MOHAMMAD BADRUL ALAM

SENIOR OFFICER
AGRANI BANK LTD
RAJBARI BR., RAJBARI
CELL NO-01725308970
FACEBOOK-MB ALAM ARIF

Lending operation & risk management

TL1. Define Term Loan
Term loan refers to asset based loan payable in a fixed number of equal
installments over the term of the loan, usually for 1 to 5 years. Term loans are
generally provided as working capital for acquiring income producing assets like
machinery, equipment, inventory that generate the cash flows for repayment of
the loan. Banks have term-loan programs that can offer small businesses the cash
they need to operate from month to month.
TL2. Why the private commercial banks discourage to consider long term
loans
Most of the time the private commercial banks discourage to finance the long
term loans due to some relative risky and problems. These are:
1) Lower Rates: Long-term loan normally have lower interest rates than short-
term credits.
2) Slow Cash Inflow: A long-term debt obligation also prevents the faster cash
inflow.
3) Risk Involvement: Generally, the level of the interest rate is depends upon the
risk involved with making the loan. In case of default, long-term loan includes a
greater span of time.
4) Credit turn-over loss: The long-term loan will be paid over a loan period. So
the lender get recovered the amount by a long period as the lender has missed the
rapid credit turn over.
5) Long term debt is often costly to service
6) The cost of capital is higher in case of long term debt

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TL.3.. Distinguish between term credit and short-term credit
Particulars Long Term Credit Short Term Credit
1. Definition A form of finance that have a A form of finance that
small, mid or long repayment have a short repayment
schedule schedule
2. Maturity 1 to 5 years, in some cases it 1 or less than 1 year
period may be 20 years
3. Competitive competitively marginal or low competitively high rate
interest rate rate
4. Lending Some complex to lending Easy to lending
complexity except short-term lending
5. Profitability Marginal profit High margin of profit
6. Risk Marginal or high risk Low risk
7. Loan limit Loan limit is more Small Loan limit
8. security need of temporary, permanent No need of permanent or
& valuable property as a valuable property as a
security security

TL.4.. Why do the private commercial banks prefer short term lending Or,
Advantages of Short-Term Financing
1. Easier to provide: Banks can provide short–term credit more easily within the
minimum functionality than long-term credit.
2. Higher interest: Banks may impose the higher interest rate due to small
amount of credit with the minimum or security less financing.
3. Rapid turn-over of capital: The capital investment is turning over rapidly and it
make chance to further investment
4. Minimum cost of capital: Whether, the short-term credit makes the rapid turn-
over of capital investment, thus it may reduce the cost of capital.
5. Minimum risks: Due to minimum time frame, the repayment of loan may
cover in earlier. Thus, the risk is lesser than the long term credit.
6. Easy control over the customers: Banks can overlook more easily to the short-
term borrowing customers than the long-term borrower.
7. Flexibility to lend: It is more flexible in the sense that the banks lends as the
borrowers are needed and repay then in due time.
8. Minimum complexity: The maintenance and supports of further credit
procedures is simple than long-term finance.
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9. Fund availability: In many cases, commercial banks prefer to maximize the
fund availability particularly small enterprises.
TL.5.. Discuss different types of credit facilities that a commercial bank can
provide to its clients. Dec-2013
Different types of credit facilities by commercial bank are as follows:
1. Overdraft Facilities: The depositor in a current account is allowed to draw
over and above his account up to a previously agreed limit. Bank charges interest
only on overdrawn amount.
2. Cash Credit: Borrowers will be allowed to withdraw small sums of money
according to his requirements, but not exceed credit and he is required to pay
interest only.
3. Discounting Bills of Exchange: The holder of a bill can get it discounted by
the bank, when he is in need of money. After deducting its commission, the bank
pays the present price of the bill to the holder.
4. Money at Call: Bank grant loans for a very short period, not exceeding 7 days
to the dealers or brokers in stock exchange markets against collateral securities.
5. Term Loans: Provide loans to trading, industry and agriculture sector with a
period between 1 to 10 years in installment basis. It also provides working capital
funds to the borrowers.
6. Consortium Finance: Two or more banks may jointly provide large loans to
the borrower against a common security.
7. Consumer Credit: Grant credit to households in a limited amount to buy
some durable consumer goods or to meet some personal needs.
8. Miscellaneous: The other forms of loan are packing credits given to exporters,
export bills purchased/discounted, import finance against import bills, finance to
the self employed, credit to the public sector, credit to the cooperative sector.
Types of credit commercial prefer to finance & its reason
Commercial bank is a financial business institution. Profit is the main target of
such institution. again commercial abnks are bound to repay the deposit money to
the customer. so commercial banks prefer short term credit than long term crdit
for earning profit. the main reason for preference to finance short term credit
are given below----
1. liquidity act—commercial bank are bound to repay the deposit to its
customer at demand. For this reason commercial bank give short term
credit so that they can easily convert it to cash.liquidity does not exist in
long term loan.
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 2. Risky activities- approval of long term loan is risky and so, banks prefer
short term lending.
3. Earning of profit- the more you will use the invested money the more you
will earn profit but in case of long term lending investment cannot reuse.
As a result profit margin become low. So, banks prefer short term loan.
At last we can say that considering on profit margin, risk factor and
liquidity condition commercial bank prefer short term loan than long term
loan.
TL.6. Broadly explain Credit Facilities Available in Banks. Dec-2013
 Overdraft: The word overdraft means the act of overdrawing from the Bank
account. In other words, the account holder withdraws more money from the
Current Account than has been deposited in it. The loan holder can freely draw
money from this account up to the limit and can deposit money in the account.
The Overdraft loan has an expiry date after which renewal or enhancement is
necessary for enjoying such facility. Any deposit in the overdraft account is
treated as repayment of loan. Interest is charged as balance outstanding on
quarterly basis. Overdraft facilities are generally granted to businesspersons.
 Cash Credit: These are also the facilities where, like overdrafts, a limit is set
in the account not exceeding one year. However difference is that a separate
―Cash Credit‘ account is opened by the bank where limit is applied instead of
client‘s account. Banks lend money against the security of tangible assets or
guarantees in the method. It runs like a current account except that the money
that can be withdrawn from this account is not restricted to the amount deposited
in the account. Instead, the account holder is permitted to withdraw a certain sum
called ―limit‖ or ―credit facility‖ in excess of the amount deposited in the
account. Once a security for repayment has been given, the business that receives
the loan can continuously draw from the bank up to that certain specified
amount. The purpose of cash credit is to meet working capital need of
businesspersons.
 Bill Discounting: Under this type of lending, Bank takes the bill drawn by
borrower on his (borrower‘s) customer and pays him immediately deducting
some amount as discount and commission. The Bank then presents the Bill to the
borrower‘s customer on the due date of the Bill and collects the total amount. If
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the bill is delayed, the borrower or his customer pays the Bank a pre-determined
interest depending upon the terms of transaction.
 Term Loan: This type Banks lend money in this mode when the repayment is
sought to be made in fixed, pre-determined installments. These are the loans
sanctioned for repayment in period more than one year. This type of loan is
normally given to the borrowers for acquiring long-term assets.
 Short Term loan: Term loan extended for short period usually up to One year
is term as STL. This type of loan may or may not have specific repayment
schedule. However, STL with repayment schedule is preferable.
 Letter of Credit: This is a pre-import finance, which is made in the form of
commitment on behalf of the client to pay an agreed sum of money to the
beneficiary of the L/C upon fulfillment of terms and conditions of the credit.
Thus at this stage bank does not directly assume any liability, as such the same is
termed as contingent liability.
 Payment against Documents: Payment against Documents or simply (PAD)
is a post-import finance to settle the properly drawn import bills received by the
bank in case adequate fund is not available in client‘s account. This is a demand
loan for interim period and liquidates by retiring import bills by the client. The
bank shall immediately serve a notice upon the client mentioning arrival of
documents with a request to arrange retirement of the same immediately.
 Loan against Trust Receipt (LTR): This is also a post-import finance facility
awarded to retire import bill directly or under PAD as the case may be. In this
case, bank may or may not realize margin on the total landed cost, depending
upon banker-customer relationship. Here the possession of the goods remains
with the borrower and the borrower executes ‗Letter of Trust Receipt‘ in
acknowledgement of debt and its repayment along with interest within agreed
period of time.
 Export Finance: Like import finance DBL advances in export trade at both
pre and post shipment stages. In this type of advance, standing of both opener
and beneficiary of export L/C as well as standing of the L/C issuing bank are of
important consideration. The pre-shipment facilities are usually required to
finance the costs to execute export orders, such as: procuring & processing of
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raw materials, packaging and transportation, payment of various fees and charges
including insurance premium. While post-import facilities are directed to finance
exporter‘s various requirements, which are required to be settled immediately on
the backdrop that usually, settlement of export proceeds takes some time to
complete.
 Syndicated Loan: These are the loans usually involving huge amount of
credit and such to reduce a particular bank‘s stake. A number of banks and
financial institutions participate in such credit, known as loan syndication. The
bank primarily approached by arranging the credit is known as the lead or
managing banks.
 Lease Finance: These types of finance are made to acquire the assets selected
by the borrower (lessee) for hiring of the same at a certain agreed terms and
conditions with the bank (lessor). In this case, bank retains ownership of the
assets and borrower possesses and uses the same on payment of rental as per
contract. In this case, no down payment is required and usually purchase option
is not permitted.
 Bank Guarantee: Bank Guarantee is one sort of non funded facility. Bank
Guarantee is an irrevocable obligation of a bank to pay a pre-agreed amount of
money to a third party on behalf of a customer of a bank. A contract of guarantee
is thus secondary contract, the principal contract being between the beneficiary
and creditor and the principal debtor themselves to which guarantor is not a part.
If the promise or the liability in the principal contract is not fulfilled or
discharged, only then the liability of guarantor or surety arises.
W7. What is Working Capital Loan
A working capital loan is a loan used by an organization to cover day-to-day
operational expenses. For example, a company is unable to generate the revenue
to meet expenses incurred by day-to-day operations. In such case, company may
apply for a working capital loan. A working capital loan covers only expenses
incurred by existing capital, human resources, etc.

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W8. Distinguish between working capital (W/C) and cash credit (CC) loan
Sl.
Working Capital Loan
1 It is taken for a certain period like 5
years
2 Repayment is made by Equal
monthly installment basis
3 If the fund is required for purchase
of capital assets, then the bank gives
the working capital loan
Cash Credit Loan
It is for one year and need to renewed
every year
Repayment is made by only interest or
any sum of amount
If the fund is required for meeting the
working capital requirement, then the
bank gives the CC limit

The loan amount may pay at ones The payment and repayment is made
and repayment is made by monthly by day basis
basis
It may be secured by personal It may be hypothecated and pledged
guarantee or mortgage of any fixed by stock and receivables
asset
W9. Define Working Capital.
Working capital signifies money required for day-to-day operations of an
organization. No business can run without the provision of adequate working
capital. It has two types: 1) Gross working capital that refers to as working
capital means the total current assets; 2) Net working capital that the differences
between current assets and current liabilities.
W4. Discuss the Significance/Importance of working capital for a firm.
Working capital is the life blood for running an organization. It is very essential
to maintain smooth running of a business. The main significance or importances
of working capital are as follows:
1. Supports as initial partial capital: The working capital can helps to adequate
liquidity to developing a business.
2. Strengthen the Solvency: It helps to operate the smooth flow of production and
business without any financial problem for making the payment of short- term
liabilities.
3. Enhance the project growth: Sufficient working capital enables to make
prompt payments and helps in creating goodwill.
4. Easy obtaining finance: A firm having adequate working capital, high
solvency and good credit rating can arrange loans from banks in easy and
favorable terms.
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5. Regular supply of raw material: Quick payment of credit purchase of raw
materials ensures the regular supply of raw materials from suppliers.
6. Smooth business operation: It maintains a good shape in entire developments
for a developing project.
7. Ability to face crisis: In crisis to emergency needs, it enables to meet working
capital requirement for the project.
w.5. Importance of working capital loan for running an agro-industrial
project
Or, Importance of working capital loan for running an industrial project
Or, Advantages of Working Capital Loan
Working capital is the life blood for running an agro/industrial project. It is very
essential to maintain smooth running of a business. The main advantages or
importance of working capital are as follows:
1. Supports as initial partial capital: The working capital loan can helps to
adequate liquidity to developing agro/industrial project.
2. Strengthen the Solvency: It helps to operate the smooth flow of production
and business without any financial problem for making the payment of short-
term liabilities.
3. Enhance the project growth: Sufficient working capital enables to make
prompt payments and helps in creating goodwill.
4. Regular payment of operating expenses-operating expenses of an
organization such as wages of labour, materials purchase and other expense
needs sufficient wirking capital.
5. Easy obtaining loan: A firm having adequate working capital, high solvency
and good credit rating can arrange loans from banks in easy and favorable terms.
6. Regular supply of raw material: Quick payment of credit purchase of raw
materials ensures the regular supply of raw materials from suppliers.
7. Smooth business operation: It maintains a good shape in entire developments
for a developing project.
8. Ability to face crisis: In crisis to emergency needs, it enables to meet working
capital requirement for the project.
9. Possibility of getting cash discount—sufficient working capital increase the
purchasing ability of an organization and cash payment for purchased goods
give discount from seller.
10. Exploitation of new and favourable market condition-sufficient working
helps to jump at any new market and any favourable position of a market.

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 W.6.Please furnish a sample of working capital assessment for a textile
industry of 80 looms---j16

W7 .How would you assess the working capital requirement of poultry

industry?
Or, Assessments/ forecast of working capital requirements
The shortage or surplus of working capital, both are harmful for the organization
especially for poultry industry. So it is important for the assessments of working
capital. The following considerations which is necessary for assessing the
working capital requirement for a poultry industry:
1. The information of estimated production of poultry business
2. The value of raw material, labor and overheads for unit or sum of production
3. Time lag in store of raw materials of poultry product
4. Time lag in production process of poultry product
5. Stag in the warehouse of finished product
6. Delivery process of the poultry product
7. Collection period from debtors
8. Credit allowed by suppliers
The main factors of assessing working capital are
a. Inventories ofstock
-raw materials
-work in process :and
-finished goods
b.debtors: and
c.cash

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W8. Broadly Explain the factors affecting working capital requirement.
(Need Details)
Or, Explain the factors determining the need for working capital.
Or, Describe in brief the various factors which are taken into account in
determining the working capital needs of a firm.
A firm should have neither low nor high working capital. Low working capital
involves more risk and more returns, high working capital involves less risk and
less returns.
A firm should plan itd operation in such a way that is shoult have neither too
much nor too little working capotal. The total working capital requirement is
determined by a wide variety of factors.these factors,however,affect different
enterprise differently. Following are the important factors generally influencing
the orking capital requirements:
1. Nature of the business –the nature of business and the working capital
requirement of a business are interlinked. A manufacturing enterprise has a long
operating cycle than that of an operating cycle of a service enterprise. An
enterprise involved in production would require more working capital than a
service sector enterprise.
2. Size of the business –the requirement of working capital fluctuates for
seasonal business. The working capital needs of such business may increase
considerably during peak season and decrease during off season.
3. Manufacturing cycle-the manufacturing cycle starts with the input of raw
materials and ends with finished products. If the cycle involves a linger period,
the need for working capital would be more and vice-versa.
4. Availability of raw materials.
5. Market condition
6. Business/production policy
7. Methods of purchase and sale of commodities
8. Converting working assets into cash
9. Seasonal variation in business
10. Risk in business
11. Size of labor force

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12. Price level changes
13. Rate of turnover
14. State of business activity
P&h1. What do you mean by mortgage, pledge & hypothecation? Dec-2013
Mortgage: Mortgage is a type of charge related to immovable property.
Immovable property shall include land, benefits to arise out of land and things
attached to the earth or permanently fastened to anything attached to the earth. It
does not include standing timber, growing crops or grass.
Pledge: Pledge arises when the lender (pledgee) takes possession of either the
goods or bearer securities for extending a credit facility to the borrower
(pledgor). The pledgee can retain the possession of the goods until the pledgor
repays the entire debt amount and in case of a default, the pledgee has the right to
sell the goods in his possession and adjust its proceeds towards the amount
due.(example Jewel loan).
Hypothecation: Hypothecation is a way of creating a charge against the security
of movable assets, which is much similar to pledge.(example purchasing a bike
from bank loan). The possession and the ownership remain with the borrower.
Since the possession remains with the borrower, he may, at any time either create
a subsequent charge by way of pledge over same goods or may sell them. In such
cases, the rights of the pledgee usually super cedes the rights of the person in
whose favor the goods were hypothecated, if the fact of existence of such a
charge is not known to the subsequent pledgee.
P&h.2.a. Distinguish between pledge & hypothecation Mortgage:
Si Pledge Hypothication
no
1 Incase of pledge ,bank take the For hypothecation, possession
possession of the goods but ownership remains with the borrower but
remain to the debtor owner is bank
2 Both the pledge and pledgor conduct Both the financer and the debtor
an aggremnet about agreement for conduct an agreement about
pledge of goods and produces hypothecation of goods and
produces.
3 The pledgee can retain the possession In case of hypothecation The
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 of the goods until the pledgor repays possession and the ownership
the entire debt amount and in case of a remain with the borrower and so, he
default, the pledgee has the right to may, at any time either create a
sell the goods in his possession and subsequent charge by way of pledge
adjust its proceeds towards the over same goods or may sell them.
amount due.
4 There are two types of pledge. Hypothecation has no types.
1.actual pledge; 2. Constructive
pledge
5 For safety of pledge product, bank For safety of hypothecated product,
appoint security guard owner ownself arrange the security
of the product
6 Risks for Pledged goods as goods may If occurs such type of damage
stolen, perish, burn by fire or damage collateral security help to recover
any other way the loan.

P&h.2.b.As a banker between pledge & hypothecation, which one you will
prefer? Justify in favor of your argument. Dec-2013 (Need to explain)
If disbursement of loan is done without considering the honesty of debtor, past
experience, education, business skill etc the loan will be bad in classification. So
between pledge and hypothecation which one is better depend on the advantages
and disadvantages of them. advantage and disadvantages of pledge and
hypothecation are discussed below---
Pledge-when loan debtor deposit his goods to the investor as a guarantee for
repay of loan and investor has the possession of the goods then it is called
pledge.
1.Advantages
* in case of a default, the pledgee has the right to sell the goods in his
possession and adjust its proceeds towards the amount due with a single
notice.
* as The pledgee retains the possession of the goods pledgor cannot sell or
pledge to another pledge.
2. Disadvantages

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 *need appoint of extra manpower for security of pldge goods.
*need more inspection so that cannot sell or destroy the goods
*perishable goods are not applicable for pledge loan
*raw materials for industry and products for packing is not applicable for
pledge loan.
Hypothication- when loan debtor has the possession of the goods but ownership
is to the investor as a guarantee for repay of loan then it is called hyputhication. .
1.Advantages
*collateral security is mandatory for which if loan is default in can recover by
selling security.
*no need for extra expense for appointment of security for safety of goods.
*no need extra inspection
2. Disadvantages
*need approval from court for auction of goods/collateral security
*debtor can sell the goods without concern of investor.
From the above discussion we can say that, from theoretical view though pledge
is suitable but it is unuseful in nature. Its past experience is not also good. So use
of pledge loan is decreasing day by day. Otherside, use of hypothication is
increasing day by day because of its less inspection of goods and has collateral
security for loan default. For this reason banks usually preer hypothecation than
pledge.
Sme.1.. What is SME Finance & Agricultural Finance
Or, Define SME Credit with reference to BB’s given Definition Dec-2013
SME Financing: SME finance is the funding of small and medium sized
enterprises, and represents a major function of the general business finance
market – in which capital for different types of firms are supplied, acquired, and
priced. Capital is supplied through the business finance market in the form of
bank loans and overdrafts; leasing and hire-purchase arrangements;
equity/corporate bond issues; venture capital or private equity; and asset-based
finance such as factoring and invoice discounting.
SMEs are vital for economic growth and development in both industrialized and
developing countries, by playing a key role in creating new jobs. Small
businesses are particularly important for bringing innovative products or
techniques to the market.
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[According to Bangladesh Bank (SMESPD Circular No.1 dated 19 June, 2011),
the cottage, micro & SME is newly defined the industry/enterprise: Fixed assets
excluding land & building (Tk. in crore)
No. of manpower Criteria Sectors Medium Small Micro Medium Small
Micro Manufacturing 10-30 0.5-10 0.05-0.5 100-250 25-99 10-24 Trade 1-15
0.05-1 <0.05 50-100 10-25 <10 Service 1-15 0.05-1 <0.05 50-100 10-25 <10
Cottage Industry <0.05 <10 An industry or enterprise can be treated as that
category one following a benchmark but the same can fall under higher category
if another benchmark is considered. In that case it will be treated as higher
category industry. A woman, who owns a private firm or she holds minimum
51% stake in firm run jointly or registered, will be treated as women
entrepreneur.]
Agricultural Finance: Agricultural credit is a financial term that refers to loans
and other types of credit extended for agricultural purposes. Agricultural credit
systems promote the expansion and continued survival of farm and livestock
operations, covering the entire agricultural value chain - input supply, production
and distribution, wholesaling, processing and marketing. Banks lend to farmers
for a variety of purposes, including (1) short-term credit to cover operating
expenses; (2) intermediate credit for investment in farm equipment and real
estate improvements; (3) long-term credit for acquisition of farm real estate and
construction financing; and (4) debt repayment and refinancing.
SME.2. a) Distinguish between SME credit and agricultural credit.
b) Which of the two, according to your opinion, effectively influencing the
economic development of the country including higher GDP growth?

SME.3. List out the booster sectors financed under SME scheme
ANS. Name of booster sector financed under SME programme are cited below-
a.Induatrial sector-
i. electronix and electric materials.
ii. Plastic and other synthetic
iii. Furniture manufacture
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iv. Small parts of car/autorikshaw, aluminium fitings of for home chore or
office usage.
v. Jewelery, photography or printing press.
vi. Production of herbal products etc.
b.Service sector
i. health service and diagonostic
ii. herbal treatment & beauty parlor
iii. medicine & cosmetics
iv. amusement park, tourist spot, turist cottage,resort, residential hotel etc.
c. business sector
I. wholesale or retail shop, grosarry shop, departmental store, hardware,
cosmetics, resturent, stationary, medicine shop, garments manufacturing
shop, furniture shop,etc
II. working capital financing for markey and marketing of product and
services produced from industry or enterprise.

SME.4. Do you think that the credit delivery under SME scheme is given
due weight by bank and financial institution from the view pointj ofnational
interest.
Bank and financial institution finance in sme sector from its own fund. For this
Bank and financial institution act as a main source of sme fund. Also
Bangladesh bank has given some finance under refinance programme. After
perspective of world economic downward to increase the growth of GDP it is
needed to involve people from all sector of the country. For this reason priority
has given to increase the less important or neglected sector of the country such as
agri and micro-medium enterprise. for more development in sme sector a
divisioned named ―sme & special programme division‘‘ has opened in
bangladesh bank which only determine the rules and regulation for sme
development. This division helps in monitoring, provide fund, create
enterpernure and act as help assistant at development progrrame.
According to Bangladesh bank sme rules Bank and financial institutionhave
taken the following proggrame-
*from 2000 considering sme sector as agenda for economic development target
of sme loan disbursement has determined for Bank and financial institution.
according to determined target sme loan is disburing in micro, medium and
women enterprenure.
* Bank and financial institution have divided their target on area basis as branch
wise, districtwise and sector wise.
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*every Bank and financial institution follow feasy rules and regulations, take
few time during approval , documentation and disbursement of loa considering
the favour of microand medium enterpernure.
*every bank has opened sme branch in different locality to expand sme secor.
*different financial institution giving loan amount of 50000/- to 5000000/-to
micro industry/enterprenure.
*to increase the participation of women in the economic development of country
sme loan is giving themwithout any security.
* every Bank and financial institution has opened ―women enterpernure
dedicated desk‘‘ and appoint sufficient manpower according to Bangladesh bank
rules and circular.
* Bank and financial institution has giving cluster loan under employment
creation and proverty elimination proggrame ordered by Bangladesh bank.
*bank giving loan to solar power, waste management plant and brick field at
lower interest rate under BB refinance proggrame.
*BB has implemented green banking rules for investment in environmentaly
viable sector.
*arranging training for new enterprenure at sme sector.
To expand sme loan government and financial institution need to take more
practical initiative except the avobe discussed sector and then the flow of
economic development of country will continue.

Sme.5.0. Do you think that all banks should give top priority in financing
SME sector for creating employment, reduction of poverty and overall
development of the country? Justify your answer. ----j14
Small & Medium Enterprise (SME) plays a pivotal role in the economic growth
and development of Bangladesh. Actually, SME works as the platform for job
creation, income generation, and development of forward and backward
industrial linkages and fulfillment of local social needs. SMEs occupy a unique
position in the economy of Bangladesh. Mainly private sector development
depends on them.
In view of present economic development effort in Bangladesh the SME sector
plays an important role. These are reflected in the following performance
/activities of this sector:

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  SME contributions to value addition in manufacturing is in the range of 20
to 25 percent of GDP
 There are approximately six million SMEs, which include enterprises with
up to 100 workers employing a total of 31 million people – equivalent to 40
per cent of the population of our country aged 15 years and above. Some
private survey also found that the industrial structure of SMEs consisted of
primarily wholesale, retail trade and repairs (40 per cent), agricultural
goods (22 per cent), services (15 per cent) and manufacturing (14 per cent).
 During the Fourth Five year plan, a total of 0.35 million jobs were created
against the target of 0.4 million.
 SME sector help alleviate poverty, increase income level of rural people
and promote agro-industrial linkage in Bangladesh.
 SME sector requires lower energy supply, lower infrastructure facilities and
this sector imposes less environmental risk.
 They contribute towards better utilization of local resources and skills that
might otherwise remain unutilized.
 Small industries being labor oriented are capable of generating more
employment.
 They are necessary to maintain and retain traditional skills and handicrafts.
 They are the only medium for diversification of rural economy and for
peaceful and concurrent socio-economic development of all classes of
people

To put it simply, SMEs are the heart of the industrial sector of the country,
employs the bulk of the working population and are owned by Bangladeshi
entrepreneurs. They provide a huge range of goods and services to the
Bangladeshi population, especially in the rural areas, alongside providing vital
support in the production chain to large industries. From the above discussion,
we can say that SMEs are playing an important role in our economy in various
ways.

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From the above discussion it is easier to say that as sme plays an important role
for creating employment, reduction of poverty and overall development of the
country all banks should give top priority in financing SME sector

Cp.1. What is Credit Planning? Dec-2013

A credit planning is to set out procedures for defining and measuring the credit-
risk exposure within the Group and to assess the risk of losses associated with
credit extended to customers, financial investments and counterparty risks with
respect to derivative instruments. The main aspects of a credit planning are- 1)
the terms and conditions on credit, 2) customer qualification criteria, 3)
procedure for making collections, and 4) steps to be taken in case of customer
delinquency.
CP.2. discus the importance of credit planning in the lending operation of a
bank.----

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Cp.3.What factors are to be taken into consideration by a bank while
making a credit planning? Or, Discuss the important components those are
to be taken in consideration in formulating the lending operational policy of
a bank. [Two Answer]
Answer One
An effective Credit planning should include the following considerations: 
Objectives of the credit function  Opening procedures and obtaining
information for new accounts  Assessing & evaluating the proposals  Terms
and conditions  Authority levels and responsibilities  Invoicing procedures 
Monitoring borrowing and paying behavior of customer  Procedure relating to
complaints and disputes  Targets, benchmarks, and deadlines for the credit
function  Defining & collecting of dues, overdues and bad debts
The credit planning should be considered by internal and external factors and
should be reviewed on an ongoing process. These are:  Customer‘s buying
patterns, needs and requests  Type of industry  Competitors‘ offers  Type of
products or services provided to customers  Production and warehouse
management  Distribution systems  Credit terms from trade suppliers and the
bank‘s overdraft limits  Costs of third parties involved, such as factoring, debt
collection agencies, etc.
Answer Two ----The components that should consider when formulating a
lending policy that should influence to extend credit are discussed below:
A. Terms of Sale The conditions under which a firm sells its goods & services- 1.
The period for which credit is granted: The factors that influence the credit
period are- a) Predictability b) Consumer Demand c) Cost, profitability and
standardization d) Credit risk e) Size of the account f) Completion 2. The type of
credit instrument 3. Credit Function a) Running a credit department b) Chose to
contract all or part of credit to a factor c) Manage internal credit operations are
insured against default
B. Credit analysis Refers to the process of deciding, it usually involves two
steps: 1. Relevant information a) financial statements b) credit agency c) banks
credit d) market good will 2. Credit Worthiness a) Character b) Capacity c)

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Capital d) Collateral 3. Credit scoring: The process of quantifying the probability
of default when granting consumer credit
C. Collection Policy Collection policy is the final factor in credit policy.
Collection policy involves monitory receivables to spot trouble and obtaining
payment on past due accounts.
CP.4.Discuss different types of credit facilities that a commercial bank can
offer to its client..d13--- TL.5. ans
CP.5. which one is preferable by bank and why?---
Types of credit commercial bank prefer to finance & its reason
Commercial bank is a financial business institution. Profit is the main target of
such institution. again commercial abnks are bound to repay the deposit money to
the customer. so commercial banks prefer short term credit than long term crdit
for earning profit. the main reason for preference to finance short term credit
are given below----
1. liquidity act—commercial bank are bound to repay the deposit to its
customer at demand. For this reason commercial bank give short term
credit so that they can easily convert it to cash.liquidity does not exist in
long term loan.
2. Risky activities- approval of long term loan is risky and so, banks prefer
short term lending.
3. Earning of profit- the more you will use the invested money the more you
will earn profit but in case of long term lending investment cannot reuse.
As a result profit margin become low. So, banks prefer short term loan.
At last we can say that considering on profit margin, risk factor and
liquidity condition commercial bank prefer short term loan than long term
loan.

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CP.6. characteristic of a credit officer—
A credit officer should have the following characteristics---
1. Theoritical knowledge about loan operation rules & regulation
2. Must be concerned about last update circular about loan operation rules &
regulation given by government and Bangladesh.
3. Must be concerned about own bank rules-regulations & programme schedule
about loan.
4. Know and carryout the empowerment power of bank.
5. Methodological knowledge and skil about lending operation—
a) credit planning
b) marketing: borrower selection
c) evaluating
d) processing
e) sanctioning
f) documentation
g) disbursing
h) monitoring & follow-up
i) recovery activities—cash recovery, regularization, legal action, negotiation
j) classification
k) reporting
ALMCO.1.& 3. Define ALM (Asset Liability Management) and ALCO
(Asset Liability Committee).
Ans:
ALM: Asset Liability Management (ALM) can be defined as a mechanism to
address the risk faced by a bank due to a mismatch between assets and liabilities
either due to liquidity or changes in interest rates. Liquidity is an institution‘s
ability to meet its liabilities either by borrowing or converting assets. Apart from
liquidity, a bank may also have a mismatch due to changes in interest rates as
banks typically tend to borrow short term (fixed or floating) and lend long term
(fixed or floating).

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A comprehensive ALM policy framework focuses on bank profitability and long
term viability by targeting the net interest margin (NIM) ratio and Net Economic
Value (NEV), subject to balance sheet constraints. Significant among these
constraints are maintaining credit quality, meeting liquidity needs and obtaining
sufficient capital.

ALCO: Asset Liability Management (ALM) is an integral part of Bank

Management; and so, it is essential to have a structured and systematic process
for manage the Balance Sheet. Committee comprising of the senior management
of the bank to make important decisions related to the Balance Sheet of the Bank
(asset-Liability). The committee typically called the Asset Liability Committee
(ALCO). As per BB guideline, the committee consists of the following key
personnel of a bank:
- Chief Executive Officer / Managing Director
- Head of Treasury / Central Accounts Department
- Head of Finance
- Head of Corporate Banking
- Head of Consumer Banking
- Head of Credit
- Chief Operating Officer / Head of Operations
The committee calls for a meeting once every month to set and review strategies

ALMCO.2. Do you think that, absence of good/effective ALM of a bank may

lead it to different crisis jeopardizing image and foundation of the bank?
Please elaborate your answer. May’12, Dec’12,
Ans:
In banking, asset liability management is the practice of managing the risks that
arise due to mismatches between the assets and liabilities (debts and assets) of
the bank. Banks face several risks such as liquidity risk, interest rate risk, credit
and operational risk. Asset/Liability management (ALM) is a strategic
management tool to manage Asset, Liability, spread of interest rate and liquidity
risk faced by banks & Financial Institutions.
In absence of good/effective ALM of a bank may lead it to following crisis:
1. Liquidity risk: the current and prospective risk arising when the bank is
unable to meet its obligations as they come due without adversely affecting
the bank's financial conditions.
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 2. Interest rate risk: The risk of losses resulting from movements in interest
rates and their impact on future cash-flows. One of the primary causes are
mismatches in terms of bank deposits and loans.
3. Currency risk management: The risk of losses resulting from movements
in exchanges rates. To the extent that cash-flow assets and liabilities are
denominated in different currencies.
4. Funding and capital management: As all the mechanism to ensure the
maintenance of adequate capital on a continuous basis. (Usually a
prospective time-horizon of 2 years).
5. Profit planning and growth: Profit planning is required to make a
sufficient growth for the organization itself.
6. In addition, ALM deals with aspects related to credit risk as this function
is also to manage the impact of the entire credit portfolio (including cash,
investments, and loans) on the balance sheet. The credit risk, specifically in
the loan portfolio, is handled by a separate risk management function and
represents one of the main data contributors to the ALM team.

So, it can be said undoubtedly that absence of good/effective ALM of a bank

may lead it to different crisis jeopardizing image and foundation of the bank

ALMCO.4.. Do you think each commercial bank should form ALCO?

Asset-Liability Management Committee (ALCO) is the core unit of a financial
institution. So it is the basic need to form an ALCO to balancing the Asset-
Liability Management. The ALCO will set a standard limits on borrowing in the
short-term markets and lending long-term instruments that controls over the
financial risks and external events that may affect the bank's asset-liabilities
position. It manages the risks to acceptable level by monitoring and sets the
competitive prices between assets and liabilities to maintain the liquidity position
of the company. Without an ALCO, a commercial bank may lose all positive
financial opportunities and the bank must be faced by different types risk as like
as financial crisis. So that it shout to be formed a ALCO for each commercial
bank to manage the vulnerable financial position.

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ALCO.5.Highlight the role and responsibilities of ALCO for proper
functioning of a bank. Dec’12, June’13

The key roles and responsibilities of the ALM Desk:

1) To assume overall responsibilities of Money Market activities.
2) To manage liquidity and interest rate risk of the bank.
3) To comply with the local central bank regulations in respect of bank‘s
statutory obligations as well as thorough understanding of the risk elements
involved with the business.
4) Understanding of the market dynamics i.e competition, potential target
markets etc.
5) Provide inputs to the Treasurer regarding market views and update the balance
sheet movement.
6) Deal within the dealer‘s authorized limit.

Crg.1. Define Credit Risk Grading (CRG) Dec-2013

*Credit Risk Grading (CRG) is a collective definition based on the pre-specified
scale and reflects the underlying credit-risk for a given exposure.
*CRG deploys a number/ symbol as a primary summary indicator of risks
associated with a credit exposure.
*Credit Risk Grading is the basic module for developing a Credit Risk
Management system.
Crg.2. Function of Credit Risk Grading
Well-managed credit risk grading systems promote bank safety and soundness by
facilitating informed decision-making. Grading systems measure credit risk and
differentiate individual credits and groups of credits by the risk they pose. This
allows bank management and examiners to monitor changes and trends in risk
levels. The process also allows bank management to manage risk to optimize
returns.
Crg.3. What is the uses/ purpose/ importance of CRG? Dec-2013
***The Credit Risk Grading matrix allows application of uniform standards to
credits to ensure a common standardized approach to assess the quality of an
individual obligor and the credit portfolio as a whole. It measure credit risk and
differentiate individual credits and groups of credits by the risk they pose. This
allows bank management and examiners to monitor changes and trends in risk
levels.

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***As evident, the CRG outputs would be relevant for credit selection, wherein
either a borrower or a particular exposure/facility is rated. The other decisions
would be related to pricing (credit spread) and specific features of the credit
facility.
***Risk grading would also be relevant for surveillance and monitoring, internal
MIS and assessing the aggregate risk profile of a bank. It is also relevant for
portfolio level analysis.
Crg.5. Write down the expected minimum CRG requirements for extending
credit. Explain with example. Dec-2013
Or, Definition of Numbers of Credit Risk Grading
A clear definition of the different categories of Credit Risk Grading is given as
follows:
Risk Rating Grade Definition
Superior – Low 1  Facilities are fully secured by cash deposits 
Risk Government bonds or a counter guarantee from a top
tier international bank.  All security documentation
should be in place.

Good – 2  The repayment capacity of the borrower is strong. 

Satisfactory The borrower should have excellent liquidity and low
Risk leverage.  The company should demonstrate
consistently strong earnings and cash flow.  All
security documentation should be in place. Aggregate
Score of 95 or greater based on the Risk Grade
Scorecard.

Acceptable – 3 Adequate financial condition though may not be able

Fair Risk to sustain any major or continued setbacks.  These
borrowers are not as strong as Grade 2 borrowers, but
should still demonstrate consistent earnings, cash flow
and have a good track record  An Aggregate Score of
75-94 based on the Risk Grade Scorecard.

Marginal – 4  Grade 4 assets warrant greater attention due to

Watch list conditions affecting the borrower, the industry or the
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 economic environment.  These borrowers have an
above average risk due to strained liquidity, higher
than normal leverage, thin cash flow and/or
inconsistent earnings.  Aggregate Score of 65-74
based on the Risk Grade Scorecard.
Special Mention 5  Grade 5 assets have potential weaknesses that
deserve management‘s close attention.  If left
uncorrected, these weaknesses may result in a
deterioration of the repayment prospects of the
borrower  An Aggregate Score of 55-64 based on the
Risk Grade Scorecard.
Substandard 6  Financial condition is weak and capacity or
inclination to repay is in doubt  Loans should be
downgraded to 6 if loan payments remain past due for
60-90 days  Not yet considered non-performing as
the correction of the deficiencies may result in an
improved condition, and interest can still be taken into
profits.  An Aggregate Score of 45-54 based on the
Risk Grade Scorecard.
Doubtful and 7  Full repayment of principal and interest is unlikely
Bad (non- and the possibility of loss is extremely high. 
performing) However, due to specifically identifiable pending
factors, such as litigation, liquidation procedures or
capital injection, the asset is not yet classified as Loss.
 The adequacy of provisions must be reviewed at
least quarterly on all non-performing loans, and the
bank should pursue legal options to enforce security to
obtain repayment or negotiate an appropriate loan
rescheduling.  In all cases, the requirements of
Bangladesh Bank in CIB reporting, loan rescheduling
and provisioning must be followed.  An Aggregate
Score of 35-44 based on the Risk Grade Scorecard
Loss (non- 8  Assets graded 8 are long outstanding with no
performing) progress in obtaining repayment (in excess of 180 days
past due) or in the late stages of wind up/liquidation. 
The prospect of recovery is poor and legal options have
been pursued.  The proceeds expected from the
liquidation or realization of security may be awaited.
The continuance of the loan as a bankable asset is not
warranted  An Aggregate Score of 35 or less based
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 on the Risk Grade Scorecard

Crg.6. Different aspects of Credit Risk Grading (CRG) with grading points
Or, Write down the components of CRG. Dec-2013
Or, Number and Short Name of Grades Used In the CRG
Number and Short Name of Grades used in the CRG:
Grading Short Name Number
Superior SUP 1
Good GD 2
Acceptable ACCPT 3
3 Marginal/Watch list MG/WL 4
Special Mention SM 5
Sub standard SS 6
Doubtful DF 7
Bad & Loss BL 8
Superior:
- Credit facilities, which are fully secured i.e. fully cash covered.
- Credit facilities fully covered by government guarantee.
- Credit facilities fully covered by the guarantee of a top tier international Bank.
Good:
- Strong repayment capacity of the borrower
- The borrower has excellent liquidity and low leverage.
- The company demonstrates consistently strong earnings and cash flow.
- Borrower has well established, strong market share.
- Very good management skill & expertise.
- All security documentation should be in place.
- Credit facilities fully covered by the guarantee of a top tier local Bank.
- Aggregate Score of 85 or greater based on the Risk Grade Score Sheet
Acceptable:
- These borrowers are not as strong as GOOD Grade borrowers, but still
demonstrate consistent earnings.
- Borrowers have adequate liquidity, cash flow and earnings.
- Credit in this grade would normally be secured by acceptable collateral (1st
charge over inventory / receivables / equipment / property).
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 - Acceptable management
- Acceptable parent/sister company guarantee
- Aggregate Score of 75-84 based on the Risk Grade Score Sheet
Marginal/Watch list:
- This grade warrants greater attention due to conditions affecting the borrower,
the industry or the economic environment.
- These borrowers have an above average risk due to strained liquidity, higher
than normal leverage, thin cash flow and/or inconsistent earnings.
- Weaker business credit & early warning signals of emerging business credit
detected.
- The borrower incurs a loss
- Loan repayments routinely fall past due
- Account conduct is poor, or other untoward factors are present.
- Credit requires attention
- Aggregate Score of 65-74 based on the Risk Grade Score Sheet
Special Mention:
- This grade has potential weaknesses that deserve management‘s close
attention. If left uncorrected, these weaknesses may result in a deterioration of
the repayment prospects of the borrower.
- Severe management problems exist.
- Facilities should be downgraded to this grade if sustained deterioration in
financial condition is noted (consecutive losses, negative net worth, excessive
leverage),
- An Aggregate Score of 55-64 based on the Risk Grade Score Sheet.
Substandard:
- Financial condition is weak and capacity or inclination to repay is in doubt.
- These weaknesses jeopardize the full settlement of loans.
- Bangladesh Bank criteria for sub-standard credit shall apply.
- An Aggregate Score of 45-54 based on the Risk Grade Score Sheet.
Doubtful: - Full repayment of principal and interest is unlikely and the
possibility of loss is extremely high.
- However, due to specifically identifiable pending factors, such as litigation,
liquidation procedures or capital injection, the asset is not yet classified as Bad &
Loss.
- Bangladesh Bank criteria for doubtful credit shall apply.
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- An Aggregate Score of 35-44 based on the Risk Grade Score Sheet.
Bad & Loss:
- Credit of this grade has long outstanding with no progress in obtaining
repayment or on the verge of wind up/liquidation.
- Prospect of recovery is poor and legal options have been pursued.
- Proceeds expected from the liquidation or realization of security may be
awaited. The continuance of the loan as a bankable asset is not warranted, and
the anticipated loss should have been provided for.
- This classification reflects that it is not practical or desirable to defer writing
off this basically valueless asset even though partial recovery may be affected in
the future. Bangladesh Bank guidelines for timely write off of bad loans must be
adhered to. Legal procedures/suit initiated.
- Bangladesh Bank criteria for bad & loss credit shall apply.
- An Aggregate Score of less than 35 based on the Risk Grade Score Sheet.
Crg.7. how to compute credit risk grading (CRG)
The following stepwise activities outline the detail process for arriving at CRG
Step.1. Identify all the principal risk components
Credit risks for counterparty arises from an aggregation of the following :
* Financial Risk
* Business/Industry Risk
* Management Risks
* Security Risks
* Relationship Risks
Step ii. Allocate weightages to principal risk components
According to the importance of risks profile, the following weightages are
proposed for corresponding principal risks

principal risk components Weight (%)

*Financial Risk 50
*Business/Industry Risk 18
*Management Risks 12
*Security Risks 10
*Relationship Risks 10

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 Step iii & iv. Establish the key parameters and assign weightge to each of
the key parameters
principal risk components Key parameters Weight (%)
Financial Risk 50
leverage 15
liquidity 15
profitibility 15
coverage 5
Business/Industry Risk 18
Size of business 5
Age of business 3
Business outlook 3
Industry growth 3
Market competition 2
Entry/exit barriers 2
Management Risks 12
experience 5
succession 4
Team work 3
Security Risks 10
Security coverage 4
Collateral coverage 4
support 2
Relationship Risks 10
Account conduct 5
Utilization of limit 2
Compliance of convenants/condition 2
Personal deposit 1

Step v. input data to arrive at the score on the key parameters

After the risk identification & weightage assignment process, the next steps will
be to input actual parameter in the score sheet to arrive at the score corresponding
to the actual parameters.
Step vi. Arrive at the credit risk grading based on total score obtained.
number Risk grading Short name score
1 Superior SUP *100% cash covered
*government guarantee
*international bank
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 guarantee
2 Good GD 85+
3 Acceptable ACCPT 75-84
4 Marginal/watchlist MG/WL 65-74
5 Special mention SMA 55-64
6 Sub-standard SS 45-54
7 doubtful DF 35-44
8 Bad & loss BL <35

Crg.8. Difference between Lending Risk Analysis (LRA) and Credit Risk
Grading (CRG)
Lending Risk Analysis (LRA) is a technique by which the loan risk is calculated
by Credit department of a bank that need to analyze it when loan application is
above 1 crore. The ranking of it is total 140, 120 is for total business risk and
another 20 is for total security risk. In LRA, following aspects are analyzed:
supplies risk, sales risk, performance risk, resilience risk, management ability,
level of managerial teamwork, management competent risk, management
integrity risk, security control risk, and security covers risk.
Credit Risk Grading (CRG) is a collective definition based on the pre-specified
scale and reflects the underlying credit risk for a given exposure. It deploys a
number/ symbol as a primary summary indicator of risks associated with a credit
exposure. The proposed CRG scale consists of 8 categories are as: superior,
good, acceptable, marginal, special mention, sub-standard, doubtful, and bad &
loss.
Prov.1.. What is provisioning?
Provisioning: The Provisioning is a non-cash expense at present for banks to
account for future losses on loan defaults. Banks assume that a certain percentage
of loans will default or become slow-paying. Banks enter a percentage as an
expense when calculating their pre-tax incomes. This guarantees a bank's
solvency and capitalization if and when the defaults occur. The provision
allocated each year increases with the riskiness of the loans a given bank makes.

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Prov.2.a. Basis of determining the status of classified loans and advances.
Dec- 2013 ---
Ans plz—
Before determine the provision for classified loan it is first needed to classify the
total loan
1. Categories of Loans and Advances : All loans and advances will be grouped
into four (4) categories for the purpose of classification, namely-
a) Continuous Loan: transactions may be made within certain limit and have an
expiry date for full adjustment. Examples are: Cash Credit, Overdraft, etc.
b) Demand Loan: The loans that become repayable on demand by the bank
and if any contingent or any other liabilities are turned to forced loan (i.e.
without any prior approval as regular loan) those too will be treated as Demand
Loan. Such as: Forced LIM, Payment against Document, Foreign Bill Purchased,
and Inland Bill Purchased, etc.
c) Fixed Term Loan: The loans, which are repayable within a specific time
period under a specific repayment schedule.
d) Short-term Agricultural & Micro-Credit: Short-term Micro- Credit will
include any micro-credits not exceeding an amount determined by the ACFID of
Bangladesh Bank from time to time and repayable within 12 (twelve) month and
as listed under the Annual Credit Programme issued by ACFID of Bangladesh
Bank
Basis for Loan Classification:
A) OBJECTIVE CRITERIA:
(1) Past Due/Over Due:
(i) continuous loan-Any Continuous Loan if not repaid/renewed within the
fixed expiry date for repayment or after the demand by the bank.
(ii) Demand Loan -Any Demand Loan if not repaid within the fixed expiry
date for repayment or after the demand by the bank .

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 (iii) Fixed Term Loan- In case of any installment(s) or part of installment(s) of
a Fixed Term Loan is not repaid within the fixed expiry date, the amount of
unpaid installment(s) will be treated as past due/overdue from the following day
of the expiry date.
(iv) Short-term Agricultural and Micro-Credit -The Short-term Agricultural
and Micro-Credit if not repaid within the fixed expiry date for repayment will be
considered past due/overdue after six months of the expiry date.
(2) All unclassified loans other than Special Mention Account (SMA) will be
treated as Standard.
(3) A Continuous loan, Demand loan or a Term Loan which will remain overdue
for a period of 02 (two) months or more, will be put into the "Special Mention
Account(SMA)".
(4) Loans except Short-term Agricultural & Micro-Credit in the "Special
Mention Account" and ―Sub-Standard‖ will not be treated as defaulted loan for
the purpose of section 27KaKa(3) of the Banking Companies Act, 1991.
(5) Any continuous loan after the expiry date will be classified as:
i. ‗Sub-standard‘ if it is past due/overdue for 03 (three) months or beyond but
less than 06 (six) months.
ii. ‗Doubtful‘ if it is past due/overdue for 06 (six) months or beyond but less than
09 (nine) months
iii. ‗Bad/Loss‘ if it is past due/overdue for 09 (nine) months or beyond.
(6) Any Demand Loan after expiry/claimed by bank will be classified as:
i. ‗Sub-standard‘ if it remains past due/overdue for 03 (three) months or beyond
but not over 06 (six) months
ii. ‗Doubtful‘ if it remains past due/overdue for 06 (six) months or beyond but
not over 09 (nine) months
. iii. ‗Bad/Loss‘ if it remains past due/overdue for 09 (nine) months or beyond

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(7) Fixed Term Loan -In case of any installment(s) or part of installment(s) of a
Fixed Term Loan is not repaid within the due date, the amount of unpaid
installment(s) will be termed as ‗past due or overdue installment‘.
For the below reasons total amount of loan will be classifies if as-
i. The amount of past due installment is equal to or more than the amount of
installment(s) due within 03 (three) months, the entire loan will be classified as
''Sub-standard''.
ii. If the amount of past due installment is equal to or more than the amount of
installment(s) due within 06 (six) months, the entire loan will be classified as
''Doubtful".
iii. If the amount of 'past due installment is equal to or more than the amount of
installment(s) due within 09 (nine) months, the entire loan will be classified as
''Bad/Loss''.
(8) The Short-term Agricultural and Micro-Credit -The Short-term
Agricultural and Micro-Credit will be classified as 'Substandard ' after a period of
12 months, as 'Doubtful' after a period of 36 months and as 'Bad/Loss' after a
period of 60 months from the stipulated due date as per the loan agreement.
Symbol- <=greater than >=less than M=month
Types of loan Continuoue Demand Fixed Short-term agri
classification loan loan term loan & micro credit
unclassified STD 0< >2 M 0< >2 M 0< >2 M 0< >12 M
SMA 2< >3 M 2< >3 M 2< >3 M
classified SS 3< >6 M 3< >6 M 3< >6 M 12< >36 M
DF 6< >9 M 6< >9 M 6< >9 M 36< >60 M
BL 9 & more M 9 & more 9 & more 60 & more M
M M

B) QUALITATIVE JUDGEMENT:
If any uncertainty or doubt arises in respect of recovery of any Continuous Loan,
Demand Loan or Fixed Term Loan, the same will have to be classified on the

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basis of qualitative judgement be it classifiable or not on the basis of objective
criteria.
If any situational changes occur in the stipulations in terms of which the loan
was extended or if the capital of the borrower is impaired due to adverse
conditions or if the value of the collateral decreases or if the recovery of the loan
becomes uncertain due to any other unfavourable situation, the loan will have to
be classified on the basis of qualitative judgement .
No need for exam----- For incorporating qualitative judgment, banks must
focus on the likelihood that the borrower will repay all amounts due in a timely
manner, using their own judgment and the following assessment factors:
(1) Special Mention
i. Assets must be classified no higher than Special Mention if any of the
following deficiencies of bank management is present: the loan was not made
in compliance with the bank‘s internal policies; failure to maintain adequate
and enforceable documentation; or poor control over collateral.
ii. Assets must be classified no higher than Special Mention if any of the
following deficiencies of the obligor is present: occasional overdrawn within
the past year, below-average or declining profitability; barely acceptable
liquidity; problems in strategic planning.
(2) Sub-standard
i. Assets must be classified no higher than Sub-standard if any of the following
deficiencies of the obligor is present: recurrent overdrawn, low account turnover,
competitive difficulties, location in a volatile industry with an acute drop in
demand; very low profitability that is also declining; inadequate liquidity; cash
flow less than repayment of principal and interest; weak management; doubts
about integrity of management; conflict in corporate governance; unjustifiable
lack of external audit; pending litigation of a significant nature.
ii. Assets must be classified no higher than Sub-standard if the primary sources
of repayment are insufficient to service the debt and the bank must look to
secondary sources of repayment, including collateral.

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 iii. Assets must be classified no higher than Sub-standard if the banking
organization has acquired the asset without the types of adequate documentation
of the obligor‘s net worth, profitability, liquidity, and cash flow that are required
in the banking organization‘s lending policy, or there are doubts about the
validity of that documentation.
(3).Doubtful
Assets must be classified no higher than Doubtful if any of the following
deficiencies of the obligor is present: permanent overdrawn; location in an
industry with poor aggregate earnings or loss of markets; serious competitive
problems; failure of key products; operational losses; illiquidity, including the
necessity to sell assets to meet operating expenses; cash flow less than
required interest payments; very poor management; non-cooperative or hostile
management; serious doubts of the integrity of management; doubts about
true ownership; complete absence of faith in financial statements.
(4) Bad/Loss
Assets must be classified no higher than Bad/Loss if any of the following
deficiencies of the obligor are present: the obligor seeks new loans to
finance operational losses; location in an industry that is disappearing; location in
the bottom quartile of its industry in terms of profitability; technological
obsolescence; very high losses; asset sales at a loss to meet operational expenses;
cash flow less than production costs; no repayment source except liquidation;
presence of money laundering, fraud, embezzlement, or other criminal activity;
no further support by owners.
Prov.b. provisioning rule given by bangladesh bank . ----j13,j14,j15
Provisioning Rule Given By Bangladesh Bank:
a) General Provision: Banks will be required to maintain General Provision in
the following way :
(1) @ 0.25% against all unclassified loans of Small and Medium Enterprise
(SME) as defined by the SME & Special Programmes Department of
Bangladesh Bank from time to time and @ 1% against all unclassified loans
(other than loans under Consumer Financing, Loans to Brokerage House,
36 | P a g e
 Merchant Banks, Stock dealers etc., Special Mention Account as well as SME
Financing.)
(2) @ 5% on the unclassified amount for Consumer Financing whereas it has
to be maintained @ 2% on the unclassified amount for (i) Housing Finance
and (ii) Loans for Professionals to set up business under Consumer Financing
Scheme.
(3) @ 2% on the unclassified amount for Loans to Brokerage House,
Merchant Banks, Stock dealers, etc.
(4) @ 5% on the outstanding amount of loans kept in the 'Special Mention
Account'.
(5) @1% on the off-balance sheet exposures. (Provision will be on the total
exposure and amount of cash margin or value of eligible collateral will not be
deducted while computing Off- balance sheet exposure.)
b) Specific Provision: Banks will maintain provision at the following rates in
respect of classified Continuous, Demand and Fixed Term Loans:
i. (1) Sub-standard : 20%
ii. (2) Doubtful : 50%
iii. (3) Bad/Loss : 100%
c) Provision for Short-term Agricultural and Micro-Credits:
(1) All credits except 'Bad/Loss' (i.e. 'Doubtful', 'Sub-standard', irregular
and regular credit accounts) : 5%
(2) 'Bad/Loss' : 100%
CONSOLIDATED CHART FOR LOAN PROVISIONING

Type of Short Consumer financing SMEF Loan Others

classification term against loan
agri Except HF LP share
& HF
micro &LP
credit
unclassified STD 5% 5% 2% 2% 0.25% 2% 1%
SMA 5% 5% 5% 0.25% 2% 1%
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 classified SS 5% 20% 20% 20% 0.20% 20% 20%
DF 5% 50% 50% 50% 50% 50% 50%
BL 100% 100% 100% 100% 100% 100% 100%

C. Discuss The Base For Provision

For eligible collateral of the following types, provision will be maintained at the
stated rates on the outstanding balance of the classified loans less the amount of
interest suspense and the value of eligible collateral:
a) deposit with the same bank under lien against the loan
b) government bonds/savings certificate under lien
c) guarantee given by government of Bangladesh bank
For all other eligible collateral, the provision will be maintained at the stated
rates on the balance calculated as the greater of the following two amounts-
a) outstanding balance of the classified loan less the amount of interest
suspense and the value of eligible collateral; and
b) 15% of the outstanding balance of the loan
Eligible securities
Following securities will be included as eligible securities in determining base
for provision:
a) 100% of deposit under lien against the loan
b) 100% of the value of government bonds/savings certificate under lien
c) 100% of the value of guarantee given by government or Bangladesh bank
d) 100% of the value of gold or gold ornaments pledge with the bank
e) 50% of the market value of easily marketable commodities kept under
control of the bank
f) Maximum 50% of the market value of land and building mortgage with the
bank
g) 50%of the average market value for last 06 months or 50% of the
facevalue, wgich is less, of the shares traded in the sock exchange.

38 | P a g e
Prov.3. It is due to the increase of classified loans of the bank, that they are
now facing liquidity problems and the borrower inter-bank call money at
very high rate. Justify the viewpoint. Dec-2013
It is simple understanding that due to increase of classified loans, the bank has
faced to liquidity crisis. However, when loans go bad they have some adverse
effects on the financial health of banks. Banks make adequate provisions and
charges for bad debts which impact negatively on performance. The provisions
for bad loans reduce total loan portfolio of banks and as such affects interest
earnings on such assets. This constitutes huge cost, as it makes a liquidity crisis
for the banks.
On other hand, when banks will go into liquidity crisis, they try to borrow from
inter-bank call money at a high interest rate.
The inter-bank call money market is an overnight market in meeting bank‘s
immediate liquidity needs and reserve deficiencies. Hence, an important task of
the call money market is to facilitate liquidity management in the inter-bank
market. The orderly and stable functioning of the inter-bank call money market is
important to minimize liquidity risk in the banking system as a whole.
So that the banks will penetrate to call money at high interest rate to maintain
their adequate liquidity due to loan classification and keeps provision in this
same.
Prov.4.Do you think the present system of loan classification should be
changed? Do you have any suggestion of the present system of provisioning
against regular loans and advances----Explain---j14,j15
Ans.-

ff.1. What is Fund flow?

Flow Fund flow refers to movement of funds in working capital in the normal
course of business transactions. The changes in working capital may be in the
form of inflow of working capital or outflow of working capital. If the
component of working capital results in increase of the fund, it is known as
inflow of fund. Similarly, if the components of working capital effects in
decreasing the financial position it is treated as outflow of fund.

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ff.2. Importance/ Uses/ Purposes of Fund Flow Statement
The importances to uses of fund flow statement for a bank are as follows:
1) It highlights the different sources and uses of funds between the two
accounting period.
2) It brings into light about financial strength and weakness.
3) It acts as an effective tool to measure the causes of changes in working
capital.
4) It helps the management to take corrective actions while deviations between
two balance sheets figures.
5) It also presents detailed information about profitability, operational efficiency,
and so on.
6) It serves as a guide to the management to formulate its dividend policy,
retention policy and investment policy etc.
7) It helps to evaluate the financial consequences of business transactions
involved in operational finance and investment.
8) It gives the detailed explanation about movement of funds from different
sources and uses of funds.
ff.3. Distinguish between Cash Flow and Fund Flow statement.
The points of distinction between cash flow and funds flow statement are as
below:
Sl. Cash flow statement Funds flow statement
1 Useful in short term analysis and Useful in long-term analysis of financial
cash planning planning
2 It prepared on cash basis It prepared on accrual basis
3 It ascertains the changes in It ascertains the changes in financial
balance of cash in hand and bank position between two accounting
periods
4 Analyses the reasons for changes Analyses the reasons for change in
in balance of cash in hand and financial position between two balance
bank sheets
5 It shows the inflows and outflows It reveals the sources and application of
of cash finds

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FF.4. Write a sample of a cash flow statement of your bank
XYZ Bank Ltd.
Cash Flow Statement
For the year ended 31 December 2013

Particulars Tk.
A Cash flow from operating activities
a) Interest received --------
b) Interest paid --------
c) Cash Paid to employees --------
d) Others Expense --------
e) Other Income --------
Cash generated from operating activities *****
a) Loans and advances --------
b) Other assets --------
c) Deposits and other funds --------
d) Other liabilities --------
******
Net cash received from operating activities ******

B Cash flow from financing activities

a) Investments -----
b) Additions to tangible fixed assets ----
c) Sales proceeds of tangible fixed assets -----

Net cash outflow from investing activities *******

C Cash flow from financing activities

Share capital borrowings from banks and foreign -----
institutions
Capital and other reserves -----

Net cash/ (Outflow) from financing activities *******

D Net increase in cash and cash equivalents *******

(A+B+C)
E Operating cash and cash equivalents *******
F Cash and bank balance at the end of the period *******

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LP.1. What is loan pricing? Dec-2013
Loan pricing is a critically important function in a financial institution's
operations. Loan-pricing decisions directly affect the safety and soundness of
financial institutions through their impact on earnings, credit risk, and,
ultimately, capital adequacy. As such, institutions must price loans in a manner
sufficient to cover costs, provide the capitalization needed to ensure the
institution's financial viability, protect the institution against losses, provide for
borrower needs, and allow for growth. Determining the effectiveness of loan
pricing is a critical element in assessing and rating an institution's capital, asset
quality, management, earnings, liquidity, and sensitivity to market risks.
LP.2. Discuss the components which are to be taken into account in pricing
of loan. Dec-2013
Or, Components which are to be taken into account in pricing a loan
program Or, Factors affecting the Loan Pricing
The following is a list of factors that institutions should consider in loan pricing.
1. Cost of funds: The cost of funds is applicable for each loan product prior to
its effective date, allowing sufficient time for loan-pricing decisions and
appropriate notification of borrowers.
2. Cost of operations: The salaries & benefits, training, travel, and all other
operating expenses. In addition, insurance expense, financial assistance expenses
are imposed to loan pricing.
3. Credit risk requirements: The provisions for loan losses can have a material
impact on loan pricing, particularly in times of loan growth or an increasing
credit risk environment.
4. Customer options and other IRR: The customer options like right to prepay
the loan, interest rate caps, which may expose institutions to IRR. These risks
must be priced into loans.
5. Interest payment and amortization methodology: How interest is credited
to a given loan (interest first or principal first) and amortization considerations
can have a impact on profitability.
6. Loanable funds: It is the amount of capital an institution has invested in
loans, which determines the amount an institution must borrow to fund the loan
portfolio and operations.
7. Patronage Refunds & Dividends: Some banks pay it to their
borrowers/shareholders in lieu of lower interest rates. This approach is preferable
to lowering interest rates.
8. Capital and Earnings Requirements/Goals: Banks must first determine its
capital requirements and goals in order to determine its earnings needs.
9. expense of credit investigation and analysis
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10. probability of alternative profit.
11. bank customer relationship.
12.security maintenance expense.
13. risk of fluctuation of interest rate.

LP.3.Does your bank consider those points while launching a new loan
scheme?—j14,j15------
Ans.--

LP.4. ―Proper Pricing is most essential before launching a new loan

product‖. Discuss the statement with your view.
Loan pricing is a critically important function in a financial institution's
operations. Loan-pricing decisions directly affect the safety and soundness of
financial institutions through their impact on earnings, credit risk, and,
ultimately, capital adequacy. As such, institutions must price loans in a manner
sufficient to cover costs, provide the capitalization needed to ensure the
institution's financial viability, protect the institution against losses, provide for
borrower needs, and allow for growth. Institutions must have appropriate policy
direction, controls, and monitoring and reporting mechanisms to ensure
appropriate loan pricing. Determining the effectiveness of loan pricing is a
43 | P a g e
critical element in assessing and rating an institution's capital, asset quality,
management, earnings, liquidity, and sensitivity to market risks. Loans should be
priced at a level sufficient to cover all costs, fund needed provisions to the
allowance accounts, and facilitate the accretion of capital. Specific consideration
should be given to the cost of funds, the cost of servicing loans, costs of
operations, credit risks, interest rate risks, and the competitive environment.
LP.5.. Factors affecting while assessing a loan proposal
The major factors that interact to loan proposal assessment are mentioned below:
1. Credit-worthiness: These will be treated on behalf of applicant‘s credit
history, capacity to repay, collateral value as eligibility criteria.
2. Business and Credit history: The eligibility may be judged by business track
records and also qualifying for the different types of credit history like type of
credit facility, credit limit, repayment records, etc.
3. Working capital: The present working capital may be considered that can be
thought of as cash at hand and bank.
4. Collateral: Collateral securities which are assets will be evaluated as secured
assets and pledge or hypothecation of inventory.
5. Keen money management skills: This includes a solid cash flow, the ability to
live, and skills of keeping accurate and timely financial records.
6. Earning power: The earnings of borrower to be given out as loan are some of
the determining factors in granting the loans.
7. Ability to repay: The borrower should have to ability to repay the loans from
his business and personal income.
8. Experience and character: The borrower should have experience in business to
run that should have business skills and managerial experience.
LP.5. In competitive market, which of the variable and fixed pricing as
banker you would advocate? Dec-2013
A variable interest rate loan is a loan in which the interest rate charged on the
outstanding balance varies as market interest rates change. As a result, your
payments will vary as well (as long as your payments are blended with principal
and interest).
Fixed interest rate loans are loans in which the interest rate charged on the loan
will remain fixed for that loan's entire term, no matter what market interest rates
do. This will result in your payments being the same over the entire term.
Whether a fixed-rate loan is better for you will depend on the interest rate
environment when the loan is taken out and on the duration of the loan.
44 | P a g e
When a loan is fixed for its entire term, it will be fixed at the then prevailing
market interest rate, plus or minus a spread that is unique to the borrower.
Generally speaking, if interest rates are relatively low, but are about to increase,
then it will be better to lock in your loan at that fixed rate. Depending on the
terms of your agreement, your interest rate on the new loan will remain fixed,
even if interest rates climb to higher levels. On the other hand, if interest rates are
on the decline, then it would be better to have a variable rate loan. As interest
rates fall, so will the interest rate on your loan.
This discussion is simplistic, but the explanation will not change in a more
complicated situation. It is important to note that studies have found that over
time, the borrower is likely to pay less interest overall with a variable rate loan
versus a fixed rate loan. However, the borrower must consider the amortization
period of a loan. The longer the amortization period of a loan, the greater the
impact a change in interest rates will have on your payments.
Therefore, adjustable-rate mortgages are beneficial for a borrower in a decreasing
interest rate environment, but when interest rates rise, then mortgage payments
will rise sharply.
Cws.1. .what do you mean by creditworthiness .---j16

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CWS.2. what aspects are to be taken into consideration in assessing the
creditworthiness of a prospective borrower
A consumer‘s creditworthiness has traditionally been determined by a number of
factors, a few examples include:
 Record of payments in the past
 Income  Regular expenses
 Current debt and the repayment of such
 Employment When assessing the creditworthiness of the consumer, the
following credit qualities of the consumer must be investigated:
 The payment record of the consumer
 The income of the consumer
 The current exposure in terms of debt of the consumer
 The employment prospects of the consumer
 The residence of the consumer
 The age of the consumer
 Marital status of the consumer
 The need for the credit
 The influence of any economic variables.
cws3.State how will you deal with existing borrower needing enhancement
of the credibility—j16

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CWS.4. Why credit-worthiness of an applicant is assessed? Dec-2013
Creditworthiness is an important business and personal asset each person has to
manage. This is an asset which could make or break business relationships and
interestingly in some cases, personal relationships. This is a complex abstract
concept that is evaluated in many ways by different entities. The factors
contribute to creditworthiness is really dependent on the specific evaluation case.
This article explains how one can determine a consumer‘s creditworthiness and
affordability, in other words, a consumer‘s ability to repay debt.
Creditworthiness Definitions to summarize creditworthiness have existed for as
long as credit has been extended to individuals and organizations. With the
promulgation of the Act, the standardized definition of creditworthiness has to be
taken into consideration. Any definition of creditworthiness needs to withstand
any test in terms of the NCA. Any definition associated with creditworthiness
should therefore fall within the ambit of a consumer‘s:
 Affordability
 Credit history
Doing a proper affordability calculation and credit risk assessment based on the
credit history of the consumer will allow the credit provider to determine the
creditworthiness of the consumer. Doing an investigation into the
creditworthiness will also ensure that credit is not extended recklessly and that
the consumer is not over-indebted.
A consumer is over-indebted when: The consumer will not be able to satisfy the
requirements of obligations in terms of credit agreements; and The consumer will
not be able to satisfy those requirements in a timely manner. In the following
sections we are going to consider how to assess the creditworthiness of a
consumer in terms of his/her credit history and affordability.
Bs.1. What do you mean by a prospective borrower?
Prospective borrower: An individual, organization or company having
requirement of additional fund for utilization and have the ability to borrow the
same is treated as potential borrower.

47 | P a g e
BS.2.In selecting a prospective borrower, what are the points to be taken
into consideration?
Selecting a prospective borrower: Not all banks are giving concentration on the
same area for all time to select a borrower, but many of them focus on the same
areas throughout the loan review process.
Following points to be taken into consideration in selecting a prospective
borrower-
a. Borrower (himself) analysis
i. Man behind the business to be judged(Character, willingness)
ii. Management integrity, quality, and competencies;
iii. Majority share holders & relation among the owners;
b. Industry Analysis:
i. Industry Situation
ii. Borrower‘s position into the industry‘
iii. Production capacity
iv. Product distribution & marketing;
v. Market Competition
vi. Demand Supply situation
c. Supplier/Buyer analysis: Any concentration on buyer or supplier to be
checked which may disrupt the borrower performance in future.
d. Historical financial analysis: An analysis of historical financial statement of
the borrower to be conducted to ascertain the profitability, liquidity and
solvency of the borrower.
e. Projected financial analysis: Borrower‘s projected financial to be analyzed
to check whether borrower will be able to meet their future debt obligation.
f. Account conduct: the historic performance in meeting repayment obligation
(Trade repayment, interest, principal, cheque repayment)
g. Adherence to lending guideline: the credit facility to be proposed must
comply with the internal & regulatory guideline.
h. Loan Pricing: Total earning from the client is also important to sanction any
loan.
i. Debt structure: the loan amount, tenor of the proposed loan to be justified
with the repayment ability of the customer.
48 | P a g e
 j. Security: The proposed loan to be secured enough so that loan can be fully
adjusted incase of liquidating the security.
BS.3.. In selecting a borrower, it is perfectly made, ―loan cannot be turned
into bad‖ Elaborate your comments.-----j11,j13

49 | P a g e
Bs.4. List down the minimum eligibility criteria to be fulfilled by borrower
to obtain loan
1. Credit-worthiness: These will be treated on behalf of applicant‘s credit
history, capacity to repay, collateral value as eligibility criteria.
2. Business and Credit history: The eligibility may be judged by business track
records and also qualifying for the different types of credit history like type of
credit facility, credit limit, repayment records, etc.
3. Working capital: The present working capital may be considered that can be
thought of as cash at hand and bank.
4. Collateral: Collateral securities which are assets will be evaluated as secured
assets and pledge or hypothecation of inventory.
5. Keen money management skills: This includes a solid cash flow, the ability to
live, and skills of keeping accurate and timely financial records.
6. Earning power: The earnings of borrower to be given out as loan are some of
the determining factors in granting the loans.
7. Ability to repay: The borrower should have to ability to repay the loans from
his business and personal income.
8. Experience and character: The borrower should have experience in business to
run that should have business skills and managerial experience.
BS.5.Discus different types of documents those a banker usually obtain from
the borrow at the time of credit disbursement—d15
OR, Suppose against a loan proposal of your branch, the head office of the
bank has sanctioned a loan of taka 1.00 (one) crore against a mixed farm
(Agriculture, poultry, fishery and dairy farm). You were advised by head
office to disburse the loan after due documentation. Please list down the
names of the documents to be obtained from the borrower before
disbursement of the loan.
1. General Documents - Acceptance of sanction letter
2. Charge Documents - D.P. Note - Letter of Disbursement - Letter of
Agreement / Arrangement - Letter of Undertaking - Letter of Installment
3. Hypothecation of Stock & Receivable - Letter of Hypothecation on stock of
Goods & receivables - Irrevocable General Power of Attorney (IGPA) to sell
hypothecated stock & Receivable - Letter of Disclaimer
4. Lien & Set-Off - Letter of Lien - Letter of Authority to debit the4 customer
account
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5. Insurance Policy - Valid Original Insurance Policy covering fire risks -
Original receipt of premium
6. Undertaking - No liability with any other bank(s) excepting as declared in
proposal - The customer shall deposit Sale proceeds in respective Account
7. Guarantee - Personal guarantee, spouse guarantee, third party personal
guarantee
8. Other Documents - Letter of Indemnity to be obtained - Undated and post-
dated cheques - Up to date & Clean CIB report
9. Legal, mortgage and security documents - Legal Opinion, valuation
certificate of branch and third party surveyor of the property - Non-
Encumbrance Certificate - Memorandum of Deposit of Title Deed - Duplicate
Carbon Receipt, Mutation Khatian - Up to date Rent/TAX Payment Receipt -
Khatian-CS, SA, RS, BS, DP - Original title and bia Deeds - Mortgage Deed
duly registered with District/ Sub-Registry Office - Registered Irrecoverable
General Power of Attorney (IGPA) authorizing to sale the Mortgage Property

BS.6.Do you think that even after perfect selection will there be guarantee
for recovery of disbursed loan in time----discuss with reason----j14,j15

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Writof .1. Distinguish between loan write-off and loan re-scheduling/re-
structuring.

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Writof .2. Discuss loan-rescheduling rules set by Bangladesh Bank.
Bank always try to keep al unclassified loan at regular condition and alos to
decrease the amount of classified loan through cash recovery and declassify of
classified loan under rescheduling process.
If business organization, project or producton in industry of debtor become
hampered due to natural calamitis, political instability and any other reason
And the loan become classified , this loan can be reschedule to regularized or ful
recovery.

01. GUIDELINES FOR CONSIDERING APPLICATION FOR LOAN

RESCHEDULING:

Banks shall comply with the following instructions while considering application
for loan rescheduling of non-performing loan (loans classified as Sub-standard,
Doubtful and Bad/Loss):
a) The bank must have a policy approved by its Board of Directors in place that
defines the circumstances and conditions under which a loan may be
rescheduled, consistent with this circular.
The policy must include controls to avoid the routine rescheduling and repeat
rescheduling of loans in those cases where borrowers are experiencing financial
difficulty or there is doubt that the full amount of the loan will be recovered.
b) When a borrower asks for rescheduling of loan, the bank shall meticulously
examine the causes as to why the loan has become non-performing.
If it is detected from such review that the borrower has diverted funds elsewhere
or the borrower is a habitual loan defaulter, the bank shall not consider the
application for loan rescheduling
c) If a borrower while applying for rescheduling, pays the required down
payment in cash at a time, the bank must address the application within 03
(three) months upon receipt
d) Banks must consider overall repayment capability and liability position of the
borrower with other banks and financial institutions.
e) Banks shall review the borrower's cash flow statement, audited balance sheet,
income statement and other financial statements in order to ensure whether the
borrower would be able to repay or not.
f) If required, bank officers shall conduct spot inspections of the borrower's
company/business place and preserve such reports in their branches for
Bangladesh Bank‘s inspection.
g) If a bank is satisfied after due diligence as mentioned above that the borrower
will be able to repay, the loan may be rescheduled.

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h) Rescheduling of any loan must be justified in written statement by the bank's
Credit Committee describing the reasons and factors why the rescheduling is
beneficial to the long- run profitability and capital adequacy of the bank and will
ultimately be repaid in full

02. TIME LIMIT FOR RESCHEDULING:

The rescheduling shall be for a minimum reasonable period of time. Time limit
for rescheduling of different categories of loans will be as follows:
Page 3 of 8

a) Time limit for rescheduling Continuous Loan: The loan account in which
transactions may be made within certain limit and have an expiry date for
full adjustment will be treated as Continuous Loan:
Frequency Repayment Repayment Repayment
Time(month ) limit Time(month ) limit Time(month ) limit
for loan Classified for loan Classified for loan Classified
as Sub-standard as Doubtful as Bad/Loss
from the date of from the date of from the date of
rescheduling rescheduling rescheduling
First Maximum 18M Maximum 12 M Maximum 12 M
Rescheduling
Second Maximum 12M Maximum 09 M Maximum 09 M
Rescheduling
Third Maximum 06 M Maximum 06 M Maximum 06 M
Rescheduling

Conditions: During the rescheduled period all required principal and interest
payments must be made.
b) Time limit for rescheduling Demand Loan: The loan which becomes
repayable on demand by the bank and If any contingent or any other liabilities
are turned to forced loan those too will be treated as Demand Loans.
Frequency Repayment Repayment Repayment
Time(month ) limit Time(month ) limit Time(month ) limit
for loan Classified for loan Classified for loan Classified
as Sub-standard as Doubtful as Bad/Loss
from the date of from the date of from the date of
rescheduling rescheduling rescheduling
First Maximum 18M Maximum 9 M Maximum 9 M
Rescheduling
Second Maximum 9M Maximum 06 M Maximum 06 M
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Rescheduling
Third Maximum 06 M Maximum 06 M Maximum 06 M
Rescheduling

c) Time limit for rescheduling Fixed Term Loan: The loan which is repayable
within a specified time period under a prescribed repayment schedule is treated
as Term Loan.

Frequency Repayment Repayment Repayment

Time(month ) limit Time(month ) limit Time(month ) limit
for loan Classified for loan Classified for loan Classified
as Sub-standard as Doubtful as Bad/Loss
from the date of from the date of from the date of
rescheduling rescheduling rescheduling
First Maximum 24M Maximum 18 M Maximum 18 M
Rescheduling
Second Maximum 18M Maximum 12 M Maximum 12 M
Rescheduling
Third Maximum 12 M Maximum 09M Maximum 09M
Rescheduling

d) Time limit for rescheduling for Short-term Agricultural and Micro-

Frequency Repayment Time(month ) limit for from the date of

rescheduling
First Rescheduling Not exceed 2 yrs
Second Maximum 1yrs
Rescheduling
Third Rescheduling Maximum 06 M

03. DOWN PAYMENT OF TERM LOANS:

a) Application for first time rescheduling will be taken into consideration upon
receiving cash payment of at least 15% of the overdue installments or 10% of the
total outstanding amount of loan, whichever is less;
b) Application for second time rescheduling will be considered upon receiving
cash payment of minimum 30% of the overdue installments or 20% of the total
outstanding amount of loan, whichever is less.

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c) Application for rescheduling third time will be considered upon receiving cash
payment of minimum 50% of the overdue installments or 30% of the total
outstanding amount of loan, whichever is less.
d) The rate of down payments for Short-term Agricultural and Micro-Credit will
be same as above.
04. DOWN PAYMENT OF DEMAND AND CONTINUOUS LOAN:
a) If a Demand or Continuous Loan is converted into a Term loan, first
rescheduling may take place against down payment on the basis of loan amount
in the following manner.

Amount of Overdue Loan Rate of Down payment

Up to Tk.1.00 (one) crore 15%

Above Tk.1.00(one) crore and up to 10% (but not less than
Tk.5.00(five) crore Tk.15.00 lac)
Above Tk. 5.00(five) crore 5% (but not less than Tk.50.00
lac)

b) If any Continuous or Demand Loan is rescheduled for the second time

receiving cash payment of minimum 30% of the overdue installments or 20% of
the total outstanding amount of loan

05. CLASSIFICATION AND INTEREST SUSPENSE OF RESCHEDULED

LOANS:
Rescheduled loans may be put into any category of classification by the bank
considering the existing financial soundness and repayment capacity of the
borrower, subject to the accumulated amount in interest suspense account not
being taken into income account, unless actually realized. Upon classification,
applicable provisions have to be maintained, according to the Master Circular:
Loan Classification and Provisioning (BRPD Circular No. 14/2012). However, a
rescheduled loan will not be considered a "defaulted loan," and the borrower will
not be considered a "defaulted borrower" as these terms are understood in the
context of section 27KaKa(3) of the Banking Companies Act, 1991, unless such
loan has not been repaid after reaching the maximum number of allowable
reschedulings. Interest accrued on rescheduled loans will be subject to the
accounting treatment that is appropriate for the classification category of the
loan, in line with the Master Circular: Loan Classification and Provisioning
(BRPD Circular No. 14/2012) just as if the loan had not been rescheduled.

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06. NEW LOAN FACILITY AFTER RESCHEDULING:
a) The borrower whose credit facility has been rescheduled may avail a new loan
facility or enhance existing credit facility subject to fulfillment of the following
conditions:-
i. The borrower must pay at least 15% of the ―Outstanding Balance‖ (outstanding
amount after excluding the down payment on rescheduling) to avail any further
credit facility from the rescheduling bank.
ii. In case of borrowing from other banks, the same rule will be applicable, i.e.
the borrower must pay at least 15% of the ―Outstanding Balance‖ (outstanding
amount after excluding the down payment on rescheduling), then, will be
allowed to take regular facility from other banks subject to the submission of No
Objection Certificate (NOC) from the rescheduling bank or financial institution.
b) Exporters may be granted further credit facility (after being identified as not-a-
willful defaulter), if required, subject to settling at least 7.5% of the ―Outstanding
Balance‖ (outstanding amount after excluding the down payment on
rescheduling). They will be allowed to take the regular facility from other Banks
subject to the submission of a NOC from the rescheduling bank or financial
institution.
c) Prior approval of Bangladesh Bank shall have to be obtained if the loan is
related to the director of any bank.
d) Information on such rescheduled loan accounts shall be reported to the Credit
Information Bureau (CIB) of Bangladesh Bank.
Page 7 of 8

e) While reporting to the CIB, the rescheduled loans/advances should be shown

as RS-1 for first time rescheduling, RS-2 for second time rescheduling and RS-3
for third time rescheduling. If rescheduling facility is availed through interest
waiver, reporting should be RSIW-1 for first time rescheduling, RSIW-2 for
second time rescheduling and RSIW-3 for third time rescheduling.
f) Number of rescheduling should be mentioned in the sanction letter as well as
in the date column of sanction/last renewal/rescheduling in the basic CL form as
RS-1/RS-2/RS- 3 or RSIW-1/RSIW-2/RSIW-3.

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Writof.3. Discuss loan write-off rules set by Bangladesh Bank. Does it have
any effect on banks balance sheet? Explain.

45.A. Distinguish between loan interest remission and loan write off.
B.Between these two which one is beneficial for that Bank? Discuss. [Need
modify]
Write off of bad debt of a bank that is declared non-collectable (such as a loan on
a defunct business or a credit card due that is now in default), removing it from
their balance sheets.
In course of conducting credit operations by banks the quality of a portion of
their loan portfolio, in many cases, deteriorates and uncertainty arises in realizing
such loans and advances. These loans are adversely classified as per existing
rules and necessary provision has to be made against such loans. Writing off bad
loans having adequate provision is an internationally accepted normal
phenomenon in banking business. Owing to the reluctance of banks in
Bangladesh in resorting to this system their balance sheets are becoming
unnecessarily and artificially inflated. In order to avoid possible legal
complications in retaining the claims of the banks over the loans written off
section 28 ka has been incorporated in 2001 in the Bank Company Act, 1991.

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Writof-5.a.. List down the preconditions those required to be fulfilled by a
borrower for availing write off consideration [Need modify]
In course of conducting credit operations by banks the quality of a portion of
their loan portfolio, in many cases, deteriorates and uncertainty arises in realizing
such loans and advances. These loans are adversely classified as per existing
rules and necessary provision has to be made against such loans. Writing off bad
loans having adequate provision is an internationally accepted normal
phenomenon in banking business. Owing to the reluctance of banks in
Bangladesh in resorting to this system their balance sheets are becoming
unnecessarily and artificially inflated.
In order to avoid possible legal complications in retaining the claims of the banks
over the loans written off section 28 ka has been incorporated in 2001 in the
Bank Company Act, 1991. In this context the following policies for writing off
loans are being issued for compliance by banks:
1. Banks may, at any time, write off loans classified as bad/loss. Those loans
which have been classified as bad/loss for the last 5 years and for which 100%
provisions have been kept should be written off without delay.
2. Banks may write off loans by debit to their current year's income account
where 100% provision kept is not found adequate for writing off such loans.
3. All out efforts should be continued for realizing written off loans. Banks
allowed to write-off classified loans below Tk. 50,000 without filing any case.
4. A separate "Debt Collection Unit" should be set up in the bank for recovery of
written off loans. 5. In order to accelerate the settlement of law suits filed against
the written off loans or to realize the receivable written off loans any agency
outside the bank can be engaged.
6. A separate ledger must be maintained for written off loans and in the Annual
Report/Balance Sheet of banks there must be a separate "notes to the accounts"
containing amount of cumulative and current year's loan written off.
7. Inspite of writing off the loans the concerned borrower shall be identified as
defaulter as usual. Like other loans and advances, the writing off loans and
advances shall be reported to the CIB of Bangladesh Bank.
8. Prior approval of Bangladesh Bank shall have to obtain in case of writing off
loans sanctioned to the director or ex-director of the bank or loans sanctioned

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during the tenure of his directorship in the bank to the enterprise in which the
concerned director has interest.
[Bangladesh Bank has relaxed the guidelines for writing off small bad loans as it
considered the litigation cost is sometimes higher than the amount of a loan. It
allowed the scheduled banks to write-off classified loans below Tk.50,000
without filing any case. The banks will, however, have to comply with other
guidelines while writing off the loans, said a circular issued on Thursday. Earlier,
the banks had to write off any bad loan through filing case and keeping 100%
provision.
The banks go for writing off a loan when it considers there is no hope to get the
money back. The scheduled banks are allowed to write off loans, having been
adversely classified for more than 5 years, by maintaining a 100% provision.]

Writof-5.b.What will follow after the write-off---d15,j16

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Sec.1. What do you mean by SEC?
The Securities & Exchange Commission was established in June-1993 and then
changed as Bangladesh Securities and Exchange Commission in December-2012
as the regulator of the Bangladesh capital market that comprising Dhaka Stock
Exchange and Chittagong Stock Exchange. It defines working process and rules
and policies under which the stock exchanges will operate.
Sec.2. Functions of SEC
The main functions of SEC are as follows: 1. Regulating the Stock Exchanges &
securities market 2. Registering & regulating stock-brokers, merchant bankers,
trustee of trust deeds, portfolio managers, investment advisers, etc. 3.
Registering, monitoring & regulating of collective investment scheme of mutual
funds 4. Monitoring & regulating all authorized self regulatory organizations 5.
Prohibiting fraudulent & unfair trade practices
Sec.3. Do you think that SEC is performing its role properly by monitoring
and controlling capital market of our country? Pass your comments.
Securities and Exchange Commission (SEC) is the regulatory body of that
performing the roles by monitoring and controlling of Bangladesh capital
markets. It defines working process and rules and policies under which the stock
exchanges will operate. It supervises the activities of merchant bankers, stock
brokers, depository companies, security lenders & borrowers and other market
intermediaries. SEC manages the issues including monitoring about buy-sell or
transfer by the sponsor/director of the listed companies and monitoring of
shareholding position, price sensitive information, etc. It monitors the other
activities and officials functionalities like AGM & dividend payments.
56. Write-Off and Re-scheduling
Write-Off A reduction in an individual's or a company's income as the result of
an expense. For example, an unplayable credit sale may be a write-off for the
creditor, especially if the debtor declares bankruptcy. The bankruptcy means that
the debtor is unable to pay the debt, which results in a loss of income for the
creditor. A write-off may usually be deducted from one's taxable income.

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Write-off To take an asset entirely off the books because it no longer has any
value. If an accrual basis taxpayer has taken money into income when bills were
sent out to customers, but then some of the bills became uncollectible, the
taxpayer may write off the uncollectible ones as a deduction against income.
Financial institutions are required to write off loans when they become
delinquent by a certain amount.
Accounting In business accounting, the term write-off is used to refer to an
investment (such as a purchase of sellable goods) for which a return on the
investment is now impossible or unlikely. The item's potential return is thus
canceled and removed from ("written off") the business's balance sheet. Common
write-offs in retail include spoiled and damaged goods.
Banking Similarly, banks write off bad debt that is declared non-collectable
(such as a loan on a defunct business or a credit card due that is now in default),
removing it from their balance sheets.
Rescheduled loans Bank loans that are usually altered to have longer maturities
in order to assist the borrower in making the necessary repayments.
Rescheduled loans Bank loans that are usually altered to have longer maturities
in order to assist the borrower in making the necessary repayments.
Rescheduled Loan New loan that replaces the outstanding balance on an older
loan, and is paid over a longer period, usually with a lower installment amount.
Loans are commonly rescheduled to accommodate a borrower in financial
difficulty and, thus, to avoid a default. Also called restructured loan.
Definition of 'Debt Rescheduling' A practice that involves restructuring the terms
of an existing loan in order to extend the repayment period. Debt rescheduling
may mean a delay in the due date(s) of required payments or reducing payment
amounts by extending the payment period and increasing the number of
payments.
Rescheduling FI‘s should follow clear guideline for rescheduling of their
problem accounts and monitor accordingly Rescheduling of problem accounts
should be aimed at a timely resolution of actual or expected problem accounts
with a view to effecting maximum recovery within a reasonable period of time.

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57. Purposes, cases, modes, and requirements of Rescheduling
Purposes for Rescheduling: (i) To provide for borrower‘s changed business
condition (ii) For better overdue management (iii) For amicable settlement of
problem accounts
Cases for Rescheduling: Rescheduling would be considered only under the
following cases- (i) Overdue has been accumulated or likely to be accumulated
due to change in business conditions for internal or external factors and the
borrower is no way able to pay up the entire accumulated overdue in a single
shot. (ii) The borrower should be in operation and the assets have a productive
value and life for servicing the outstanding liabilities. (iii) The borrower must be
capable of and willing to pay as per revised arrangement.
Modes of Rescheduling: Rescheduling can be done through adopting one or more
of the following means. (i) Extension of financing term keeping lending rate
unchanged (ii) Reduction of lending rate keeping financing term unchanged (iii)
Both reduction of lending rate and extension of financing term (iv) Bodily
shifting of payment schedule (v) Deferment of payment for a short-term period
with or without extending the maturity date (this may be a temporary relief to
prevent the inevitable collapse of a company). However, under any
circumstances reschedule period must not exceed economic life of the asset.
Analysis of Rescheduling Case and decision on different modes of rescheduling:
An account, which has been going through liquidity crisis, may be considered for
rescheduling after identifying symptoms, causes and magnitude of the problem.
For rescheduling an account, the criteria mentioned in Bangladesh Bank
guideline, if any has to be followed strictly.
Post Rescheduling Requirements: Rescheduling of a contract must require prior
approval of CRM and management All rescheduled accounts are to be kept in a
separate watch list so that post rescheduling performance of the accounts can be
monitored closely

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P&r.1. What is a Project?
A project is refers to that a temporary group of activity designed to produce a
unique product, service or a result. A project has defined by following aspects:
1) It is defined a beginning-end schedule and approach; 2) Uses the resources to
allocated works; 3) Achieves the specific goals within an organized approach;
4) Usually involves a team of workforce.
P&R.2.. List down the cost components of a Rice Mill project (capital cost)
1. Cost of land and site development
a) Cost Of Land
b) Cost Of Leveling/Development
c) Cost Of Approach Road
d) Cost Of Compound Wall
2. Cost of Building & Civil Work
a) Factory building
b) Raw material godown
c) Finished goods storage & packing
d) Administrative building - Conference hall
e) Generator room & workshop
f) Watchmen Cabin
g) Electricity Chamber
3. Cost of plant & machinery
a) Milling section
b) Paddy bar
c) boiling/steaming plant
d) Steam boiler
e) Excuse Duty & Other Taxes
4. Others fixed assets costs
a) Office furniture & fixtures
b) Computer
c) Electrification & fire fighting equipments
d) Air compressor
e) Vehicle (truck)
f) Other machineries tools & tackles
5. Preoperative Expenses
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6. Margin Money For Working Capital
a) Raw material
b) Electricity charges
c) Salary & wages
d) Stores & spares
e) Overhead & packing
f) Stock of finished goods & goods in process
P&R.3. What do you mean by a project & project appraisal?
A project is temporary in that it has a defined beginning and end in time, and
therefore defined scope and resources that are ways of organizing resource. It is a
group of individuals who are assembled to perform different tasks on a common
set of objectives for a defined period of time.
A Project appraisal is refers to the process of assessing, in a structured way, the
case for proceeding with a project that is the effort of calculating a project's
viability. The processes of a project appraisal are- Initial assessment, define
problem and long-list, consult and short-list, develop options, compare and select
project
P&R.4.. During appraisal of a project loan proposal what factors does a
banker take into consideration? [Two Answers]
Answer One----
Appraisal is necessary to justify the soundess of an investment. It is done eith a
view to determine—
1. Commercial profitability;i.e.-technical, marketing, financial, managerial
and organizational soundness
2. Economical viability
3. Social desirability

Loan proposal will be appraised with updated market prise, quality and other
information of the merchandise and product. The appraisal/updates will be
checked by the concerned higher authority to ensure that it was in order &
reviewed time to time(at lease annually)
A detail analysis id documented to arrive at the following aspects:
a) Credt worthiness
b) Guarantor/borrower,s cash flow
c) Debt service coverage ratio;
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 d) Benefit cost ratio;
e) NPV,BCR & IRR
f) Break even analysis
g) Margin/liquidity
h) Assessment of working capital
i) Cash flow analysis
j) Environmental issues
k) Ability to penetrate market sectore and comparative factors
Before appraisal officer will verify the invoice and contract with suppliers &
customer and will ensure genuineness. During implementation period disbursing
official will verify the proper utilization of the loan/fund and ensure utilization
for which loan is sanctioned.
P&r.5. A project loan is treated as a term loan. Discuss why. Discuss the
risks you anticipate in such financing.
Project finance transactions typically involve the direct financing of
infrastructure and industrial projects. The financing is usually secured by the
project assets such that the financial institution providing the funds will assume
control of the project if the sponsor has difficulties complying with the terms of
the transaction. Project finance is generally used for large, complex and sizable
operations, such as roads, oil and gas explorations, dams, and power plants. Due
to their complexity, size, and location, these projects often have challenging
environmental and social issues, which may include involuntary resettlement,
loss of biodiversity, impacts on indigenous and/or local communities, and worker
safety, pollution, contamination, and others. Because these projects generally
face high scrutiny from regulators, civil society, and financiers, the project‘s
sponsoring companies allocate more resources to managing environmental and
social risks. If not managed properly, the environmental and social risks can
result in disrupting or halting project operations and lead to legal complications
and reputational impacts that threaten the overall success of the project. Because
anticipated project cash flows typically generate the necessary resources to repay
the loan, any disruption to the project itself, regardless of the financial standing
of the sponsoring companies involved, poses a direct financial risk to the
financial institution.

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P&r.6. The risks factors those can make an industry sick. How each factor
accelerates the sickness?
Or, Factor behind/responsible industrial sickness [Two Answers]
Answer One-- The two categories factors are listed behind that accelerate the
industry sickness are discussed below:
Internal risk factors: 1. Lack of Experience 2. Poor Management 3. Wrong
feasibility / Uneconomic Plant size 4. Lack of working Capital 5. Obsolete
technology 6. Faulty employee appointment 7. Non-cooperation among owners
and employees 8. Marketing Problem 9. Dependence on single financial source
10. Irregular wage payment 11. Poor product quality
External risk factors: 1. Lack of working Capital 2. Political Unrest 3.
Smuggling 4. Trade liberalization 5. Poor infrastructure 6. Global price fluctuate
7. Problems in loan disbursement (already sanctioned) 8. Bank control over
machinery purchase 9. Natural calamities 10. Duty on raw materials /customs
problems 11. Non-availability of raw materials 12. Lack of modern technology
13. Long project implementation period 14. Lack of demand for the product 15.
High loan interest
Answer Two---
A. Internal risks factors
1. Lack of Finance: The weak equity, inefficient working capital, absence of
costing & pricing and budgeting, and so on will accelerate the industry sick. 2.
Inefficient Production Policies: This includes wrong selection of site is related to
production, lack of quality control and standard, research & development, etc. 3.
Marketing factors: Inefficient planning and product mix, weak market research
and sales promotions are force to industry sickness. 4. Improper Staffing: It
includes bad wages and salary administration, bad labor relation, conflicts among
the employees and workers. 5. Ineffective Corporate Management: It includes
improper corporate planning, lack of coordination, control and integrity in top
management, etc.

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B. External risks factors
1. Personnel Constraint: Unskilled labor, wages disparity, general labor invested
in the area will accelerate behind make a sickness. 2. Marketing Issues: The
sickness arrives due to liberal licensing policies, changes in global marketing,
excessive tax policies by govt. and market recession. 3. Production problem: This
arises due to shortage of raw material and its high prices, shortage of power,
import-export restrictions. 4. Financial Issues: The sickness arises due to credit
restrains policy, delay in loan disbursement, unfavorable investments, etc.

P&R.7. a) Explain different techniques of project appraisal and elaborate

the points to be considered in technical report.-- j13,j15,d15,j16
b.Discuss why bank considers sensitivity analysis of project during
appraising a project proposal. –j13,j15,d15,j16

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P&r.8. Why core risk management is getting so much highlighted for proper
financing of a bank
The core risk management is so much highlighted that impose to modern banking
system. Due to deregulation and globalization of banking business, banks are
now exposed to diversified and complex risks. As a result, effective management
of such risks has been core aspects of establishing good governance in banking
business in order to ensure sustainable performance. In year 2003 and 2004,
Bangladesh Bank issued guidelines on the six core risks on Credit, Asset-
Liability, Foreign Exchange, Internal Control & Compliance, Money
Laundering, and ICT risks. These guidelines may help banks to measure and
manage their Liquidity Risk, Interest Risk and Foreign exchange risk and
minimize their losses. The ICT guideline helps to measures to prevent the
unauthorized access, modification, disclosure and destruction so that now the
interest of customer is fully protected. The modern banking system is more
benefited securing by following the core risk management guidelines imposed by
Bangladesh bank and banks is getting so much highlighted for financing as well
as all operation of the bank.
Port.2. define Portfolio Management ? Highlight the role and responsibilities
of a branch manager in identifying a prospective borrower and processing
his loan proposal. May’12, Nov’11
Portfolio Management -- Portfolio Management provides supports to the
investor in a method of selecting the best available securities that will provide the
expected rate of return in a scale of risk and also to reduce the risks. It is a
strategic decision which is addressed by the top-level managers. The main
objectives are to security of principal investment, consistency of returns, capital
growth, marketability, liquidity, diversification of portfolio, favorable tax status,
etc. These objectives results in a proper analytical approach towards the growth
of the portfolio.
Role & responsibilities of a branch manager in identifying a prospective
borrower and processing his loan proposal:
1. Marketing
2. Customer hunting

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 3. Product offering to the proposed customer
4. Customer Analysis
5. Selecting
6. Risk Grading
7. Processing Loan application

Secyrity
1. Banks usually extend credit against securities. List down the different
types of securities against which banks sanction loan to its customers.----j15

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2. Among this securities which one will prefer to accept for your bank---j15

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3. Most of the bank accept land as a collateral security against loan. please
lie down the nature of lands those cannot be accepted as security and why
cannot be accepted discuss the causes.---j15,j16

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AC.1. Agricultural credit plays a very important role in economic
development of the country with high GDP growth. Explain this mentioning
the impact it keeps on the country’s overall GDP attainment.
Or, Significance/ Impacts of Agricultural Credit in economic developments
Agricultural credit plays a vital role in economic development with positive GDP
growth of a country. These types of finance may promote to development in
agro-economic sector like agriculture, poultry, fishery, dairy, and livestock. The
roles of agricultural finance are described below:
1. Agriculture finance assumes vital and significant importance in the agro-socio-
economic development at macro and micro level as well as GDP growth.
2. It plays a catalytic role in strengthening the agro-business and augmenting the
productivity of scarce resources.
3. Use of new technological inputs purchased through agro-finance helps to
increase its productivity.
4. Agricultural finance can also reduce the regional economic imbalances and is
equals to reduce the inter-agro asset and wealth variations.
5. It is like a lever with both forward and backward linkages to the economic
development at micro and macro level.
6. As agriculture is still traditional and subsistence in nature, agricultural finance
is needed to create the supporting infrastructure for adoption of new technology.
7. It promotes to carry out irrigation projects, rural electrification, installation of
fertilizer and pesticide plants, execution of agro-promotional and poverty
alleviation programs in the country.

32. Prepare a typical balance sheet for a bank ----PDF

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Mny mrkt.1.. Distinguish between Money Market & Capital Market
Particulars Money Market Capital Market

1. Definition Market where transactions of Market where transactions of

money and financial assets are money and financial assets are
accomplished for short time occurred for a long period
2. Basic Role Liquidity adjustment Putting long-term capital to
work

3. Lending & Short-term (less or equal to 1 Long-term (more than 1 year)

borrowing year)
4. Credit
Period Call money, collateral loans, Capital market are stocks,
Instruments acceptances, bills of exchange shares, debentures, bonds,
5. Risk Due to short-term period, the Risk is more due to long-term
securities
risk is small period
6. Market Commercial banks are closely The institutions are not much
regulation regulated regulated

Mny&mrkt.2.. Can increased call money rate influence the capital market?
Elaborate with example.
The capital market has influenced by increasing of call money rates that come
mainly from supply and demand for liquidity in the money market. The periodic
change in liquidity reserve may cause to demand the call money rates that
influence the capital market. The money market rate can also be impacted from
which Bangladesh Bank conducts the open money market operations. The call
money rate is determined by the participants and it depends according to present
and future liquidity condition in the market. For instance, the inter-bank call
money borrowing rate was reached peaks at 50% in January 2004, and after that
65.67% in February 2005. So that there is no doubt that the call money rate
influences the capital market.

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69. Agricultural Finance: Definition, Nature and Scope A field of work in which
people aim to improve the access of the agriculture industry, including farmers
and all related enterprises, to efficient, sustainable financial services.
AGRICULTURAL FINANCE Meaning: Agricultural finance generally means
studying, examining and analyzing the financial aspects pertaining to farm
business, which is the core sector of Pakistan. The financial aspects include
money matters relating to production of agricultural products and their disposal.
Definition of Agricultural finance: Murray (1953) defined agricultural. Finance
as ―an economic study of borrowing funds by farmers, the organization and
operation of farm lending agencies and of society‘s interest in credit for
agriculture.‖ Tandon and Dhondyal (1962) defined agricultural. Finance ―as a
branch of agricultural economics, which deals with and financial resources
related to individual farm units.‖
Nature and Scope: Agricultural finance can be dealt at both micro level and
macro level. Macro- finance deals with different sources of raising funds for
agriculture as a whole in the economy. It is also concerned with the lending
procedure, rules, regulations, monitoring and controlling of different agricultural
credit institutions. Hence macro-finance is related to financing of agriculture at
aggregate level.
Micro-finance refers to financial management of the individual farm business
units. And it is concerned with the study as to how the individual farmer
considers various sources of credit, quantum of credit to be borrowed from each
source and how he allocates the same among the alternative uses with in the
farm. It is also concerned with the future use of funds. Therefore, macro-finance
deals with the aspects relating to total credit needs of the agricultural sector, the
terms and conditions under which the credit is available and the method of use of
total credit for the development of agriculture, while micro-finance refers to the
financial management of individual farm business.

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10. Explain different sources of financing working capital. The sources of
finance of financing working capital may be four categories. They are- 1. Trade
Credit: It is the primary sources that trade credit make up the important source
for a sum of the total working capital. 2. Bank Credit: The banks determine the
maximum credit based on the margin requirements of the security. The forms of
bank credit are Loan and overdraft arrangement, cash credit, bills purchase and
bills discounted. 3. Non-bank Short Term Borrowing: These types of loan are
found from relatives, friends, head office or project office etc. 4. Long-term
Sources: It comprises equity capital and long-term borrowings.
11. Define permanent working capital and variable working capital. Permanent
Working Capital is to carry on business a certain minimum level of working
capital is necessary on a continuous and uninterrupted basis. For all practical
purposes, this requirement will have to be met permanently as with other fixed
assets. This requirement is referred to as permanent working capital.
Temporary Working Capital is refers to any amount over and above the
permanent level of working capital is temporary, fluctuating or variable working
capital. This portion of the required working capital is needed to meet
fluctuations in demand consequent upon changes in production and sales as
result of seasonal changes.
12. Explain the difference between variable working capital and permanent
working capital. Particulars Permanent Working Capital Temporary Working
Capital 1) Required level of amount A certain minimum level of working capital
is necessary to carry the business Any amount over and above the permanent
level of working capital is needed 2) Level of necessity It is necessary on a
continuous and uninterrupted basis Temporarily required in case of increase of
production and sales 3) Pattern of necessity This requirement will have to be
met permanently The necessity in on fluctuating or variable position 4) Nature of
working capital The working capital cost and investment is constant The working
capital cost and investment is variable 5) Outcome level of firm It make the
minimum outcome as well as growth of the firm It make a extra ordinary
production outcome of the firm
14. Distinguish between mortgage & pledge? The differences between a
mortgage and a pledge: Sl. Particulars Mortgage Pledge 1 Property type in
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Security Mortgaged is an immovable property Pledged is a movable property 2
Property ownership The property is transferred to lender The property remains
to pledgor 3 Property custody Possession of property will be with borrower
Goods delivered by the pledgor will be in lender 4 Legal authority to sell
property Mortgagee can sell only with the permission of the Court Lender can
sell without the intervention of the Court 5 Rights to foreclosure A mortgagee has
the right of foreclosure that restrict the borrower from taking back the property
under certain circumstances A pledgee does not have the right of foreclosure that
cannot restrict the pledgor from taking back the property

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