Deviation, Variance and Co-efficient of Variation:
2001
2002
2003
2004
2005
Sum
Avg.
SD
Variance

Import
192.43
203.69
172.54
197.20
155.01
920.87
184.17
17.91
320.92

Export
250.54
283.81
436.06
267.53
325.00
1562.94
312.59
66.49
4421.55

FrnTrd
442.97
487.50
608.60
464.73
480.01
2483.81
496.76
57.95
3358.76

Profit
4.50
4.76
7.49
5.80
22.70
45.25
9.05
6.91
47.69

Co-efficient
of Variation

9.73

21.27

11.67

76.30

Growth Rate Import


Year
2001
2002
2003
2004
2005
SD

Import
192.43
203.69
172.54
197.20
155.01
17.91

Import Growth Rate


5.85%
-15.29%
14.29%
-21.39%
14.68%

Growth Rate Export


Year
2001
2002
2003
2004
2005
SD

Export
250.54
283.81
436.06
267.53
325.00
66.49

Export Growth Rate


13.28%
53.65%
-38.65%
21.48%
33.13%

Growth Rate Foreign Trade


Year
2001
2002
2003
2004
2005
SD

FT
442.97
487.50
608.60
464.73
480.01
57.95

FT Growth Rate
10.05%
24.84%
-23.64%
3.29%
17.57%

L/C Operation of Janata Bank

48

Performance analysis
Import-Export Business
Table 12: Import, Export and Profit of 2001 to 2005
Amount in Crore Taka

The performance of the Janata Bank in the last five (5) years especially in the sector of
import and Export and comparison of the data with the net profit of the branch is shown
above and graphically presented below:
Graph 11:
Import, Export and Profit of 2001 to 2005

A statistical tool like correlation analysis is done here to determine the relationship
between the following:
Import business and profitability
Export business and profitability
Foreign Trade business and profitability
L/C Operation of Janata Bank

49

Correlation Analysis:
Correlation between Import and Profit:
Amount in Crore Taka
Year
2001
2002
2003
2004
2005
Sum/Avg.

Import
X
192.43
203.69
172.54
197.20
155.01
184.17

(X- X )
x
8.26
19.52
(11.63)
13.03
(29.16)

Co-efficient of Correlation:

Profit
Y
4.50
4.76
7.49
5.80
22.70
9.05

x2
68.16
380.87
135.35
169.68
850.54
1604.60

xy
x * y
2

(Y- Y )
y
(4.55)
(4.29)
(1.56)
(3.25)
13.65

r
2

y2
20.70
18.40
2.43
10.56
186.32
238.43

xy
(37.56)
(83.72)
18.15
(42.33)
(398.09)
(543.56)

543.56
1604.60 * 238.43

r = -0.878799573
Co-efficient of determination, r2 = 0.772289

Correlation between Export and Profit:


Amount in Crore Taka
Export
Year
2001
2002
2003
2004
2005
Sum/Avg.

X
250.54
283.81
436.06
267.53
325
312.59

(X- X )
x
(62.05)
(28.78)
123.47
(45.06)
12.41

Co-efficient of Correlation:

x2
3849.95
828.17
15245.33
2030.22
154.06
22107.74

(Y- Y )
y
(4.55)
(4.29)
(1.56)
(3.25)
13.65

Profit
Y
4.50
4.76
7.49
5.80
22.70
9.05

xy
x * y
2

r
2

y2
20.70
18.40
2.43
10.56
186.32
238.43

xy
282.32
123.46
(192.62)
146.44
169.42
529.02

529.02
22107.74 * 238.43

r = 0.230422799
Co-efficient of determination, r2 = 0.053095

L/C Operation of Janata Bank

50

Correlation between Foreign Trade and Profit:


Amount in Crore Taka
Fr.Trd
Year
2001
2002
2003
2004
2005
Sum/Avg.

X
442.97
487.50
608.60
464.73
480.01
496.76

(X- X )
x
(53.79)
(9.26)
111.84
(32.03)
(16.75)

Co-efficient of Correlation:

Profit
Y
4.50
4.76
7.49
5.80
22.70
9.05

x2
2893.58
85.78
12507.74
1026.05
280.63
16793.78

xy
x * y
2

(Y- Y )
y
(4.55)
(4.29)
(1.56)
(3.25)
13.65

r
2

y2
20.70
18.40
2.43
10.56
186.32
238.43

xy
244.75
39.73
(174.47)
104.10
(228.66)
(14.54)

14.54
16793.78 * 238.43

r = -0.007266563
Co-efficient of determination, r2 = 5.28029E-05

L/C Operation of Janata Bank

51

Regression Analysis:
Calculation of Regression Function of Import
Amount in Crore Taka
Year
2001
2002
2003
2004
2005
Sum
Avg.

Import(X) Profit(Y)
192.43
4.50
203.69
4.76
172.54
7.49
197.20
5.80
155.01
22.70
920.87
45.25
184.17
9.05

XY
865.94
969.56
1292.32
1143.76
3518.73
7790.31

X2
37029.30
41489.62
29770.05
38887.84
24028.10
171204.91

Slop, b

XY n X Y
X n X

7790.31 5 * 184.17 * 9.05


171204.91 5 * 184.17 2

b -0.33875

Intercept,

a Y bX

a 9.05 (-0.33875) * 184.17

a 71.43938

Regression Equation of Import, Profit(y)

= a + bX
= 71.43938 + (-0.33875)*X

Calculation of Regression Function of Export


Amount in Crore Taka
Year
2001
2002
2003
2004
2005
Sum
Avg.

Export(X) Profit(Y)
250.54
4.50
283.81
4.76
436.06
7.49
267.53
5.80
325.00
22.70
1562.94
45.25
312.59
9.05

XY
1127.43
1350.94
3266.09
1551.67
7377.50
14673.63

X2
62770.29
80548.12
190148.32
71572.30
105625.00
510664.03

Slop, b

XY n X Y
X n X

Intercept,

a Y bX

a 9.05 0.023929 * 312.59

14673.63 5 * 312.59 * 9.05 b 0.023929


510664.03 5 * 312.59 2

Regression Equation of Export, Profit(y)

a 1.570000

= a + bX
= 1.570000 + 0.023929*X

Calculation of Regression Function of Foreign Trade


L/C Operation of Janata Bank

52

Amount in Crore Taka


Year
2001
2002
2003
2004
2005
Sum
Avg.

FrnTrd(X) Profit(Y)
442.97
4.50
487.50
4.76
608.60
7.49
464.73
5.80
480.01
22.70
2483.81
45.25
496.76
9.05

Slop, b

XY n X Y
X n X

Intercept,

a Y bX

XY
1993.37
2320.50
4558.41
2695.43
10896.23
22463.94

X2
196222.42
237656.25
370393.96
215973.97
230409.60
1250656.20

22463.94 5 * 496.76 * 9.05


b -0.00087
1250656.20 5 * 496.76 2

a 9.05 (-0.00087) * 496.76

Regression Equation of Foreign Trade, Profit(y)

a 9.48011

= a + bX
= 9.48011 + (-0.00087)*X

So, if the bank has a profit target of Tk. 20.00 crore in next year,
The bank is required to generate the following:
Regression Equation of Import, Profit(y)
Regression Equation of Export, Profit(y)

= 71.43938 + (-0.33875)*X
= 1.570000 + 0.023929*X

Target Import,

20 = 71.43938 + (-0.33875)*X
X = 51.43938 / 0.33875
X = 151.85 Crore

Or, Target Export,

20 = 1.570000 + 0.023929*X
X = (-18.43) / (-0.023929)
X = 770.195 Crore

Or, the combination of Import and Export, Instead of achieving only Import Target or
only Export Target.

L/C Operation of Janata Bank

53

CHAPTER 6
RECOMMENDATION AND CONCLUSION

Chapter Hints

Chapter Contents

This section is designed to


conclude
the
report
reviewing
the
Findings,
giving
relevant
Recommendations.
The
findings are accumulated
here in a short place. The
Tips that can the Bank
follows to improve their
performance is included in
Recommendation page and
the report is concludes by
conclusion.

Overview of Findings
Recommendations
Conclusion

L/C Operation of Janata Bank

54

L/C Operation of Janata Bank

55

Overview of Findings:

The whole process of Letter of Credit is highly dependable on the personal skills
of the officers engaged in the process.

In processing Letter of Credit almost all activities charges lower than the private
commercial banks.

For regular and old client, Letter of Credit issuance does not take more than an
hour. But for new clients, it generally takes around one to two hours, provided no
discrepancy found in documents deposited.

Relationship and introduction with the client plays a vital role in processing Letter
of Credit, especially the time factor.

Janata bank takes more time in issuing Letter of Credit in comparison with the
PCBs.

More than half of the total Foreign Trades income is come from opening charges
of Letter of Credit. Other sources of income from Letter of Credit includes:
postage charges, amendments charges, advise charges etc.

Of the 12 months of observation, maximum numbers of Import L/C issued in


March, 2005, minimum numbers of Import L/C issued in August, 2005 and
maximum numbers of BTB Export L/C issued in February, 2005, minimum
numbers of BTB Export L/C issued in June, 2005.

Of the 12 months of observation, maximum amounts of income from Import L/C


comes in February, 2005, minimum amounts of income from Import L/C comes in
August, 2005 and maximum amounts of income from BTB Export L/C comes in
April, 2005, minimum amounts of income from BTB Export L/C comes in
January, 2005.

China and India are the major countries from where exports come against the
Import L/C.

Most of the L/Cs are opened for accessories.

Stability analysis shows that there is a high degree of ups and downs in volumes
of export and import. Growth rate of Foreign Trade is not increasing at a desirable
rate. It fluctuates year to year.

Performance analysis shows that profit is increasing due to increase in export. In


the year 2005 this branch reaches its highest profit of Taka 22.7 crore. And the
highest amount of export reaches in the year 2003 of Taka 436.06 crore.

Correlation analysis shows that there is a high degree of negative correlation


exists between Import and Profit; a low degree of positive correlation exists
L/C Operation of Janata Bank

56

between Export and Profit, and a very low degree of negative correlation exists
between Foreign Trade and Profit.

L/C Operation of Janata Bank

57

Recommendations:
From the analysis and observation of the author, following recommendations have been
formulated in order to smooth operation of Import-Export Business and to make the L/C
processing more efficient:
Since the import-export business have the highest contribution to the profitability
of the bank, it should take special attention.

Skilled manpower in the line of import-export business must be accomplished


through proper training, remuneration and job satisfaction.

Latest development in the business should be introduced accordingly.

Since the whole process is largely depend on human skill, properly planned
training program should be arranged and implemented for the improvement of
technical and conceptual skills of the dealing officers.

The time requirements in the processing of L/C have to be minimized.

Steps should be taken to improve the coordination between the officers involved
in the L/C issuing process.

Consumers should be classified based on their trustworthiness, volume of business


and relationship with the bank.

Performance measurement programs can be introduced to measure the


performance of the officers involved in the process.

The sources of cost especially on communication purposes should be measured


and tried to be minimized.

L/C information should be kept in proper and organized manner. Most of the
functions are still done manually. Integrated software can be introduced for this
purpose.

As the knowledge of English language, computer skills and geography is


mandatory for trade finance business, the bank authority should consider the
criteria during recruitment of its employee.

Scope of further expansion:


Software
Jewellary
Frozen fish
Dry & dehydrated fish
Electrical and electronics item
Toys and Luggage
Fashion item
Leather goods
L/C Operation of Janata Bank

58

Stationary goods

Conclusion
L/C as a mode of financing in foreign trade acts as a pre-import financing tool for the
importer and a pre-shipment financing tool for the exporter. Like all other commercial
banks, L/C issuance is a very important function that Janata Banks offers. Presently the
bank has been functioning with a network of total 904 branches. The Bank has been
functioning with a net work of Total 897 Branches including 4 Overseas Branches in
U.A.E. Besides Janata Bank, has, at present 780 Foreign Correspondents abroad. It has 44
Authorized Dealer Branches and 29 Branches to deal with Wage Earners' Remittances.
The most widely used L/C in all braches is irrevocable documentary L/C and the highest
number of L/C opened is under Back to Back L/C, especially for RMG sector. Opening
charge for L/C processing constitutes highest portion of Janata Banks income from L/C.
there is much scope for Janata Banks Dilkusha Branch to improve its current L/C
processing system to make it more efficient.

L/C Operation of Janata Bank

59

APPENDIX
Details of Import Income from January05 to December05
Amount in Crore Taka
Month
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Total

Commission
4.36
8.8
10.4
13.32
7.94
13.08
5.58
3.58
4.79
5.21
0.42
4.28
81.76

PAD
1.06
25.07
15.66
2.24
1.32
0.38
0.6
0.25
0.42
14.14
12.65
4.61
78.4

Ex. Earning
0.25
0.8
0.57
0.4
0.6
0.33
0.3
0.06
0.22
1.68
1.25
0.45
6.91

Other
6.19
7.77
1.36
2.54
4.02
4.01
5.13
1.36
1.75
16.53
0.31
2.87
53.84

Total Income
11.86
42.44
27.99
18.5
13.88
17.8
11.61
5.25
7.18
37.56
14.63
12.21
220.91

Details of Import Export and Foreign Trade from year 2001-2005


Amount in Crore Taka
Year
2001
2002
2003
2004
2005
Total

Import
192.43
203.69
172.54
197.20
155.01
920.87

Export
250.54
283.81
436.06
267.53
325.00
1562.94

FT
442.97
487.50
608.60
464.73
480.01
2483.81

Profit
4.50
4.76
7.49
5.80
22.70
45.25

L/C Operation of Janata Bank

60

BIBLIOGRAPHY
Books:
Annual report 2001-2005, Janata Bank
Branch Performance Report 2001-2005, Janata Bank, Dilkusha Branch
Import &Export Policy, 2003-2006
Gupta, S.P., Gupta, Business Statistics, 12th revised edition
Shekhar, K.C. & Lekshmy Shekhar, Banking theory and practice, 18th Ed.
Websites:
www.janatabank-bd.com

www.tdcommercialbanking.com

L/C Operation of Janata Bank

61