Model Test

Abbreviation: ACU, ATM, BMRE, BAMLCO, CAMLCO, CIB, DCR, DCFCL,EOL, EDF, FOB,
FMJ, IPO, IDBP, LIM, , MICR, NPL, PAD, RFCD,SMA, MOU.
EFAS: Exchange Fluctuation Acquisition Scheme.
LIBOR: London Inter Bank Offering Rate
IFRS: International Financial Reporting Standards
LCAF : Letter of Authorization Form.
UCPDC: Uniform Customs and Practice for Documentary Credits
URDG: Uniform Rules for Documentary Guarantee.

IAASB: International Auditing and Assurance Standards Board

HTML: ypertext Markup Language

General Banking:
 
1. What is crossing? Types of crossing & brief the definition.
Ans: Crossing
A Cheque is said to be crossed when two transverse parallel lines with or without any words are
drawn across its face.
Cheques may be classified as:
a) an open Cheque which can be presented for payment by the holder at the counter of the drawee’s
Bank.
b) a crossed Cheque which can be paid only through a collecting banker.
A crossing is a direction to the paying Bank to pay the money generally to a banker or a particular
banker as the case may be and not to the holder at the counter. Crossing may be written, stamped,
printed or purported.
Objects of Crossing
Crossing affords security and protection to the true owner, since payment of such a Cheque has to be
made through a banker. Cheques are crossed in order to avoid losses arising from open cheques
falling into the hand of wrong persons. Crossing of a Cheque does not affect its negotiability. Crossed
cheques are negotiable by delivery in case they are payable to bearer and by endorsement and
delivery when they are payable to order. Holder of a crossed Cheque, who has no account in any bank
can obtain payment by endorsing in favor of some person who has got an A/C with a Bank.
Cheque crossed ‘Account Payee’
Where a Cheque crossed generally bears a cross in its face an addition of the words ‘Account Payee’
between the two parallel transverse lines constituting the general crossing, the Cheque besides being
crossed generally, is said to be crossed ‘account payee’
When a Cheque is crossed ‘Account payee’
1) it shall cease to be negotiable; and
2) it shall be the duty of the Banker collecting payment of the Cheque to credit the proceeds thereof
only to the account of the payee named in the Cheque.
Cheque crossed specially
Where a Cheque bears a cross in its face an addition of the name of a banker, either with or without
the words ‘not negotiable’ that addition shall be deemed as a crossing, and the Cheque shall be
deemed to be crossed specially, and to be crossed to that banker.
Cheque bearing ‘not negotiable’ Crossing
A person taking a Cheque crossed generally or specially, bearing in either case the words ‘not
negotiable’, shall not have, and shall not be capable of giving a better title to the Cheque than that
which the person from whom he took it had.
Cognizances of offences
Notwithstanding anything contained in the Code of Criminal Procedure, 1898 (Act-V of 1898)
1) no court shall take cognizance of any offence punishable under section 138 except upon a
complaint in writing made by the payee or as the case may be, the holder in due course of the
Cheque.
2) Such complaint is made within one month of the date on which the cause of action arises under
clause (c) of the provision to section 138;
3) No court inferior to that of a Metropoliton Magistrate or a Magistrate of the first class shall try
any offence punishable under section 138.

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What is endorsement
Ans: Endorsement
When a maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for
the purpose of negotiation on the back or face thereof or on the slip of paper annexed thereto, or so
signs for the same purpose a stamped paper intended, to be completed as Negotiable Instrument he is
said to endorse the same and is called the endorser.
Endorsement may be of any of the following kinds:
1. Blank or General Endorsement
In the case of an endorsement in blank, the person making it signs on the back of the negotiable
instrument his name only. He does not make any mention of the name of the endorsee. It is to be
noted here that there is no difference between a negotiable instrument endorsed in blank and one
payable to the bearer. In both cases the property will pass by mere delivery only.
2. Full or special endorsement
It is endorsement in full when the person signing adds direction to pay the amount to or to the order
of a specified person. A blank endorsement can be easily converted into special endorsement by any
holder of the negotiable instrument.
Illustration:
(i) A bill is payable to the order of Mr. James. He signs on the back of the bill thus: ‘James’.
This is an endorsement in blank.
(ii) If in the above case Mr. James signs after putting these words ‘pay to Mr. Phillip’, This is an
endorsement in full.
3. Partial endorsement
A negotiable instrument can not be endorsed for a part of its value. A partial endorsement is invalid.
4. Restrictive endorsement
It prohibit the endorsee from further negotiating the instrument or restricts the endorsee to deal with
the instrument as directed by the endorser.
Illustration: If A the holder of a bill, writes on the bill for negotiation
(a) pay C or order for the account of D
(b) pay C only
The endorsement is restrictive.
5. Conditional endorsement
Conditional endorsement limits the liability of the endorser. A conditional endorsement may be in
any of the following forms:
(a) ‘Sans Recourse’ – In this case endorser expressly excludes his own liability for dishonor of
instrument towards the endorsee or any subsequent holder. This he does by writing the words
‘Sans Recourse’ or without recourse to me after the name of the endorsee. Endorsee may refuse
to take an instrument with such endorsement. Generally such endorsement is made to avoid
personal liability when instruments are endorsed by agents on behalf of the principal.
(b) Facultative – If the endorser by express words increases his liability or gives up some of his
rights under the negotiable instrument, the endorsement is termed as Facultative.
Illustration: A, the holder of a bill makes the following endorsement on the bill – pay C or order.
Notice of dishonor waived.
A has given up the right of receiving notice in case of dishonor of the bill. The endorsement is a
facultative endorsement.
(c) ‘Sans Frais’ – Where the endorser does not want the endorsee or any subsequent holder of the
instrument, to incur any expense on his account on the instrument, the endorsement is ‘Sans Frais’.
Order/Bearer Cheque
The paying banker is to identify the payee while paying in cash of an order Cheque over the counter.
A bearer Cheque is payable to the bearer and the banker is discharged from liability by payment in
due course to the bearer of the Cheque.
 Documents required for opening of public & private Limited Company’s account.
Ans: Limited Company
 Two copies of photograph of the account holder(s) who will operate the A/C;
 Certified copy of the Memorandum of Association & Article of Association;
 Certificate of Incorporation;
 Certified copy of Full Board Resolution for opening & operation of the A/C;
 List of Directors with Signature (up-to-date) In Letter Head Pad.

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  Introduction
 Seal(Designation wise) who will operate the A/C;
 Form-XII(if old company) to know the up to date position of directors.
 Form 117((if takes over another company)
 Transaction Profile
 KYC Form
 Caution letter against Money Laundering
 Letter of Thanks & Letter of Welcome
 Certified copy of the Certificate of Commencement of Business (Incase of Public Limited
company)
 Valid Trade License;

 Important feature of a valid contract or Elements of contact.

Ans: The essential elements of a valid contract are as follows:
1. Offer and Acceptance
There must be a “lawful offer” and a “lawful acceptance” of the offer which will result in an agreement.
2. Intention to create legal relations
There must be an intention among the parties that the agreement should be attended by legal
consequences and create legal obligations.
3. Lawful Consideration
The third essential element of a valid contract is the presence of ‘consideration’. Consideration has been
defined: as the price paid by one party for the promise of the order. An agreement is legally enforceable
only when each of the parties to it gives something and gets something. The something given or obtained
is the price for the promise and is called ‘consideration’.
4. Capacity of Parties
The parties to an agreement must be competent to contract; otherwise it cannot be enforced by a court of
law.
5. Free Consent
Free consent of all the parties to an agreement is another essential element of a valid contract. ‘Consent’
means that the parties must have agreed upon the same thing in the same sense (Section – 13).
6. Lawful Object
For the formation of a valid contract it is also necessary that the parties to an agreement must agree for a
lawful object.
7. Writing and Registration
In certain special cases it lays down that the agreement, to be valid, must be in writing or/and registered.
8. Certainty : Section – 29 of the Contract Act provides that “agreements, the meaning of which is not
certain or capable of being made certain, are void.”
9. Possibility of Performance
Another essential feature of a valid contract is that it must be capable of performance. Section – 56 lays
down that: “an agreement to do an act impossible in itself is void.”
10. Not expressly declared void
The agreement must not have been expressly declared to be void under the Act. Sections: 24 – 30 specify
certain types of agreement which have been expressly declared to be a void.

KINDS OF CONTRACT

1. Valid Contract
A valid contract is an agreement enforceable by law. It must satisfy all the elements of a contract.

2. Void-able Contract
A void-able contract is one which is enforceable by law at the option of one of the parties.
3. Void Contract
It is a contract which has no legal consequences at all.
4. Unenforceable Contract
A valid contract not capable of being enforced in the court of law because of technical difficulty such as
absence of writing, registration and requisite stamps etc. is called unenforceable contract.
5. Illegal Contract
Any illegal agreement is void because the purpose of the contract must be legal.
6. Express Contract
Where both the offer and acceptance constituting an agreement enforceable at law are made in words
spoken or written, it is an express contract.
7. Implied Contract
Where both the offer and acceptance constituting an agreement enforceable at law are made otherwise
than in words i.e. by acts and conduct of the parties, it is an implied contract.
8. Constructive or Quasi Contract
Such a contract does not arise by virtue of any agreement, express or implied between the parties but the
law infers or recognises a contract under certain special circumstances.

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9. Executed Contract
A contract is said to be executed when both the parties to a contract have completely performed their
share of obligation and nothing remains to be done by either party under the contract.
10. Executory Contract
A contract is said to be executory when either: (a) Both the parties to a contract have still to perform their
share of obligation or (b) There remains something to be done under the contract on both sides.
Negotiable Instrument
The term Negotiable Instrument means a written document which creates a right in favour of some person
and which is freely transferable. A Negotiable Instrument is one, the property in which is acquired by any
one who takes it bonafide and for value notwithstanding any defect in the title of the person from whom
he took it. Thus free negotiability is an important characteristic of a Negotiable Instrument.
According to section 13 of the NI Act, a negotiable instrument means a Promissory note, Bill of
Exchange and Cheque payable either to order or to bearer.
Bill of Exchange
Section 5 of the NI Act defines ‘Bill of Exchange’ as an instrument in writing containing an
unconditional order, signed by the maker directing a certain person to pay (on demand or at a fixed or
determinable future time) a certain sum of money only to, or to the order of a certain person, or to the
bearer of the instrument.
Characteristics:
1) It must be in writing
2) It must be signed by the drawer
3) The drawer, drawee and payee must be certain.
4) The sum payable must also be certain
5) It should be properly stamped
6) It must contain and express order to pay money and money only.

Promissory Note
Section 4 of the NI Act defines a ‘Promissory Note’ as an instrument in writing (not being a bank note or
a currency note) containing an unconditional undertaking, signed by the maker to pay a certain sum of
money only to, or to the order of a certain person, or to the bearer of the instrument.
Characteristics:
1. It is an instrument in writing:
A mere verbal promise to pay is not a promissory note. The promise should be in writing.
2. It is promise to pay
There must be an expressed undertaking or promise to pay. A mere acknowledgement of the debt will
not suffice.
Bank notes and currency notes though are similar to promissory notes in every aspect, have been
expressly excluded. They are considered as money and not merely securities for money. A currency
note is a note issued by the Government containing a promise to pay to the bearer a certain sum of
money on demand. A ‘Bank Note’ is a promissory note issued by a banker for payment of money to
the bearer on demand.
3. The undertaking to pay is unconditional
The payment should not depend upon contingencies which may or may not happen because
uncertainty badly affects the business and commerce.
4. It is signed by the maker
The person who promises to pay must sign the instrument even though it might have been written by
the promisor himself. There are no restrictions regarding the form or place of signature in the
instrument. It may be in any part of the instrument.
5. The maker must be certain
The note itself must show clearly who is the person agreeing to undertake the liability to pay the
amount.
6. The payee must be certain
The instrument must point out with certainty the person to whom the promise has been made. The
payee may be ascertained by name or by designation.
7. The promise should be to pay money and money only
Money means legal tender money and not old and rare coins. A promise to deliver paddy either in
alternative or in addition to money does not constitute a promissory note.

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 8. Amount should be certain
One of the important characteristics of a promissory note is certainty not only regarding the person to
whom or by whom payment is to be made but also regarding the amount.
What is cheque? Types of cheque.
Ans: Cheque
Section 6 defines a ‘Cheque’ as a Bill of Exchange drawn on a specified Banker and not expressed to
be payable otherwise than on demand.
Characteristics:
A ‘cheque’ is also, therefore, a Bill of Exchange with two additional qualifications:
1) It is always drawn on specified Banker
2) It is always payable on demand.
Difference between a Bill of Exchange and a Cheque:
(1) A Bill of Exchange is usually drawn on some person or Firm while a Cheque is always drawn
on a Banker. In case of Bill of Exchange, drawee can be any one including a Bank. A Cheque
is generally used for inland payment but a Bill of Exchange may be used both for inland and
foreign payments.
(2) It is essential that a Bill of Exchange must be accepted before its payment can be claimed. A
Cheque does not require any such acceptance.
(3) A Cheque is always payable on demand. A Bill of Exchange may be payable on demand or
on the expiry of the fixed period.
(4) A Cheque is payable immediately on demand without any days of grace but in case of a time
Bill of Exchange, three days of grace allowed from due date, within which the payment can
be made.
(5) A Bill of Exchange must be properly stamped. A Cheque does not require stamp.

Uncommon features of Negotiable Instruments

Features Promissory Note Bill of Exchange Cheque

Parties 2 (Two): Maker & Payee of 3 (Three): Maker, 3 (Three): Drawer,
the promise Drawee, Payee Drawee and Payee
Acceptance Not required A legal necessity Not required
Period Payable on demand or after Payable on demand or Only payable on demand
a certain period after a certain period
Promise or Order A promise to pay An order to pay An order to pay
Stamp A legal necessity A legal necessity Not required
Crossing Cannot be crossed Cannot be crossed Can be crossed
Grace days No grace of days after the 3 (Three days of grace Payable on demand
expiry of time after the expiry of time
Liability in case of The maker is not free from The acceptor is liable to The maker is not free
Non-presentation liability pay from liability.
Area Generally inland Inland and foreign both Only on the bank of the
depositor
2. 15 banking products.
3. Money Laundering
4. CAMELS Rating
Answer:The CAMELS ratings is a supervisory rating of the bank's overall condition used to classify the
nation’s banks. This rating is based on financial statements of the bank and on-site examination by
regulators. The scale is from 1 to 5 with 1 being strongest and 5 being weakest. The components of a
bank's condition that are assessed
 (C) Capital adequacy,
 (A) Asset quality,
 (M) Management,
 (E) Earnings,

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  (L) Liquidity and
 (S) Sensitivity to market risk

Question: What is Clearing House?

Answer: A place provides an arrangement by which various representatives of each clearing Bank
assemble there each business day to exchange local cheques, drafts, Bill of exchange which are received
by them for collection from their customers.

5. Payment in due course : Payment in due course means payment in accordance with the apparent
tenor of the instrument in good faith and without negligence to any person in possession therof under
circumstances which do not afford a reasonable ground of believing that he is not entitled to receive
payment of the amount mentioned therein.
These conditions should be observed for payment in due course:
1. Payment must be in accordance with the apparent tenor of the instrument.
2. Payment in order to be payment in due course must be in all good faith i.e., bona fide. Person
making payment should have made the payment under the belief that the person demanding the
payment is legally entitled to it.
3. The drawee must not be guilty of any negligence in making the payment.
4. Payment must be made to person who has the actual possession of the instrument. Person making
the payment must insist on seeing the instrument before payment and obtain it’s delivery to
himself on payment.
5. Payment should not be made under circumstances which afford reasonable ground for believing
that the person was not entitled to receive the amount mentioned in the instrument.
6. Holder in due course. : Holder in due course means who for value consideration becomes the
possessor of a negotiable instrument payable to bearer or the endorsee or payee thereof before the
amount mentioned in the document becomes payable without having sufficient cause to believe that
any defect existed in the title of the person from whom he derives his title.
The essential qualifications of a holder in due course may, therefore, be summed up as follows:
1. He must be a holder for value consideration.
2. He must have become a holder (possessor) before the date of maturity of the negotiable
instrument.
3. He must have become a holder of the negotiable instrument in good faith. Good faith implies that
he should not have accepted the negotiable instrument after knowing about any defect in the title
to the instrument. But notice to defect in the title received subsequent to the acquisition of the title
will not affect the rights of a holder in due course.
4. A holder in due course must have the negotiable instrument complete and regular on the face of
it.
7. Definition of OIC.

8. Duplicate DD issue
Information Technology:
 
1. Online Banking
On-Line Banking is a complete banking solution for bank administration as well as for the clients
connected by that bank. This banking solution will provide complete freedom to clients to use their
accounts on a web for the ease of providing a faster and reliable solution.

A system allowing individuals to perform banking activities at home, via the internet.

Online banking through traditional banks enable customers to perform all routine transactions, such as
account transfers, balance inquiries, bill payments, and stop-payment requests, and some even offer
online loan and credit card applications.

This system is designed on the principle of distributed database application monitored by DBA only. It is
a 24*7 hour service for the client present anywhere in the world.

Banks view online banking as a powerful "value added" tool to attract and retain new customers
while helping to eliminate costly paper handling and teller interactions in an increasingly competitive
banking environment..
2. E-Commerce:Conducting business transactions through electronic transmissions between
computers. Typically used in reference to doing business over the internet.
3. Internet Banking.
4. E-banking.
5. Altitude

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 6. BEFTN
7. Mobile Banking
8. SMS & Phone Banking
9. E-mail

Q. What are different types of Credit?

Answer: Funded Credit
 Loan (G)/ Term Loan
 Hire Purchase
 Lease finance
 Cash Credit (Hypo)
 Loan against Trust Receipt (LTR)
 Payment against documents (PAD)
 Packing Credit (PC), etc.

1. Non Funded Credit

 Letter of Credit (L/C)
 Guarantee (BG, PG)

Q. What is Difference between Loans & Advance ?

Loan
 A credit made in lump sum for a specific period and repaid by specific repayment schedule. Once
repayment is made in part or full loan can’t be withdrawn by the borrower. For example. Hire
Purchase

Advance
 Borrower can withdraw as many times as he wants upto the limit within the validity. For
example, CC(Hypo).

Q. What is Principles of Sound Lending ?

Answer:
1. Safety
 Credit should be given at right person at right time at right quantity.
 It must be come back.
2. Liquidity
 Bank should not have negative Duration Gap or Asset Liability Mismatch.
3. Profitability
 Lending must reflect costs+earnings+ long term goal of a bank.
4. Purpose
 Purpose must be productive & generates adequate cash for repayment.
5. Security
 Security means things deposited as a guarantee of undertaking a loan to be forfeited in case
of default.
6. National Interest
 It should play a role for the economic development of the country.
7. Diversification
 Don’t put all of your eggs in one basket
 It reduces risks
Q.
How can you determine borrowers Creditworthiness?
Answer:
By 5 Ps
1. Person
2. Purpose
3. Products
4. Place
5. Profitability

Q. What are Characteristics of a good credit officer?

1. Personal Characteristics
 Honesty / Integrity
 Industrious
 Effective & Efficient
 Self Motivated
 Decision taking capacity
 Ability to communicate / Negotiate
 Diplomatic
 Disciplined

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  Emotional Stability, etc
2. Knowledge about Business & Profession
 Banking knowledge
 Business Knowledge
 Knowledge about the economy, marketing
 Understanding legal rules & regulations

3. Knowledge about technology

Q. What are the different components of Credit Risk Grading (CRG) ?

Answer:
CRG: Principal risk component
1. Financial Risk (50%)
 Liquidity (10%)
 Profitability (20%)
 Leverage (10%)
 Coverage (10%)
2. Business Risk (18%)
 Size of the business (5%)
 Age of the business (3%)
 Business Outlook (3%)
 Competition (2%)
 Entry/Exit Barrier (2%)
 Growth (3%)
3. Management Risk (12%)
 Experience (5%)
 Succession (4%)
 Team Work (3%)
4. Security Risk (10%)
 Security Coverage (4%)
 Collateral Coverage (4%)
 Support (2%)
5. Relationship Risk (10%)
 Account Conduct (5%)
 Utilization of limit (2%)
 Covenants (2%)
 Personal Deposits (1%)

Parameters of CRG.
GRADING SHORT NAME NUMBER
Superior SUP 100 1
Good GD 85+ 2
Acceptable ACCP 75-84 3
Marginal/Watch list MG/WL 65-74 4
Special Mention SM 55-64 5
Sub standard SS 45-54 6
Doubtful DF 35-44 7
Bad & Loss BL <35 8

6Cs of borrower rating.

Character of Borrower (C1) refers to the borrower’s commitment, honesty, trustworthiness, experience
and market integrity.

Capability (C2) refers to the borrower’s wealth position measured by financial soundness and market
standing. It helps cushion losses and reduces the likelihood of bankruptcy.

Capital (C3) refers to the borrower’s legal standing and management’s expertise in maintaining
operations so the firm can play its dept obligations. It is the ability of the business to generate a sufficient
cash flow and profit to pay back the debt.

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Conditions (C4) influence the success or failure of the business. It refers to the general economic
conditions of the country and stability of the borrower’s income relative to these conditions, economic
environment of the specific industry, supply , production and distribution factors.

Collateral (C5) is the lender’s secondary source of repayment or security in case of default. It reduces the
loss. It dose not justify lending proceeds when the credit decision is originally made.

Certifications (C6) is the borrower’s social and legal standing in local community, institutional reference
with which he/she has past relationship and business community with whom has interactions.

It is found that credit worthiness (CW) is the summation of “ Six Cs” and the importance of each “C” is
not considered in determining the creditworthiness individually.

Below is given more details of the factors associated with each parameters.
1. SME Banking
Definition of Medium Enterprise

Replacement cost of Fixed Asset (other Or Number of employed

Nature of Enterprise
than factory land & Building) manpower
Manufacturing Above10 crore- 30 cr. 100-250 persons
Service 1 crore – 15 crore 50-100 persons
Trading 1 crore – 15 crore 50-100 persons

Definition of Small Enterprise

Replacement cost of Fixed Asset (other Or Number of employed

Nature of Enterprise
than factory land & Building) manpower
Manufacturing 50 lac – 10 crore 25-99 persons
Service 5 lac – 1 crore 10-25 persons
Trading 5 lac – 1 crore 10-25 persons

Definition of Micro Enterprise

Nature of Enterprise Replacement cost of Fixed Asset (other Or Number of employed

than factory land & Building) manpower
Manufacturing 5 lac – 50 lac 10-24 persons
Service Less than 5 lac Less than 10 persons
Trading Less than 5 lac Less than 10 persons

Definition of Cottage Industry/Enterprise

Replacement cost of Fixed Asset And Number of employed

Nature of Enterprise
(other than factory land & Building) manpower
Cottage Less than 5 lac Maximum 10 person
Industry/Enterprise Including family members

Charge creating method

Charge:
Charge means “Where in a transaction for value both parties evidence an intention that property existing
or future shall be made available as security for payment of a debt and that the creditors shall have a
present right to have it available, there is a charge, even though the present legal right which is
contemplated can only be enforced at some future date, and though the creditor gets no legal rights to
property, either absolute or special or any legal right to possession but only gets the right to have the
security made available by an order of the court.”
Classification of Charge:
A charge may be classified as:
(i) Fixed Charge: A charge is said to be fixed if it is made specially to cover definite and
ascertained assets of a permanent nature or assets capable of being ascertained and defined, e.g.,
charge on land and building or heavy machinery. It prevents the loanee from dealing with the
property charged without consent of the charge holder.
(ii) Floating Charge : It is a charge on property which is constantly changing, e.g., stock. A
company can deal with such property in normal course of its business until it becomes fixed on
the happening of an event. Thus it is a charge on the assets of a company in general.
The other classification of charges are:
Pari Passu Charge : Pari-passu charge is created in favor of several creditors, with the condition
that they have equal priority. It is generally created in case of consortium accounts.

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 Second Charge: A creditor holding a second charge by way of mortgage, is entitled to the
proceeds after the first charge is met. He must inform the prior mortgagee of his charge because
the first mortgagee can not part with the proceeds or title of the property if he has notice of the
second charge.
Charging of Security: Charging a security means making it available as a cover for an advance. The
manner by which some articles or commodities or properties are made available is known as Charging of
Securities.
The method of charging used depends upon:
 The type of property to be charged.
 The nature of the advance.
 The degree of control over the debtor’s property required by the banker.
The common method of charging securities are :
a) Pledge
b) Hypothecation
c) Mortgage
d) Lien
e) Assignment
f) Set – Off.
A) Pledge:
Pledge is the bailment of goods as security for payment of a debt or performance of a promise
(Section 172 of the Contract Act-1872).
Bailment is the delivery of goods by one person to another for some purpose, under a contract that the
goods shall, when the purpose is accordind, be returned or otherwise disposed of according to the
directions of the person delivering them.

B) Hypothecation :
Hypothecation is a charge against property for an amount of debt where neither ownership nor possession
is passed to the creditor. Though the borrower is an actual physical possession but the constructive
possession remains with the bank as per the deed of hypothecation. The borrower holds the possession
not in his own right as the owner of the goods but as the agent of the bank.
Features of Hypothecation:
 Charge against a property for an amount of debt.
 Goods remains in the possession of the borrower.
 Equitable Charge to the bank under document letter of credit.
 Borrower binds himself to give possession of the hypothecated goods to the bank when
called upon to do so.
 It is a floating charge
 It is rather precarious.
C) Mortgage :
What is a mortgage:
As per section 58 of Transfer of Property Act 1882, mortgage is transfer of interest in specific immovable
property for the purpose of securing the payment of money advanced or to be advanced by way of loan,
an existing or future debt or the performance of an engagement which may give rise to pecuniary liability.
Interest in the Property:
The mortgagor only parts with the interest in the property and not the ownership. Mortgage is not merely
a contract but it is conveyance of interest in the mortgaged property.
Mortgagor & Mortgagee:
The transferor is called a mortgagor and the transferee is called a mortgagee.
Mortgage money and Mortgage Deed:
The principal money and the interest of which payment is secured are called the mortgage money and
instrument if any by which the transfer is affected, is called the mortgage deed.
Essential features of Mortgages:
a) Mortgage can be created to cover general balances, existing payment as well as future
loans and advances.
b) There must be a creditor and debt relationship (or contract of guarantee) between the
bank and the mortgagor at the time of deposit.
c) Actual existence of the debit is necessary but even an application for debt and its
acceptance establishes this relationship.
d) A partner can not mortgage the property of the firm without other partners joining him in
doing so.
Who to Create:
The owner (s) or his agent.
Duplicate title documents: When an original title deed in equitable mortgage is not available, a true copy
certified by the Sub-Registrar can be deposited where it is proved that original is either not in existence or
has been lost. A public notice of creation of mortgage is also desirable in such circumstances.
Kinds of Mortgages:
There are six forms / kinds of mortgages:

10
a) Simple Mortgages --Section 58(b):
When mortgagor undertakes personal liability and agrees that in the event of his failure to pay the
mortgage money, the mortgagee shall have a right to cause the property to be applied so far as may be
necessary by means of a decree for sale of property.

b) Mortgage by Conditional Sale –Section 58 (c ):

Where the mortgagor ostensibly sells the mortgaged property, on condition that
 on default of payment of the mortgagee money, the sale shall become absolute or
 on such payment being made, the sale become void
 on such payment being made the buyer shall transfer the property to the seller

c) Usufructuary Mortgages—Section 58(d):

Where the mortgagor delivers possession and authorizes the mortgagee to retain possession until payment
of the mortgage money and to receive the rents and profits accruing from property or any part of such
property to appropriate the same in lieu of interest.

d) English Mortgages – Section 58 (e) :

Where the mortgagor binds himself to repay the mortgage money on a certain date and transfers the
mortgaged property absolutely (i.e. conveys all interests in the property) to the mortgagee, subject to the
provision that the mortgagee will transfer it to the mortgagor upon repayment of the mortgage money as
agreed, the transaction is called an English mortgage.

e) Mortgage by Deposit of Title Deeds or Equitable Mortgage—Section 58 (f):

Where, a person in a designated town, which the Govt. by notification in the official Gazette specified in
this behalf, delivers to a creditor to his agent documents of title to immovable property with intent to
create a security thereon, the transaction is called a mortgage by deposit of title-deeds.

Sometimes a memorandum in writing, regarding the deposit of the title-deeds, is executed by the
borrower. The law on the point is that where a mortgage is complete with the deposit of title-deeds and
the memorandum simply recites the past fact of the deposit and the creation of the mortgage, the
memorandum does not require registration.
f) Anomalous Mortgage—Section 58 (g):
A mortgage which is not of any of the above five kinds, is called an anomalous mortgage.
Lien:
According to Contract Act 1872, Section# 170, “ a lien is the right of a creditor in possession of goods,
securities or any other assets belonging to the debtor to retain them until the debt is repaid.
Classification of Lien:
Lien can be classified as under:
1) Particular Lien : Particular lien is a right of the creditor to retain the goods of the debtor
in respect of a particular debt and this debt must have arisen out of service rendered or
money expended on the goods.
2) General Lien : General Lien is a right of the creditor to retain in possession of the goods
and securities till the dues are paid. In case of General Lien the creditor has no right to
sell or liquidate the property without filing suit against the debtor.
3) Banker’s Lien: Banker’s Lien is more than a General Lien, it is an implied pledge . In the
event of the default of the borrower, the banker has a power of sale to liquidate without
intervention of the court.
4) Negative Lien: The Banker sometimes asks a borrower to execute a letter declaring that
his assets are free from encumbrance at the time advance is made. The borrower also
undertakes that the assets stated in the said letter shall not be encumbered or disposed of
without the Bank’s permission in writing so long the advance continues. This
undertaking is a Negative Lien.
5) Equitable Lien: An Equitable Lien is an equitable right conferred by law to a charge upon
the movable or immovable property of another until certain claim is satisfied such as, a
partner who pays partnership debts on dissolution has an equitable lien on the property
of the partnership.
6) Maritime Lien: A maritime lien is a right specially binding a ship her furniture,
machinery, cargo and freight for the payment of claim based upon the maritime law. For
example, the person who has suffered losses as a result of collision due to ship’s
negligence has the right of lien on ship and her belongings.

2. Promissory note

3. Basel-II

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Basel II is the second of the Basel Accords, (now extended and effectively superseded by Basel III),
which are recommendations on banking laws and regulations issued by the Basel Committee on Banking
Supervision.

Basel II, initially published in June 2004, was intended to create an international standard for banking
regulators to control how much capital banks need to put aside to guard against the types of financial and
operational risks banks (and the whole economy) face. One focus was to maintain sufficient consistency
of regulations so that this does not become a source of competitive inequality amongst internationally
active banks. Advocates of Basel II believed that such an international standard could help protect the
international financial system from the types of problems that might arise should a major bank or a series
of banks collapse. In theory, Basel II attempted to accomplish this by setting up risk and capital
management requirements designed to ensure that a bank has adequate capital for the risk the bank
exposes itself to through its lending and investment practices. Generally speaking, these rules mean that
the greater risk to which the bank is exposed, the greater the amount of capital the bank needs to hold to
safeguard its solvency and overall economic stability.

Politically, it was difficult to implement Basel II in the regulatory environment prior to 2008, and
progress was generally slow until that year's major banking crisis caused mostly by credit default swaps,
mortgage-backed security markets and similar derivatives. As Basel III was negotiated, this was top of
mind, and accordingly much more stringent standards were contemplated, and quickly adopted in some
key countries including the USA.

4. Syndication

Syndicate

Syndicate means “ a temporary association of parties for the financing and execution of some specific
business project”.

Syndication Loan

Syndication loan means joint financing by more than one bank to the same borrower against a common
terms and conditions governed by a common document (or set of documents).

Salient features of Syndication Loan

 One Borrower

 More than one lender

 Same terms & conditions

 A set of common documents

Difference between syndication loan and other loan

 Involvement / Participation.

 Origination, Appraisal & Approval Mechanism.

 Documentation and Disbursement.

Monitoring, Repayment and Adjustment

Objectives of Syndication Loan

 Lender’s Point of view

1. To spread and share the credit risk;

2. Analyzing the project cost from various angles by the syndicated lenders

3. To create leadership in syndicated market as Lead Arranger

 Borrower’s Point of view

Opportunity for the Borrower to reach more than one bank and performance is tested in all banks instead
of one bank through syndication.

Parties of Syndication loan

5. Name lending
6. Large loan

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 7. Single customer exposure limit
Name Lending
 Credit facility on business consideration.
 After doing due diligence.
 No consideration for name & fame of the key person or corporate image.
 Considerations: viability of business, credit requirement, security offered, cash flow, risk level
etc.

Single Borrower Exposure

 Compliance to BB’s instructions in force.
 Funded: 15% of capital, Total: 35% for non-export customers & 50% for export customers.
Large Loan
 Large Loan: equivalent or above 10% of Bank’s capital.
 Large Loan Portfolio size will not exceed 56% of total loan exposure.

Security
 Proper valuation, legal enforceability.
 Appropriate margin
 Disposal cost, price movement will be considered.
Product
 Lending Sector
 Two major group: Term Loan & Continuous Loan.
 7 sectors as defined by BB.
 Agriculture, Large & Medium Industry, Small & Cottage Industry, Working Capital, Export
Credit, Commercial Lending & Others.
8. Core Risk
6 core risks:

1) Credit Risk
2) Asset- Liability / Balance Sheet risk
3) Foreign Exchange Risk
4) Internal Control and Compliance Risk
5) Money Laundering Risk
6) IT Risk

9. Classification of loans.(NPL)
10. Bank Guarantee
11. Bid Bond

Guarantee and Indemnity

Generally loans and advances are made against tangible securities. When a customer has no tangible
security to offer or when the security offered is inadequate, a guarantee is demanded by the banker.
A guarantee is a promise by a third person to the lender for the present or future debt of the borrower. The
person who gives the guarantee is called a surety or guarantor. The person to whom the guarantee is given
is called creditor or beneficiary. The person in respect of whose default the guarantee is given is called the
principal debtor.
Example: P lends Tk. 5000/- to Q and R promises to P that if Q does not pay the money R will do so.
This is a contract of guarantee. Here Q is the principal debtor, P is the creditor or beneficiary, and R is the
guarantor or surety.
Section 126 of the contract Act, 1872 defines a contract of guarantee as,” a contract to perform the
promise or discharge the liability of a third person in case of his default.”
Essential Features of Contract of Guarantee
i) The essential feature of a contract of guarantee is that the guarantor is liable when the principal
debtor fails to repay the debt. The liability of the principal debtor is primary and that of guarantor is
secondary.
ii) A guarantee may be either oral or written. Banks, however, do not accept oral guarantees. The
contract must be in writing and should satisfy all legal requirements as to signature, stamp duty etc.
iii) A guarantee may be either (a) specific guarantee or (b) a continuing guarantee. A specific
guarantee covers a single transaction. It comes to an end when the specific promise is fulfilled. The
continuing guarantee is applicable to a series of transactions. The surety can fix up a limit on his liability
as to time or amount of guarantee when the guarantee is a continuing one. For example, X enters into cash
credit arrangement with Modern bank for a credit limit of Tk.50, 000/-. Y stands as guarantor for this
amount for a period of one year. Under this arrangement, X can undertake any number of transactions
subject to the amount and time specified.
iv) The party must be competent to enter into contract.
v) Minor’s guarantee is not allowed but if any major gives guarantee in favor of minor, the
guarantor becomes principal debtor.

13
vi) Credit worthiness of the guarantor is to be considered before obtaining guarantee.
vii) As per contract, the guarantee must be supported by lawful consideration.
viii) The contract must be entered into with free consent.
ix) A guarantee obtained under misrepresentation, fraud and undue influence is void able.
Indemnity
A contract of indemnity is defined as ‘a contract by which one party promises to save the other from the
loss caused to him by the conduct of the promise himself or by the conduct of any other person. The
person who makes such promise is called the ‘indemnifier’ and the other person is called the
‘indemnified’ or ‘beneficiary’. For example, X who has lost a fixed deposit receipt issued by modern
bank may claim the amount by furnishing an indemnity bond. By this act, X promises to reimburse the
bank any loss that may be caused to it for paying the amount without the receipt.
Banks and letters of indemnity
Banks may obtain the letters of indemnity in the following situations;
1.Loss of term deposit receipt: The bank is not entitled to withhold payment of the money if a deposit
receipt is lost or destroyed. The depositor is asked to sign a letter of indemnity duly stamped when the
payment is made or duplicate is issued.
2.Issue of duplicate draft: In case of issuing a duplicate draft in lieu of the original reported lost, the
banker should immediately notify the office on which the draft is drawn and enquire whether it is
outstanding. A stamped letter of indemnity should be taken, on receipt of nonpayment advice from the
drawee branch. The letter of indemnity should be signed by the purchaser and by two sureties’ good for
the amount of the draft.
3.Loss of traveler’s cheque: In case the purchaser of a traveler’s cheque claims refund of the value of the
cheque reported lost, the request should be entertained by the selling branch of the bank only when the
cheque had not been endorsed before it was lost and a letter of indemnity is obtained from the purchaser.
The letter contains special stipulation that the cheque was unendorsed at the time of lost.
4.Loss of safe custody receipts: In case of a customer losing a safe custody receipt, he has to give a
stamped indemnity letter before he is given delivery of a duplicate receipt of articles kept with the bank
for safe custody.
5.Loss of gift cheque: In the event of loss of gift cheque, a duplicate may be issued obtaining a letter of
indemnity from the concerned person as follows:
a) Where the gift cheque was in possession of the purchaser, at the time of its loss or where it has
been lost in the course of postal transit, the banker should issue a duplicate cheque after obtaining a
stamped letter of indemnity from the purchaser.
b) Where the name of the payee had been inserted in the cheque and it was lost while in the actual
possession of the payee, the issuing branch, after verifying from the concerned purchaser and obtaining a
stamped letter of indemnity from him with sureties, issue a duplicate cheque.
Distinction between Guarantee and Indemnity:
1. Number of parties: In case of guarantee there are three parties- the principal debtor, the creditor
and the surety. A contract of guarantee requires the concurrence of the three parties. In case of indemnity
there are only two parties- indemnified and indemnifier.
2. Number of contracts; In case of guarantee there are two contracts, one between the principal
debtor and the creditor and the second between the surety and the creditor. On the other hand, in a
contract of indemnity, there is only one contract between the indemnifier and the beneficiary.
3. Request: In a contract of guarantee, the guarantor undertakes his obligation at the request, express
or implied, of the principal debtor; no such request is necessary in respect of an indemnity.
4. Nature of liability: In a contract of guarantee the liability of the principal debtor is primary and
that of surety is secondary. The person giving an indemnity is primarily and independently liable.
5. Purpose of contracts: A contract of guarantee is to provide necessary security to the creditor
against the loan but a contract of indemnity is made for reimbursement of loss.
6. Right of parties: The surety has the right to recover from the principal debtor the amount paid by
him under the contract of guarantee, the indemnifier cannot claim reimbursement from anybody else.
7. Nature of risk: The surety agrees to discharge the existing liability of the principal debtor. So it is
a subsisting risk. The indemnifier promises to save the indemnified against risk of loss happening in
future. So it is a contingent risk.
Rights of Guarantor
1. Right to revoke continuing guarantee
2. Right of subrogation
3. Right to claim indemnity
4. Right to know the extent of his liability
5. Right against co-sureties
12. Written Off
13. What is provision? And types of provision.
14. Off Balance sheet products.
Foreign Exchange:
 
1. Claused Bill of lading.
2. Shipping documents.
3. Indent and Proforma Invoice.

14
4. Pre shipment financing credit facilities.
5. Pre shipment inspection
6. Definition of L/C, Document needs to open L/C.
7. Bill of Exchange
8. Export import act
9. Clean document certificate
10. EDF Loan approving authority
11. Incoterms
12. LC Disposal Procedure

Question: What is NOSTRO Account?

Answer:
Our Account with You. It is a banking term to describe an account home bank holds with a bank in a
foreign country, usually in the currency of that foreign country.

Question. What is VOSTRO ACCOUNT ?

Answer: Your Account with us. It is a local currency account maintained with a bank by another bank.
The term is normally applied to the counter party account from which funds may be paid into or
withdrawn, as a result of a transaction.

Question: What is Bill of exchange ?

Answer:
An unconditional order issued by a person or business which directs the recipient to pay a fixed sum of
money to a third party at a future date. A bill of exchange must be in writing and signed and dated.

Question: What is Bill of Entry?

Answer:A detailed statement prepared by a merchant or his agent (C&F) provides description, nature and
value of goods to submit the same to custom authority for signature.

Question: What Does Bill Of Lading Mean ?

Answer:

 A legal document between the shipper of a particular good and the carrier detailing the type,
quantity and destination of the good being carried.
 The bill of lading also serves as a receipt of shipment when the good is delivered to the
predetermined destination.
 This document must accompany the shipped goods, no matter the form of transportation, and
must be signed by an authorized representative from the carrier, shipper and receiver.

Question: What is Bonded Ware House?

Answer:
A customs store of godown where bonded goods are stored.
Question. What is Bonded Goods ?

Answer. Goods stored under the care of customs authority in a ware house until the custom duties
including duties are paid.
Question: What is Letter of Credit (L/C) ?
Answer:
 It is a commitment of making payment by a bank on behalf of importer to the exporter upon
fulfillment of certain terms & conditions.
 According to the UCPDC-600 L/C means any arrangement, however, named or described i.e.,
irrevocable & there by constitute a definite undertaking of the issuing bank to honour a compiling
presentation.

Question. What are Parties involved in L/C?

Answer: Core Parties
1. The issuing Bank
2. The confirming Bank (If any)
3. The Beneficiary

Other Parties involved in L/C

1. The applicant
2. Advising Bank
3. The Nominated bank
4. The reimbursing Bank

15
 5. The presenter
6. The transferring Bank

Issuing Bank : Issuing Bank means the bank that issues a credit at the request of an applicant or on its
own behalf.

Confirming Bank:
 Confirming Bank means the bank that adds its confirmation to a L/C upon the request of the
issuing Bank.
 Confirmation means a definite undertaking of the confirming bank in addition to the issuing bank
to honour or negotiate a compiling presentation.

Beneficiary: Beneficiary means the party in whose favor a L/C is issued.

Applicant: Applicant means the party on whose favor a L/C is issued.

Advising Bank:
 Advising Bank gives the proof of apparent authenticity of the L/C to the seller.
 Forwards the original L/C to the beneficiary

Nominated Bank: Nominated bank means the bank with which L/C is available

Reimbursing Bank: Reimbursing Bank means the bank, appointed by the issuing bank to reimburse the
claims of payment of the claiming Bank.

Claiming Bank: Claiming bank means the nominated bank which claims the payment from the
reimbursing bank.

Presenter: Presenter means a beneficiary or bank or other party that makes presentation of documents.

Transferring Bank: Transferring Bank means nominated bank that transfer the L/C which is authorized by
issuing bank

Question: What is Back to Back L/C?

Answer:
One credit backs another. The seller/beneficiary of mother L/C stands as security to advising bank for
opening second credit.

Question: What is the Operational Procedure in L/C?

Answer:
1. Issuing
2. Advising
3. Confirmation & Amendment
4. Presentation
5. Settlement
a) Settlement by Payment
b) Settlement by acceptance
c) Settlement by Negotiation (Bank will purchase documents/drafts)

Question: What is Proforma Invoice?

Answer: A form of quotation to a potential buyer inviting him to buy the goods on stated terms

Question: What are the different form of Export Finance?

Answer: Exporters requires financial services at different stages
1. Pre-shipment Credit
a) Export Cash Credit (Hypo)
b) Export Cash Credit (pledge)
c) Export credit against Trust Receipt
d) Packing Credit (PC)
e) Back to Back Credit
f) Advance against Red clause L/C
2. Post Shipment Credit
i. Negotiation of Document under L/C
ii. Purchase of D/P & D/A Bills
iii. Advance against Bills for collection

16
Q. What is Export Development Fund (EDF)?
A. EDF is required to assure continued availability of fund to meet import requirement of nontraditional
manufactured items particularly for new exporters.

Q. What are the Different shipping documents in Exports?

Answer: A. Major Documents
i) Bill of exchange
ii) Bill of lading
iii) Shipping Invoice
iv) Insurance policy(In case of CIF Shipment

B. Subsidiary Documents
i) Certificate of origin
ii) Pre-shipment Inspection Certificate
iii) Packing and Weight List
iv) GSP Certificate
v) Phyto-Sanitary Certificate
vi) Quality Control Certificate
vii) Visa or Consular invoice
viii) A declaration regarding the goods are not shipped Israeli Flag Vessel
ix) Any other documents specially asked in the credit

Packing Credit (PC):

After making the exportable goods, for payment of factory overhead expenditures, salary, wages,
procurement of Packing Materials to make shipment viable, the banks usually extends a credit to the
exporters namely Packing Credit (PC) against and specific Export L/C and disburse @ 10-15% of ABP /
BTB L/C figure @7.00% p.a. rate of interest

D) IDBP/IDBC (Inland Documentary Bills Purchase/for Collection)/:

Upon completion of shipment, Local supplier (beneficiary) of the above mentioned BTB L/C submit
shipping documents to its negotiating bank and negotiating bank then sends it to L/C issuing Bank upon
scrutiny to give acceptance. The issuing bank check the said documents as per terms of BTB L/C, and
provide acceptance if all documents are in order. Then the negotiating Bank may purchase the same
accepted export documents (deemed export) and allow disbursement of fund to the supplier/beneficiary
keeping certain margin. It is called IDBP. Upon acceptance, if the bank send the bills for collection from
the L/C issuing Bank only (no finance), it is IDBC. Upon realization of proceeds at maturity, relevant
IDBP is adjusted.
E) FDBP/FDBC (Foreign Documentary Bill Purchase/for Collection):
Upon completion of shipment, the exporters (beneficiary) submit shipping documents to its negotiating
banks and negotiating bank then sends it to L/C issuing Bank (Buyers bank) to give acceptance. After due
acceptance by the Buyers Bank, the negotiating Bank may purchase the same accepted export documents
(direct export) and allow disbursement of fund to the supplier/beneficiary keeping certain margin. It is
called FDBP. The bank may send the bills for collection only without financing, then it will be FDBC.
Upon realization of proceeds at maturity, relevant FDBP is adjusted.

ACU:
ACU stands for Asian Clearing Union. The central of Banks of Bangladesh, Burma, India,Iran, Nepal,
Pakistan & Srilanka under an agreement established the above clearing system for settling payments for
current international transaction among the member countries on Multilateral basis. Under this
mechanism all international monetary transaction between them excluding those covered by
Aid/Loan/Credit shall be either in home currency or in the currency of the concerned member country or
in AMU(Asian Monetary Unit), the approved currency unit of the mechanism, the value of which is
equivalent to one SDR(Special Drawing Right) allocated by the IMF.

Question: What is Soft currency?

Answer:

 Soft currency indicates a type of currency whose value may depreciate rapidly or that is difficult
to convert into other currencies. It is generally less desirable than hard currency to users. For
example , Taka

Question: What is Hard currency?

Answer: A stable currency, well supported by reserves, which is in demand in world markets and
therefore easily convertible into other currencies.
 A currency in which investors have confidence, such as that of an economically and politically
stable country. For example, Euro, USD , Pound Sterling etc.

17
Question: What is Special Drawing Right (SDR) ?
Answer:
 Special Drawing Rights (SDR) is costless assets that increase a nation's foreign exchange reserves
without the need for an actual transfer of funds.
 Allocated to nations by the International Monetary Fund (IMF), SDR represent a claim to foreign
currencies for which they may be exchanged

Question: What is Letter of Credit (L/C) ?

Answer: It is a commitment of making payment by a bank on behalf of importer to the exporter upon
fulfillment of certain terms & conditions.
 According to the UCPDC-600 L/C means any arrangement, however, named or described i.e.,
irrevocable & there by constitute a definite undertaking of the issuing bank to honour a compiling
presentation.

Question. What are Parties involved in L/C?

Answer:
Core Parties: 1. The issuing Bank
2. The confirming Bank (If any)
3. The Beneficiary
Other Parties involved in L/C
4. The applicant
5. Advising Bank
6. The Nominated bank
7. The reimbursing Bank
8. The presenter
9. The transferring Bank

Issuing Bank: Issuing Bank means the bank that issues a credit at the request of an applicant or on its own
behalf.

Confirming Bank: Confirming Bank means the bank that adds its confirmation to a L/C upon the request
of the issuing Bank.
 Confirmation means a definite undertaking of the confirming bank in addition to the issuing bank
to honour or negotiate a compiling presentation.
Beneficiary: Beneficiary means the party in whose favor a L/C is issued.

Applicant: Applicant means the party on whose favor a L/C is issued.

Advising Bank: Advising Bank gives the proof of apparent authenticity of the L/C to the seller.
 Forwards the original L/C to the beneficiary

Nominated Bank: Nominated bank means the bank with which L/C is available

Reimbursing Bank: Reimbursing Bank means the bank, appointed by the issuing bank to reimburse the
claims of payment of the claiming Bank.
Claiming Bank: Claiming bank means the nominated bank which claims the payment from the
reimbursing bank.

Presenter: Presenter means a beneficiary or bank or other party that makes presentation of documents.

Transferring Bank: Transferring Bank means nominated bank that transfer the L/C which is authorized by
issuing bank

Question: What is Back to Back L/C?

One credit backs another. The seller/beneficiary of mother L/C stands as security to advising bank for
opening second credit.

Question: What is the Operational Procedure in L/C?

Answer:
1. Issuing
2. Advising
3. Confirmation & Amendment
4. Presentation
5. Settlement
6. Settlement by Payment
7. Settlement by acceptance
8. Settlement by Negotiation (Bank will purchase documents/drafts)

18
Question. What is SWIFT?
Answer:
 The Society for Worldwide Interbank Financial Telecommunication ("SWIFT") operates a
worldwide financial messaging network which exchanges messages between banks and other
financial institutions.
 The majority of international Interbank messages use the SWIFT network.
 SWIFT transports financial messages in a highly secure way, but does not hold accounts for its
members and does not perform any form of clearing or settlement.

EDF (Export Development Fund)

EDF came into being in 1989 to facilitate access to finance in foreign exchange for input procurements by
manufacturers and exporters. Authorized dealer banks can borrow US dollar funds from the EDF against
their foreign currency loans to the parties.
It is also a Back to Back L/C opened at sight basis against Export L/C. Payment at maturity is made
primarily by the L/C issuing bank. And then, it is reimbursed by Bangladesh Bank upon submission of
documents. It facilitates the exporter to procure goods from overseas sources at reduced price as payment
is made at sight basis.
3.1.4 Working Capital:
Loans allowed to the manufacturing units to meet their working capital requirements, irrespective of their
size - big, medium or small, fall under this category.
These are usually continuous credits and as such fall under the head "Cash Credit"

3.1.5 Export Credit:

Credit facilities allowed to facilitate export of all items against Letter of Credit and/or confirmed export
orders fall under this category. It is accommodated under the heads "Export Cash Credit (ECC)", Packing
Credit (PC), Foreign Documentary Bill Purchased (FDBP), Inland Documentary Bill Purchased etc.
3.1.6 Commercial Lending:

Short term Loans and continuous credits allowed for commercial purposes other than exports fall under
this category. It includes import financing for local trade, service establishment etc. No medium and long
term loans are accommodated here. This category of advance is allowed in the form of (I) Loan against
Imported Merchandise (LlM), (ii) Loan against Trust Receipt (LTR), (iii) Payment Against Documents
(PAD), (iv) Secured Overdraft (SOD), (v) Cash Credit etc. for commercial purposes.
3.1.7 Others:
Any loan that does not fall in any of the above categories is considered under the category "Others". It
includes loan to (i) Acquire transport equipments, (ii) Complete construction works including housing
(commercial/residential), (iii) Execute work/supply orders, (iv) Consumers, etc.
3.2 Types of Credit Facilities:
Depending on the various nature of financing, all the credit facilities have been brought under two major
groups; Funded Credit and Non-funded Credit.
3.2.1 Funded Credit Facilities:
Any type of credit facility which involves direct outflow of bank’s fund on account of borrower refers to
funded credit facility. The followings are the funded credit facilities/limits practiced in the PBL:

3.2.1.1 PAD:
PAD stands for ‘Payment Against Documents’. It is an interim advance connected with import through
L/C. As the L/C issuing bank is bound to honor its commitment to pay for import bills when these are
presented for payment, the issuing bank will lodge the in-order shipping documents to their book in by
creating PAD as soon as they receive it.
Features:
i. It is a demand loan.
ii. This is a consequential facility and does not require pre-facto or post-facto approval.
iii. PAD could only be created against import L/C.
iv. This is dependent on L/C. More than one PAD account may be created against a single L/C.
However, aggregate amount of PAD created must not exceed the value of L/C  tolerance,
less margin, if any.
v. If the negotiating Bank already makes payment, PAD amount would be determined after
loading interest for the lapsed period.
vi. Maximum maturity of PAD account may be 21 (Twenty One) days.

19
 vii. PAD liability is generally liquidated against payments usually made by the customer either
by cash from own sources or by availing post-import facilities such as LTR/LIM/Other
facility(s).
viii. The importer receives the documents only after adjustment of PAD.
ix. Pricing mode: Interest.
x. Primary security: L/C related shipping documents
LTR: LTR stands for ‘Loan against Trust Receipt’. Facility allowed for retirement of shipping
documents (so that the importer can release the goods imported through L/C) by adjustment of PAD
liability, is known as LTR. The facility is allowed on trust with the arrangement that sale proceeds (of the
goods) will be deposited to liquidate the loan account within the stipulated time.
Features:
i. This is a post-import finance.
ii. Usually allowed to retire shipping documents of L/C.
iii. Usually LTR amount equals the PAD liability. However, if Duty, VAT, other costs are
financed by the Bank or importer provides further margin, the amount may vary.
iv. Importer controls/possesses the imported goods.
v. Usually has the tenure of 30, 60, 90, 120, or 180 days but subject to Bangladesh Bank
guidelines/directives.
vi. Drawing is allowed once only, no further drawing is possible. Repayment in multiple phases
is preferred.
vii. Pricing mode: Interest.
viii. Primary security: Letter of Trust Receipt.
ix. All specific LTRs and each LTR created under a revolving limit are demand loan by nature.
3.2.1.2 LIM:
LIM stands for ‘Loan against Imported Merchandise’. Facility allowed for retirement of shipping
documents by adjustment of PAD liability and taking effective control/possession over the goods under
pledge in godowns under Bank's lock & key.
Features:
i. This is a post-import finance.
ii. Usually allowed to retire shipping documents of L/C.
iii. Usually LIM amount equals the PAD liability. However, if Duty, VAT, other costs are
financed by the Bank or importer provides further margin, the amount may vary.
iv. Bank controls/possesses the imported goods. Goods are delivered to the importer upon
proportionate payment.
v. Usually has the tenure of 30, 60, 90, 120, or 180 days but subject to Bangladesh Bank
guidelines/directives.
vi. Drawing is allowed once only, no further drawing is possible. Repayment in multiple phases
is preferred.
vii. Pricing mode: Interest.
viii. Primary security: Pledge of imported goods.
ix. All specific LIM and each LIM created under a revolving limit are demand loan by nature.
3.2.1.3 SOD(EM):
SOD (EM) stands for ‘Secured Over Draft (Earnest Money)’. This facility is allowed by issuing
Payment Order (PO)/Demand Draft (DD)/Special Deposit Receipt (SDR) in favor of ‘bid inviting
authority’ as bid security. The issued PO/DD/SDR value reflects the facility amount.
Features:
i. This is an alternative to Bid Bond/Guarantee.
ii. The PO/DD/SDR amount depends on the requirement stated by ‘bid inviting authority’ in the
tender notice.
iii. Usually has the tenure of 30-90 days.
iv. Adjustment is made by depositing the returned PO/DD/SDR for unsuccessful bids. In case of
successful bids, the PO/DD/SDR value less the margin is deposited by the customer.
v. This is a funded facility.
vi. Pricing mode: Interest.
vii. Primary security: Cash equivalent to the value of the highest PO/DD/SDR (in case of Earnest
Money Scheme), Postdated cheque.
viii. All specific SOD (EM) and each SOD (EM) created under a revolving limit are demand loan
by nature.

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3.2.1.4 PC:

PC stands for (Export) Packing Credit. It is a short term facility allowed to customers against export
L/C and/or firm contract for processing/packing/shipping of goods to be exported. It must be adjusted
from proceeds of the relevant exports.
Features:
i. This is a mode of export finance.
ii. PC amount should not exceed 10% of outstanding ABP (against BTB L/C) at any point of
time and total finance (including ABP) against an export L/C should not exceed 90% of the
FOB value.
iii. Usually has the tenure of 90 days or less.
iv. Pricing mode: Interest at a special rate prescribed by Bangladesh Bank (Presently 7.00%
p.a.).
v. Primary security: Export L/C/firm Contract.
vi. All specific PCs and each PC created under a revolving limit are demand loan by nature.
3.2.1.5 IDBP:
IDBP stands for ‘Inland Documentary Bill Purchase’. This facility is provided to purchase documents/
bills (duly accepted by issuing Bank) submitted by the exporter/supplier on (deemed) export/supply made
to local export oriented industries or other entities against inland L/C usually denominated in Foreign
Currency.

Features:
i. This is usually a mode of (deemed) export finance.
ii. Bills against acceptance of Scheduled Banks in Bangladesh other than restricted Bank as per
HO Information Circular 98/44 dated 18.11.1998 & subsequent amendment against thereof
could only be purchased.
iii. The accepted bills have to be confirmed by the accepting Bank upon written request of the
purchasing Bank.
iv. Usual amount of IDBP is 90% of the bill value.
v. Usually has the tenure of less or more 90-120 days.
vi. Liability is adjusted from the proceeds of the Bill. However, usually a General Letter of
indemnity on Tk. 150 non-judicial stamp is obtained from the beneficiary (exporter/supplier)
to the effect that if the proceeds against any bill is not received in due time, the bill/bills will
be adjusted from the beneficiary’s own source.
vii. Pricing mode: Interest.
viii. Primary security: Duly accepted and confirmed inland documentary bills.
ix. All specific IDBP and each IDBP created under a revolving limit are demand loan by nature.
3.2.1.6 FDBP:
FDBP stands for ‘Foreign Documentary Bills Purchase’. This facility is provided to negotiate
(purchase) Foreign Documentary bills/documents submitted by the exporter on export made against
export L/C denominated in Foreign Currency.
Features:
i. This is a mode of export finance.
ii. The documents/bills have to be in order as per export L/C terms.
iii. Usual amount of FDBP is 25% of the documents/bill value. The remaining amount is used to
meet BTB L/C, PC, and other liabilities associated to the particular export.
iv. Usually has no fixed tenure but maximum tenure may be allowed is 21 days for sight L/C and
as per stipulated usance period for usance (DP) L/C.
v. Liability is adjusted from the proceeds of the documents/Bills.
vi. Pricing mode: N/A, Bank earns on exchange rate difference.
vii. Primary security: In order L/C documents/bills.
viii. All specific FDBP and each FDBP created under a revolving limit are demand loan by nature.
3.2.1.7 FBP:
FBP stands for ‘Foreign Bills Purchase’. Payment made to a customer through purchase of Foreign
Currency Cheques/Drafts.
Features:
i. It is demand loan by nature.
ii. The Cheques/Drafts have to be in order.
iii. FBP is allowed to meet short term obligations of Bank’s existing tested and trusted
customers.

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 iv. Usual amount of FBP is 50-90% of the Cheques/Drafts value.
v. Tenure depends on the Cheques/Drafts’ validity.
vi. Liability is adjusted from the proceeds of the Cheques/Drafts. However, usually a General
Letter of indemnity on Tk. 150 non-judicial stamp is obtained from the drawee to the effect
that if the proceeds against any Cheques/Drafts is not received in due time, the liability will
be adjusted from the drawee’s own source.
vii. Pricing mode: Interest.
viii. Primary security: Foreign Currency Cheques/Drafts.
3.2.1.8 IBP:
IBP stands for ‘Inland Bills Purchase’. Payment made to a customer through purchase of Local
Currency Cheques/Drafts.
Features:
i. It is a demand loan by nature.
ii. The Cheques/Drafts have to be in order.
iii. IBP is allowed to meet short term obligations of Bank’s existing tested and trusted non-export
customers.
iv. Usual amount of FBP is 50-90% of the Cheques/Drafts value.
v. Tenure depends on the Cheques/Drafts’ validity.
vi. Liability is adjusted from the proceeds of the Cheques/Drafts. However, usually a General
Letter of indemnity on Tk. 150 non-judicial stamp is obtained from the drawee to the effect
that if the proceeds against any Cheques/Drafts is not received in due time, the liability will
be adjusted from the drawee’s own source.
vii. Pricing mode: Interest.
viii. Primary security: Local Currency Cheques/Drafts.
3.2.1.9 OD(Export):
OD(Export) stands for ‘Over Draft (Export)’. This facility is allowed for making import payments
including BTB L/C liability in foreign currency against export L/C, where the exports do not materialize
before the due date of import payments.
Features:
i. It is a demand loan by nature.
ii. This is a forced liability.
iii. OD (Export) is allowed to meet import payments including BTB L/C obligations. Thus the
amount equals the import obligations.
iv. Tenure depends on possible date of export proceeds realization.
v. Liability is adjusted from the export proceeds. However, in case of failure, the exporter pays
from their own sources.
vi. This is a funded facility.
vii. Pricing mode: Interest.
viii. Primary security: Export L/C documents/bills.
3.2.1.10 Loan against EDF:
Government of Bangladesh under the supervision of Bangladesh Bank has formed a fund which is known
as Export Development Fund (EDF). In case of meeting Sight L/C or Sight BTB L/C (for importing
export input) payment at the premature stage of export, EDF provides the fund in foreign currency. This
facility is called Loan against EDF.
Features:
i. EDF liability has to be repaid within 06 months.
ii. This facility is allowed to meet Sight L/C or Sight BTB L/C payment for importing export
inputs when export payment will be due later.
iii. Liability is adjusted from the export proceeds within 06 months. However, in case of failure,
the loan has to be adjusted by creating OD (Export) facility.
iv. This is a funded facility.
v. Pricing mode: Interest @(LIBOR+X)% p.a. [X is a variable]
vi. Primary security: Export L/C documents/bills.
vii. All specific loans against EDF and each loan against EDF created under a revolving limit are
demand loan by nature.
3.2.1.11 Lease Finance (LF):
This is a mode of term financing for acquisition of capital machinery and equipments (or other assets such
as consumer durables, vehicles, etc. and in some cases house building) whereby the Bank retains
ownership and the customer is given the exclusive right to use the asset for an agreed period of time in
return of rental payment.

22
Features:
i. It is a term loan.
ii. Lease is a contract between the Lessor (Bank) and the Lessee (Customer). The contract is
called ‘Lease Agreement’, which guides the facility throughout the term.
iii. Down payment or margin from the customer is optional.
iv. Ownership of the asset remains with the Lessor throughout the Lease term. However, the
Lessee is responsible for maintenance, insurance and other obligations related to the asset.
v. There are different modes of Lease, usually Bank (Lessor) finances in the ‘Capital/Financial
Lease’ form, where ownership is transferred to the customer (Lessee) at the end of Lease
term (and after repayment of all dues) at the payment of a lump sum amount. Occasionally,
‘Sale & Lease Back’ form of Lease is also used for financing, where the customer sells some
asset to the Bank and obtains the right to use it by taking Lease.
vi. Lease Finance generates some special kind of fees for the Bank, those are: Project
Examination Fee, Supervision Cost, Risk Fund, and Transfer Fee. These fees vary from
0.10% to 2.00% of the Lease Finance amount. Besides, deposit of advance Lease Rental (1-3
nos.) is another feature of Lease Finance.
vii. Liability is adjusted through deposit of Lease ‘Rentals’ periodically.
viii. This is a funded facility.
ix. Pricing mode: Interest.
x. Primary security: Ownership of the asset.
3.2.1.12 Hire Purchase (HP):
This is another mode of term financing for acquisition of capital machinery and equipments (or other
assets such as consumer durables and vehicles) whereby the Bank initially retains ownership but the
ownership gradually shifts to the customer with regular repayment of pre-agreed installments within a
specified period. The customer is entitled to use the asset at his own risk & responsibility throughout the
loan tenure.
Features:
i. It is a term loan.
ii. A contract called ‘Hire Purchase Agreement’ guides the facility throughout the term.
iii. A down payment or margin from the customer is required.
iv. Initially ownership of the asset remains with the Bank but the ownership gradually shifts to
the customer with repayment of installments. At the end of the term (and after repayment of
all dues) the customer gets full ownership. However, the customer is responsible for
maintenance, insurance and other obligations related to the asset.
v. Liability is adjusted through deposit of Hire Purchase ‘Installments’ periodically.
vi. Pricing mode: Interest.
vii. Primary security: Ownership of the asset.
3.2.1.13 Loan(General) or Loan (G):
This is mainly allowed to accommodate term financing, when the other term financing modes (as stated
above) are not applicable. Loan (G) facility may be allowed to meet Short, Medium & Long term
requirement of the customer.
Features:
i. It is a term loan.
ii. A contract called ‘Loan Agreement’ guides the facility throughout the term.
iii. Loan (G) facility is available for miscellaneous purpose of the customer and the purpose of
taking the loan and the source of repayment should be clearly identified before allowing this
facility.
iv. It is adjusted through deposit of installments (single or multiple and equal or unequal) within
the validity period.
v. Pricing mode: Interest.
vi. Primary security: Charge on the underlying asset.
3.2.1.14 HBL(Res):
HBL(Res) stands for House Building Loan (Residential). Term Loans allowed for purchase of
apartment or construction of house for residential purpose fall under this type.
Features:
i. It is a term loan.
ii. Bank’s separate ‘HBL policy’, if available, guides the facility throughout the term.
iii. HBL (Res) facility may be allowed for the following purposes:
a) Purchase of flat (apartment) for residential purpose.
b) Construction of residential building.
c) Purchase or renovation of residential building.

23
 iv. Usually disbursement is made at multiple phases.
v. It is usually a longer term financing.
vi. It is adjusted through deposit of periodical installments.
vii. Pricing mode: Interest.
viii. Primary security: Registered Mortgage of the underlying land & building.
3.2.1.15 HBL(Com):
HBL(Com) stands for House Building Loan (Commercial). Term Loans allowed for purchase of
commercial space or construction of house for commercial purpose fall under this type.
Features:
i. It is a term loan.
ii. Bank’s separate ‘HBL policy’, if available, guides the facility throughout the term.
iii. HBL (Com) facility may be allowed for the following purposes:
a) Purchase of space for commercial purpose.
b) Construction of commercial building.
c) Construction of residential building for selling out to the public.
d) Purchase or renovation of commercial building.
iv. Usually disbursement is made at multiple phases.
v. It is usually short to medium term financing.
vi. It is adjusted through deposit of periodical installments.
vii. Pricing mode: Interest.
viii. Primary security: Registered Mortgage of the underlying land & building.
3.2.1.16 SOD(WO):
SOD (WO) stands for Secured Over Draft (Work Order). This facility is allowed for execution of
work/supply order.
Features:
i. Bank’s separate ‘Work Order policy’, if available, guides the facility throughout the term.
ii. Usually disbursement is made with the progress of execution.
iii. Validity of the facility is matched with the validity of work/supply order.
iv. It is adjusted (gradually) through making deduction from the assigned bills received from the
work/supply order awarding authority.
v. Pricing mode: Interest.
vi. Primary security: Assignment of the bills against the work/supply order.
vii. All specific SOD (WO) and each SOD (WO) created under a revolving limit are demand loan
by nature.
3.2.1.17 CC (H):
CC(H) stands for Cash Credit (against Hypothecation). This is a continuous credit limit allowed for
trading as well as manufacturing/ assembling/ other value adding units to procure and maintain the stock
in trade for trading units and stock of raw material (RM), work in process (WIP), and finished goods (FG)
for manufacturing/ assembling/ other value adding units.
Features:
i. This is a continuous loan.
ii. Continuous drawing and adjustment is possible.
iii. Validity of the limit may be one year or less.
iv. It is adjusted through crediting sale proceeds in the account on regular basis. Desired yearly
credit turnover in the account is 04 times of the credit limit.
v. Customer possesses the stock.
vi. Pricing mode: Interest.
vii. Primary security: Hypothecation of stock in trade or stock of RM, WIP, & FG.
3.2.1.18 CC (Pledge):
CC (Pledge) stands for Cash Credit (Pledge). This is a continuous credit limit allowed for trading as
well as manufacturing/ assembling/ other value adding units to procure and maintain the stock in trade for
trading units and stock of raw material (RM), work in process (WIP), and finished goods (FG) for
manufacturing/ assembling/ other value adding units but the stock is kept as pledge in godowns under
Bank's lock & key.
Features:
i. This is a continuous loan.
ii. Continuous drawing and adjustment is possible keeping adequate stock as pledged.
iii. Validity of the limit may be one year or less.
iv. It is adjusted through crediting sale proceeds in the account on regular basis. Desired yearly
credit turnover in the account is 04 times of the credit limit.
v. Bank possesses the stock.
vi. Pricing mode: Interest.
vii. Primary security: Hypothecation of stock in trade or stock of RM, WIP, & FG.

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3.2.1.19 ECC:
ECC stands for Export Cash Credit. This facility is allowed to a customer for processing of export of
goods. It must be adjusted from proceeds of the relevant exports.
Features:
i. This is a mode of export finance.
ii. All specific ECC and each ECC created under a revolving limit are demand loan by nature.
iii. ECC amount should be determined on the basis of export L/C value.
iv. The advances must be liquidated out of export proceeds within 180 days.
v. Pricing mode: Interest.
vi. Primary security: Export L/C/firm Contract.
3.2.1.20 SOD(FO):
SOD (FO) stands for Secured Over Draft (Financial Obligation). This continuous credit limit is allowed
against financial obligations (FDR, MBDR, Scheme Deposits of our Bank or similar products of other
banks).
Features:
i. This is a continuous loan.
ii. Continuous drawing and adjustment is possible.
iii. Validity of the limit may be one year or less.
iv. This is a funded facility.
v. Pricing mode: Interest, usually based on the interest rate allowed to the underlying financial
obligation.
vi. Primary security: Lien on underlying FO.
3.2.1.21 OD (G):
OD (G) stands for Over Draft (General). This continuous credit limit is allowed for different business
purposes including meeting working capital requirement.
Features:
i. This is a continuous loan.
ii. Continuous drawing and adjustment is possible.
iii. Validity of the limit may be one year or less.
iv. Pricing mode: Interest.
v. Primary security: Hypothecation of underlying assets.

3.2.2 Non – Funded Credit Facility:

Any type of credit facility which involves direct commitment of bank on behalf of customer for payment
to third party in case of need under some agreed conditions refers to non-funded credit facility. The
followings are the non-funded credit facilities/limits practiced in the PBL:

3.2.2.1 Letter of Credit (L/C):

This is an obligation undertaken by the Bank to import/procure any permissible items on behalf of the
customer from both local and foreign sources.
Features:
i. Bank enters into two separate contracts in case of opening any L/C, one is with the customer
and other is the L/C itself with the exporter/supplier (beneficiary).
ii. All specific L/C and each L/C created under a revolving limit are demand loan by nature.
iii. Bank is obliged to pay the beneficiary upon production of stipulated documents thus Bank
does not deal with the goods (items).
iv. There are different types of L/C but the followings are practiced in PBL:
a. Sight L/C: When payment against the L/C is made on sight of the shipping
documents/bill.
b. Usance or Deferred Payment (DP) L/C: When Bank gives acceptance for payment at a
pre-agreed later time upon sight of the shipping documents/bill. In usual cases deferral
period varies from 30 days to 360 days.
c. Back to Back (BTB) L/C: The BTB L/C is opened on the basis of an existing non-
transferable L/C (Master L/C) in favor of another beneficiary. Usually, BTB L/Cs are
opened against master export L/C to mobilize export inputs.
v. Pricing mode: Commission usually on quarterly basis.
vi. Primary security: L/C related shipping documents in case of Sight/DP L/C and Master L/C in
case of BTB L/C.
3.2.2.2 ABP:
ABP stands for ‘Accepted Bills for Payment’. This is acceptance made by the Bank for payment after a
certain period against shipping documents (bill) for import through Usance (DP) L/C. It is an interim

25
arrangement that allows time for the importer to make payment.
Features:
i. This is a consequential facility and does not require pre-facto or post-facto approval.
ii. All specific ABP and each ABP created under a revolving limit are demand loan by nature.
iii. ABP is created against import Usance (DP) L/C.
iv. It will have the tenure as per the L/C term such as 30, 90, 120, 180, or 360 days but subject to
Bangladesh Bank guidelines/directives.
v. The amount of ABP is dependent on L/C. More than one ABP may be created against a
single L/C, where part shipment is allowed. However, aggregate amount of ABP created must
not exceed the value of L/C  Tolerance.
vi. Importer receives shipping documents after creation of ABP.
vii. At the end of the ABP tenure, payment to the beneficiary would be made by the Bank.
Simultaneously, importer would pay equal amount to the Bank.
viii. Usually no post-import finance is allowed.
ix. Pricing mode: Commission usually on quarterly basis.
x. Primary security: Bill of Exchange signed on the back by the importer and L/C Application
and Agreement Form.
3.2.2.3 Bank Guarantee (BG):
BG is an unconditional undertaking given by a Bank to the beneficiary on behalf of the customer to pay a
stipulated sum of money in case of claim by the beneficiary for the reasons stipulated in the Guarantee.
There are different types of BG to cover different requirements.
Features:
i. Bank enters into two separate contracts in case of opening any L/C, one is with the customer
and other is the L/C itself with the exporter/supplier (beneficiary).
ii. All specific BG and each BG created under a revolving limit are demand loan by nature.
iii. Bank is obliged to pay the beneficiary upon production of stipulated documents thus Bank
does not deal with the goods (items).
iv. There are different types of BG but the followings are practiced in PBL:
a. Bid Bond (BB): This guarantee is provided in favor of the tender inviting authority to
participate in a tender on behalf of the bidder (Customer). Bid Bond bears very short term
validity period. Unsuccessful bidder’s Bond is returned immediately after decision on
work/supply-awarding and successful bidder’s Bond is replaced by PG within the time
allowed by the authority.
b. Performance Guarantee (PG): This guarantee is provided in favor of the work/supply
order awarding authority for assurance of performance of the work/supply order on
behalf of the contractor/supplier (Customer). Usual amount of PG is 10-15% of
work/supply order value; however, it depends on the work/supply order awarding
authority. Usually its validity covers the work order validity plus warranty/defect liability
period.
c. Advance Payment Guarantee (APG): This guarantee is provided in favor of the
work/supply order awarding authority on behalf of the contractor/supplier (Customer) in
return of the advance made by them for mobilization of material, equipments, etc. Usual
amount of APG is 10-15% of work/supply order value; however, it depends on the
work/supply order awarding authority. Usually open ended. APG gradually liquidates
with the recovery of the mobilization advance by the work/supply order awarding
authority from each running bill.
d. Retention Money Guarantee/Retention Bond: This guarantee is provided in favor of
the work/supply order awarding authority on behalf of the contractor/supplier (Customer)
after completion of work/supply order for withdrawing the money retained by them from
the bills. Usual amount of this Guarantee is 2.5% of work/supply order value; however, it
depends on amount retained by and the terms of work/supply order awarding authority.
Usually its validity ends with the warranty/defect liability period.
e. Payment Guarantee/ Suppliers Credit Guarantee: This guarantee is provided in favor
of the suppliers/service providers and on behalf of the Customers to avail certain amount
of supplies/services on credit. It is usually a longer term (1-5 years) guarantee.
f. Guarantee against Counter Guarantee of other Bank/NBFI (Foreign or Local): This
guarantee is provided as per instruction of Counter Guarantee of other Bank/NBFI
(Foreign or Local). Details of the guarantee text and terms are stipulated in the Counter
Guarantee. In case of any claim the Counter Guarantee providing Bank/NBFI will
reimburse the amount to the issuing Bank thus the Bank/NBFI has to be acceptable to the

26
 issuing Bank.
g. Customs Guarantee: This guarantee is provided in favor of the Customs Authority of
Bangladesh on behalf of the Customer to clear imported goods postponing payment of
customs duty. Usually exporters avail this kind of the guarantee. Sometimes this
guarantee covers the Customs’ claimed amount (as duty) when the customer chooses to
go for litigation.
h. Other Bank Guarantees: Besides these, time to time Bank provides different other
guarantees in the name of ‘Bank Guarantee’ to meet customer requirements.
v. Pricing mode: Commission usually on quarterly basis.
vi. Primary security: Counter Guarantee of the customer.
3.3 Product Parameter:
3.3.1. Maximum Size:
Maximum size of any funded credit facility to a single customer shall at best be 15% of the total capital of
the Bank provided that Single Customer Exposure Limit and other relevant rules as set in different
chapters of this policy are complied with. And maximum size of any non-funded credit facility shall at
best be 35% of total capital and 50% of the total capital of the Bank for the non-export sector customers
and export sector customers respectively provided that Single Customer Exposure Limit and other
relevant rules as set in different chapters of this policy are complied with.
However, size of any credit limit in each case shall be fixed after proper assessment of genuine credit
requirement of the customer within the maximum allowable limit.

3.3.2. Maximum Tenure:

Maximum tenure for any continuous loan shall be 1 (one) year which is renewable at maturity or within
the validity period upon satisfactory performance of the customer. And period of any term loan shall be
fixed on case to case basis considering repayment capacity, projected cash flow etc.

27