MOHAMMAD BADRUL ALAM

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

SME & CONSUMER BANKING

SME 1.Define SME?—

List out the booster sectors financed under SME scheme
2.What are the existing sources and areas of SME Financing in Bangladesh?
3.SME is considered as employment Generating Machine- Explain?
4.Discuss the roll of SMEs in the economic development of Bangladesh.
5. History SME Foundation
6. Discuss the roll of SME foundation in SME Development in the country.
7.0.How would you identify and select entrepreneurs for financing SME projects?
8.Discuss the main constraints to the growth of SME finance in Bangladesh?
9.What are the initiative you will suggest to overcome this constraints?
10.Discuss the initiative taken by govt. to development in SME sector
11.Discuss about special arrangement for sme women enterprenure
12.Do you agree that sme can occur economic revolution in BD?
13. Importance of monitoring & counseling in improving quality of a SME Loan?
14.Give some advice to develop the existing guideline of sme.
Project 15.What do you mean by project appraisal? 16.Why it is done?
17.Explain the different aspects of appraising a SME project. N11, 12, M13, 14, 15
What Are the Types of Project Appraisal Methodologies?
18.Explain the different aspects of cost elements during appraisal of a sme project?
plan& 19.What are the essential features of business plan?
WC 20.What are the main components of business plan?
21.Define working capital and its significance for a firm
22.Disciuss capital budgeting techniques.
Consu 23.objecives of consumer banking
loan 24. Consumer Credit provokes inflation, do you agree with this statement? Discuss
in the light of monetary policy of Bangladesh Bank ?-N10, N11, m12, 13, 15, 16
25.Explain different types of consumer banking product available in different bank.
26.Discuss what kind of consumer banking product does your bank can introduce.
27.Different directon given by BB on consumer banking?
clasify 28.What precautionary measures a banker should take to prevent a sme loan from
& turning into bad?
recove
ry
29.Discuss the negative impacts of Non-performing loan
30.What kind of measures you will take to recovery a Non-performing loan
31.What kind of preventive measure you will take to prevent classification of loan?
32. As a banker What legal & non-legal measures would you take to recover a loan
when it becomes bad?

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securit 33.What are the various methods of creating charge on securities? Explain in
y details. vvvvi
34.Basic characteristics of good securities
35.How a repayment schedule is prepared? Give an example.
crg 36.Define risk. 37.What is credit risk?
38. a.Define Credit Risk Grading (CRG) Dec-2013
b.Function of Credit Risk Grading
c.What is the uses/ purpose/ importance of CRG? Dec-2013
d.Write down the expected minimum CRG requirements for extending credit.
Explain with example. Dec-2013
e.Different aspects of Credit Risk Grading (CRG) with grading points
39.How CRG is compute?
risk 40.What are the different aspects of credit risk management?
41.What are the risks inherent in lending? What are the risk mitigation tools and
techniques? Discuss.
42. difference between Non-performing loan & performing loan
43.Normal measures to be adopted by bank officials for recovery of dues
44.What are the components of a financial statement package?
45.Why are financial statement are analyze for credit assessment?
46.Discus the principle of sound lending?
47.What are the risk in credit concentration?

1.Define SME?—N10,D13,D14,D15

Existing definition of SME is recommended by Better Business Forum and accepted as a uniform one by
Ministry of Industry and Bangladesh Bank.
According to the Industrial policy 2005, SME definition has been in terms of fixed assets and no. of employees
of three major sectors: service, manufacturing and trading but the present definition which was recommended
by Better Business Forum and accepted as a uniform one by Ministry of Industry and Bangladesh Bank
included Cottage and micro industry as SME in Bangladesh. Bangladesh Bank has revised the SME definition
through its ACSPD Circular No.08, dated 26th May, 2008 and then through its SMESPD Circular No.01, dated
19th June, 2011. The present SME definition is given below:
Medium Industry /Enterprise
Sector Total Fixed Asset (in Lac Tk.) No. of Employees
Service / Others Concern : 100-1500 50-100
Trading Concern: 100-1500 50-100
Manufacturing Concern: 1000-3000 100-250
Small Industry / Enterprise
Service/Others Concern : 5-100 10-25
Trading Concern: 5-100 10-25
Manufacturing Concern: 50-1000 25-99
Micro Industry /Enterprise
Service/Others Concern : Less than 5.00 Less than 10

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 Trading Concern: Less than 5.00 Less than 10
Manufacturing Concern: 5.00-50.00 10 - 24
Cottage Industry / Enterprise
Family Concern Less than 5.00 Less than 10
* Total Fixed Asset is excluding land and building but including replacement value.

List out the booster sectors financed under SME scheme

ANS. Name of booster sector financed under SME programme are cited below-
a.Induatrial sector-
1.electronix and electric materials. 2.Plastic and other synthetic 3.Furniture manufacture
4.Small parts of car/autorikshaw, aluminium fitings of for home chore or office usage.
5.Jewelery, photography or printing press. 6.Production of herbal products etc.
b.Service sector
1.health service and diagonostic 2.herbal treatment & beauty parlor 3.medicine & cosmetics
4.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.

2.What are the existing sources and areas of SME Financing in Bangladesh?
Existing Sources of SME Financing:
The main sources of SME Financing are basically personal funds, family and friends, banks and NBFIs. Some
refinance Schemes from different organization are also available. These are discussing below:
SME Financing by Banks & NBFI: An important element of SME finance is not directly provided by banks
through traditional loans but rather by leasing or factoring companies. Bank loans and overdrafts are the most
widespread debt financing tools for SMEs, but also those alternative sources like leasing and factoring are of
high relevance.
The EEF: The Government had instituted the Equity Entrepreneurship Fund (EEF) in early 2002 in an effort to
make funding more widely available for agro-processing and information technology businesses in the
country.
Small Enterprise Fund (SEF): Small Enterprise Fund (SEF), a scheme to refinance banks and other financing
institutions that lend to the SME sector create a capacity to specifically channel needed debt-
finance. Disbursements made by financial institutions and leasing companies into small-enterprises will be
refinanced from the proceeds of the SEF.
ADB Fund: The Small and Medium Enterprise Sector Development Program (SMESDP), which is financially
assisted by The Asian Development Bank, Manila and implemented by the Ministry of Industries, Govt. of
Bangladesh introduce a fund for SME entrepreneurs by Banks & NBFI.

Other Refinance Scheme:

1. Bangladesh Bank Fund: 2. EGBMP (IDA) Fund: 3. Japan International Cooperation Agency (JICA) Fund

The areas of SME Financing in Bangladesh:

 Agro Process, agro-based and agro supportive industries.  Pottery

 Handicrafts & other Cottage industries  Light engineering
 Computer software and ICT  Textile, RMG, Knitwear etc.
 Plastic & Other Synthetics  Educational Services
 Poultry & cattle  Health Care & Diagnostics Centers
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 Jute goods (with renewed vigor)  Pharmaceuticals/Cosmetics/Toiletries
 Electronics and Electrical appliance  Event Management
 Leather and leather goods  Internet Service Providers

3.SME is considered as employment Generating Machine- Explain?

SME is considered as employment Generating Machine for the following reason:
 SME sector is the largest provider of employment in most countries, especially of new jobs.
 SMEs tend to employ poor and low -income Workers.
 SMEs are sometimes the only source of employment in poor regions and rural areas.
 There are approximately six million SMEs in Bangladesh, which include enterprises with up to 100
workers employing a total of 31 million people – equivalent to 40 per cent of the population of
Bangladesh aged 15 years and above.
 SME has huge Employment generation potential due to labor intensive nature of most of the SME
activities. Between 1986 and 2006, the labor force grew by nearly 3 percent while employment grew by
2.6 percent. In the small enterprises, employment grew by 4.8 percent during 1978-1991 and by 5.5
percent during 1991-2001. Employment growth in the medium enterprises is estimated at 9.6 percent
during 1988-2003. SEDF reports that between 80 percent and 85 percent of the total industrial
employment and 23 percent of the country‘s overall employment is accounted for by the SMEs.

4.Discuss the roll of SMEs in the economic development of Bangladesh.

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:
 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

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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.

5. History SME Foundation

SMEs are recognized as engine of economic growth and employment generation for sustainable
industrialization in both developed and developing countries of the world. In context of Bangladesh, there is no
alternative of small and medium enterprises for rapid industrialization and national economic growth through
lower capital investment and employment generation. One of the major aims of SMEF is to bring the grassroots
entrepreneurs into the main stream of economic development through employment generation, reduction of
social discrimination and poverty alleviation.
Legal base of establishing SME Foundation
Small and Medium Enterprise Foundation got registration from the Ministry of Commerce on 12-11-2006 and
from the Registrar of Joint Stock Companies and Firms on 26-11-2006 under the Companies Act (Act XXVIII),
1994 . A resolution (Gazette notification) was circulated on 30-05-2007 regarding the establishment of SME
Foundation. It is an independent and unique non-profit organization.
Vision
Fostering industrialization through SME promotion for employment generation, economic development finally
poverty alleviation of Bangladesh.
Mission
Undertake and implement multi sectoral action plan for proper growth of SMEs and make them competitive in
the free market economy.
Objective
1. Implementing SME Policy Strategy adopted by the Government of Bangladesh.
2. Recommending SME friendly policies to different government ministries and agencies.
3. Providing business support services to the SME entrepreneurs. 4. Providing information and proper guidance
for establishing new SMEs.
5. Conducting sectoral study to ensure availability of latest information, identify challenges and recommend
preventing measures.
6. Operating credit wholesaling programs for the SMEs through different banking and non-banking financial
institutions.
7. Conducting training programs to create skilled labor for different SME sub-sector based on their demands.
8. Technology development, adopting new technology, conducting reverse engineering and supporting SMEs to
get quality certifications.
9. Supporting SMEs in marketing their products and promotion of services.
10. Bringing women entrepreneurs into the mainstream of development and helping them to achieve economic
self dependency.
11. Assisting SMEs in creating institutional bondage with foreign companies for capacity building, technology
transfer and improving productivity.
12. Training up and motivating SMEs in using ICT tools for more productivity and improving quality.
6.Discuss the roll of SME foundation in SME Development in the country. n10, n11, d12, m13, m14
Small and Medium Enterprise Foundation, an independent and unique non-profit organization got registration
in 2006. After formatting SME Foundation, it is playing its role in helping the SME entrepreneurs including the
women entrepreneurs by conducting various programs with an aim to develop the SMEs of Bangladesh. One of
the major aims of SMEF is to bring the grassroots entrepreneurs into the main stream of economic development
through employment generation, reduction of social discrimination and poverty alleviation.
The major rolls of SME foundation in SME Development in the country are:
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  Implementing SME Policy Strategy adopted by the Government of Bangladesh.
 Recommending SME friendly policies to different government ministries and agencies.
 Providing business support services to the SME entrepreneurs.
 Providing information and proper guidance for establishing new SMEs.
 Conducting sectorial study to ensure availability of latest information,
 Identify challenges and recommend preventing measures.
 Operating credit wholesaling programs for the SMEs through different banking and non-banking
financial institutions.
 Conducting training programs to create skilled labor for different SME sub-sector based on their
demands.
 Technology development, adopting new technology, conducting reverse engineering and
supporting SMEs to get quality certifications.
 Supporting SMEs in marketing their products and promotion of services.
 Bringing women entrepreneurs into the mainstream of development and helping them to achieve
economic self-dependency.
 Assisting SMEs in creating institutional bondage with foreign companies for capacity building,
technology transfer and improving productivity.
Training up and motivating SMEs in using ICT tools for more productivity and improving quality.

7.How would you identify and select entrepreneurs for financing SME projects? Discuss. N10,11,
m12,13,d13,d14,d15,m16
Entrepreneurs are those persons (business owners) who seek to generate value, through the creation or
expansion of economic activity, by identifying and exploiting new products, processes or markets. A desire for
independence and a strong sense of initiative are usually characteristics of a successful entrepreneur. They have
the following characteristics:
 They are dedicated to their workings.
 They have Entrepreneurial Personality
 They have basic business competency, industry specific knowledge.
 They desire to win and succeed coupled with vision
 They are the creative type.
 They take risks and succeed. Risk involves looking into the future and believing that there is a
probability of the occurrence of certain events. And on this basis a decision is taken to do or not to do
something.
 Successful entrepreneurs react quickly to change.

There are many types of entrepreneurs like Spiral (Helical) entrepreneurs, Occasional entrepreneurs, Habitual
entrepreneurs, Growth entrepreneurs etc. We need to select true entrepreneurs by their characteristics. We can
say, the characteristics which are discussed above are considerable to select entrepreneurs for financing SME
projects.
8.Discuss the main constraints to the growth of SME finance in Bangladesh? N11, m12, d13, m14, m15
The main Barriers / Constraints to the promotion of the SME Sector in Bangladesh are:
Lack of capital support: A majority of our small and medium industry entrepreneurs belong to the lower class
or lower middle class. They are hard workers, innovators, and-challenge-takers, but cannot get funding from
commercial banks due to their inability to provide collaterals.
Absence of policy for transfer of modern technology: The sector is suffering from lack of technological
support for upgrading the product quality.
Unavailability of appropriate infrastructure facilities: An Infrastructure facility as water, electricity and gas
hampers industrial activities.
Lack of marketing opportunities: SME sector includes a wide range of small and medium industries, but they
do not have marketing knowledge and capability to promote their products.
Inadequate policy reforms: Till now, do not have uniform definition of SME. The Bangladesh Bank, Bureau
of Statistics, and SME Foundation have different definitions of SMEs. Government may take necessary
initiatives to make it uniform.
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Lack of exposure to international markets: Our SME sector is producing handicrafts and decorative and
household items having high demand in the developed market, but having the demand women entrepreneurs
are unable to attend international markets due lack of exposure and promotion.
Law and order situation: The members of the business community, especially those involved in the SME
sector, suffer because of the law and order situation
Illegal imports and non-tariff barriers: Both illegal import and non-tariff barriers are threats to our SME
sector. If banned products are smuggled into the country domestic production will be harmed. Our SME
products are facing many non-tariff barriers in different markets.
Lack of adequate investments:
High rate of interest on bank loans:
Inadequate availability of raw materials:
Fierce competition:
Lack of skilled technicians and workers:
Lack of research and development facilities:

9.What are the initiative you will suggest to overcome this constraints?
Growth is often the bulls eye businesses aim for, yet ironically enough, when it arrives the sudden surge can
cause a company to falter or even fail.
"A SME cannot justify a full-time, suitably qualified Controller until it reaches a certain point and so it often
continues to utilize the same staff as was necessary when the business was much smaller. Often this Accountant
is capable of preparing the necessary compliance referred to above. However, that person often does not have
the experience to effectively manage the slightly more complex challenges that success and growth entail."
BB has identified eight major challenges that a company must overcome as it grows. Here is his advice on
where the problems lie and what you can do to resolve them.
1.Lack of capital-Lack of capital is often the most critical challenge that a successful SME faces as its very
success creates this and it quickly becomes a vicious circle.Without very diligent cash flow management and/or
raising of more capital, including debt, the business often is constrained by capital as it grows. Often the profit
in one operating cycle is insufficient to fund the extra working capital required for the next operating cycle.
2.Lack of management skills-Lack of management skills is a problem that is very difficult to deal with in
most SMEs as the size of the senior management team is necessarily limited. The solution is to determine what
those areas of weakness are and then to develop a plan for dealing with those challenges.
3.Lack of information about what is - and isn't – working-Lack of information about what is working, and
what is not working, in the business can be an issue. Implementing a process for measuring and tracking key
performance indicators (KPIs) on a weekly, or at least monthly, basis is key to enabling management to react to
challenges and opportunities alike.
4.Lack of a plan-Lack of a plan is often a fundamental problem for many SMEs. The arguments for planning
are many and irrefutable and yet this is a very common failing for most SMEs except those that are enjoying
very rapid growth.
In my opinion there are three very fundamental reasons for implementing a planning process:
a.If your plan sets out certain objectives you are much more likely to achieve - or exceed - them than if you just
keep barreling along. Research has often shown this to be true and it stands to reason that having a plan will
enable you to often think through and implement the steps necessary to achieve that plan;
b.Most SMEs spend so much time dealing with the "alligators" that are snapping at their rear end that it is
difficult to recognize the steps necessary to achieve your long-term objectives. A plan disciplines you to look
"beyond the weeds" from time to time; and
c.A plan can often alert you to inconsistencies that need to be managed e.g. a lack of capital or other resources
necessary to fund the growth projected. Once recognized you are in a position to better manage the limiting
factor.
5.Poor procedures-Poor procedures are a constant challenge for a SME trying to manage with limited
resources. Good procedures with a little time and effort invested up front will usually pay enormous dividends
in time and cost savings on an ongoing basis.
6.Ignoring risks in their assessment of alternatives and opportunities-Many entrepreneurs ignore risk in
their assessment of alternatives and opportunities. A business is about taking managed risks and one cannot
insure for or avoid risk if one is in business
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7.Lack of focus-Lack of focus is often a real challenge for an entrepreneur in a SME as there are constant
changes in priorities, issues that need attention and other fires to be extinguished. Be clear on your long-term
objectives and the opportunities that will facilitate your achieving this.
8.Failure to plan for issues absorbing the majority of your time-Each of the above potential mistakes are
common and are often encountered in businesses that could do lot betterProbably the scarcest resource in most
businesses is the time of the owner/President and a little time developing a strategy can often free up the
opportunity to focus on real priorities.

10. Discuss the initiative taken by govt. /BB to development in SME sector
Bangladesh Bank has already introduced several schemes and programs to flourish and expand SME
Enterprises. Refinance scheme funded by Bangladesh Bank, IDA and ADB has been facilitated for the
development of SME Sector. Besides, to ensure institutional financial facilities under easy conditions
Bangladesh Bank has taken diverse steps; like opening of ‗Dedicated Desk‘ for SME and ‗SME Service
Centre‘ in the banks and special facilities for the women entrepreneurs. But reality is that expected outcome has
not been achieved so far in this sector.
The guidelines formulated by the newly created department for compliance of the banks and financial
institutions for the development of SME sector are enumerated below:
Target for SME loan disbursement
For the first time in Bangladesh, an indicative target for SME loan disbursement has been set for 2010 by the
banks and financial institutions considering SME development as one of the most important development
agenda of the country. According to the target, SME loan shall be disbursed to the small, medium and women
entrepreneurs.
Following the 'Area Approach Method'---Following the 'Area Approach Method' banks/financial institutions
will try to attain their indicative targets separately by dividing it as branch wise, region wise & sector wise.
Separate business strategy in financing SME
Each bank/financial institution shall follow a separate business strategy in financing SME loan with least
formalities in executing documentation to ensure easy and speedy loan sanction and disbursement process.
Priority given to small entrepreneurs ---Priority shall be given to small entrepreneurs.
Small entrepreneurs credit limit
For small entrepreneurs credit limit will be ranged from Tk. 50,000 (Fifty thousand) to Tk. 50,00,000
SME credit disbursement to women entrepreneurs---For more participation of women entrepreneurs in
industrial development of the country and for conducting business activities by women entrepreneurs in large
number, priority shall have to be given to potential women entrepreneurs in respect of SME credit
disbursement.
Highest priority in receiving loan application from women entrepreneurs
Banks & Financial Institutions shall put highest priority in receiving loan application from small and medium
women entrepreneurs and settle the loan disbursement process within very reasonable time from the date of
acceptance of the application.
Separate ‗Women Entrepreneurs‘ Dedicated Desk‘---Each bank and financial institution shall establish a
separate ‗Women Entrepreneurs‘ Dedicated Desk‘ with necessary and suitable manpower, provide them
training on SME financing and suiltably appoint a lady officer as chief of dedicated desk.
Loan to women entrepreneurs against personal guarantee
Banks and financial institutions may sanction up to Tk. 25,00,000 to women entrepreneurs against personal
guarantee. In that case, group security/social security may be considered.
Considered as yardstick for new branches---The success in SME loan disbursement will be considered as
yardstick for further approval of new branches of the concerned bank. License for New Branches will be issued
for financing the priority sectors like SME and agriculture from 2010 in the name of ‗SME/Agriculture Branch‘
Fixing the interest rate ---Each bank/financial institution shall fix the interest rate on SME loan sector/sub-
sector wise and ensure disbursement of refinanced fund to the clients (women entrepreneurs) at Bank rate +5%
interests.
Training programs---Training programs shall be arranged for the entrepreneurs.
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11.Discuss about special arrangement for sme women enterprenure
About half of the population of Bangladesh is women. Therefore, women participation in the mainstream of
economy is crucial for attaining sustainable economic growth & poverty reduction. But women participation in
institutional economic sector is inadequate & the rate of women entrepreneurs is very low compared to that of
male counterparts. But women participation in micro credit programmes and readymade garments industry is
contributing significantly to the country‘s industrialization. Similarly, participation of women entrepreneurs in
SME sector is vital for the flourishing of Bangladesh economy.
Meantime, Bangladesh Bank has taken some steps and formulated a guideline for the banks & financial
institutions to ensure more institutional financial facilities for women entrepreneurs in SME sector.
a. With a view to organizing and making uniform industrial development and to ensure institutional credit
facilities, at least 15% of total BB refinance fund for SME sector has been allocated for women entrepreneurs.
b. Interest rate for women entrepreneurs will be Bank rate (which is at present 5%) plus maximum 5%; i.e. not
more than 10% per annum.
c. Banks/Financial Institutions will accept and settle all types of loan applications of SME women
entrepreneurs with the highest priority.
d. Banks and financial institutions shall take initiative to advertise all the facilities for women entrepreneurs in
both electronic & print media.
e. Banks and Financial Institutions may provide a maximum loan facility of Tk.25, 00,000/- against personal
guarantee if borrower is woman or majority of the owners of the enterprise are women.
f. Banks/Financial Institutions shall establish special advice and service centre for women entrepreneurs in
selected branches and ensure service friendly approach towards women entrepreneurs.

Identification of the Real Women Entrepreneurs:

To identify the real women entrepreneurs, assistance can be sought from Bangladesh Small and Cottage
Industries Corporation(BSCIC), SME Foundation & professional organizations, such as,
Handloom/Handicrafts Association, Mahila Samity, different Women Entrepreneurs‘ Association, such as,
Bangladesh Women Chamber of Commerce & Industries (BWCCI), Women Entrepreneurs Association of
Bangladesh (WEAB), Bangladesh Homeworkers‘ Women Association (BHWA), National Association of
Small & Cottage Industries of Bangladesh ( NASCIB) etc.

12.Do you agree that sme can occur economic revolution in BD?
Importance of SME Loan in Bangladesh
The main focus of BRAC Bank is to develop human and economic position of a country. Its function is not
limited only to providing and recovering of loan but also try to develop the economy of a country. So reasons
for this program from the viewpoint of BBL:
Support Small Enterprise: The small enterprise, which requires BDT 2 to 30 lacks loan, but they have no
easy access to the banks/financial institutions. For example: In case of Anonno loan, an amount of 3 to 8 lacks
is provided without any kind of mortgage.
Economic Development Economic development of a country largely depends on the small and medium seal
enterprises. Such as, if we analyze the development history of Japan, the development of small & medium scale
enterprises accelerate the development of that country.
Employment Generation The bank gearing employment opportunities by two ways: Firstly, by providing loan
to the small enterprises expanding, these businesses require more workers. Secondly, Small & Medium
Enterprise (SME) program requires educated and energetic people to provide support to entrepreneurs.
Profit Making SME program is a new dimensional banking system in the banking world. Most of the CROs
are providing door-to-door services to the entrepreneurs. Entrepreneurs are satisfied by the service of the bank
and make profit.
Encourage Manufacturing BRAC Bank is highly encouraging manufacturing entrepreneurs who produce by
purchasing various types of materials. CRO try to encourage them to produce material if possible because if
they can produce instead of purchasing their profits will be high.
13.Discuss the importance of monitoring & counseling in improving the quality of a SME Loan?
Banks need to enunciate a system that enables them to monitor quality of the credit portfolio on day‐to‐day
basis and take remedial measures as and when any deterioration occurs. Such a system would enable a bank to
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ascertain whether loans are being serviced as per facility terms, confirm the adequacy of provisions, and
establish that the overall risk profile is within limits established by management and compliance of regulatory
limits. Monitoring procedures and systems should be in place so as to provide an early signal of the
deteriorating financial health of a borrower.
An Early Alert Account is one that has risks or potential weaknesses of a material nature requiring monitoring,
supervision, or close attention by management. If these weaknesses are left uncorrected, they may result in
deterioration of the repayment prospects for the asset or in the Bank‘s credit position at some future date with a
likely prospect of being downgraded to worse. Despite a prudent credit approval process, loans may still
become troubled. Therefore, it is essential that early identification and prompt reporting of deteriorating credit
signs be done to ensure swift action to protect the Bank‘s interest. Regular contact with customers will enhance
the likelihood of developing strategies mutually acceptable to both the customer and the Bank. Representation
from the Bank in such discussions should include the local legal adviser when appropriate.
14.Give some advice to develop the existing guideline of sme.
Steps/Measures taken by Bangladesh Bank for SME Development:
Bangladesh Bank has already introduced several schemes and programmes to flourish and expand SME
Enterprises. Refinance scheme funded by Bangladesh Bank, IDA and ADB has been facilitated for the
development of SME Sector. Besides, to ensure institutional financial facilities under easy conditions
Bangladesh Bank has taken diverse steps; like opening of ‗Dedicated Desk‘ for SME and ‗SME Service
Centre‘ in the banks and special facilities for the women entrepreneurs
The guidelines formulated by the newly created department for compliance of the banks and financial
institutions for the development of SME sector are enumerated below:
***For the first time in Bangladesh, an indicative target for SME loan disbursement has been set for 2010 by
the banks and financial institutions and SME loan shall be disbursed to the small, medium and women
entrepreneurs.
*** Following the 'Area Approach Method' banks/financial institutions will try to attain their indicative targets
separately by dividing it as branch wise, region wise & sector wise.
***Each bank/financial institution shall follow least formalities in executing documentation to ensure easy and
speedy loan sanction and disbursement process.
*** For small entrepreneurs credit limit will be ranged from Tk. 50,000 (Fifty thousand) to Tk.50,00,000 .
*** For more participation of women entrepreneurs in industrial development priority shall have to be given to
potential women entrepreneurs in respect of SME credit disbursement.
***Banks & Financial Institutions shall put highest priority in receiving loan application from small and
medium women entrepreneurs and settle the loan disbursement process within very reasonable time.
*** Each bank and financial institution shall establish a separate ‗Women Entrepreneurs‘ Dedicated Desk‘
with necessary and suitable manpower, provide them training on SME financing and suiltably appoint a lady
officer as chief of dedicated desk.
*** Banks and financial institutions may sanction up to Tk. 25,00,000 to women entrepreneurs against personal
guarantee. In that case, group security/social security may be considered.
*** Each bank/financial institution shall fix the interest rate on SME loan sector/subsector wise and ensure
disbursement of refinanced fund to the clients (women entrepreneurs) at Bank rate +5% interest.
***Training programs shall be arranged for the entrepreneurs.

15.What do you mean by project appraisal?

Project appraisal

Project appraisal is the due diligence conducted on sponsors, technical, market, environmental, financial, legal,
and risk aspects, among others, of the proposed project. • It is the assessment of the viability of proposed long-
term investments in terms of shareholder wealth. • From a commercial bank‘s perspective, the focus is on
whether the project can generate sufficient cash flow to repay its debt and provide an acceptable rate of return
to sponsors.

Meaning and definition

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•Assessment of a project in terms of its economic, socialand financial viability
•A lending financial institution makes an independentand objective assessment of various aspects of an
investment proposition
•It is defined as taking a second look critically and carefully at a project by a person who is in no wayinvolved
or connected with its preparation. He is able totake independent, dispassionate and objective view of the project
in totality, along with its various components.

16.Why it is done?
Why is Project Appraisal Needed?
• To stop bad projects • To prevent good projects from being destroyed • To determine if components of
projects are consistent • To assess the sources and magnitudes of risks To determine how to reduce risks and
efficiently share risks
17.Explain the different aspects of appraising a SME project. N11, 12, M13, 14, 15
Components of Project Appraisal
• Sponsors Analysis •Economic Aspects • Technical Analysis • Market Analysis • Financial Analysis •
Environmental Analysis: •Organisational Aspects•Managerial Aspects • Legal Analysis • Risk Analysis
Sponsors & Management Review
Sponsors review should answer the following:
 Sponsors track record in implementing similar kind of projects
 Sponsors financial strength to fulfill base equity and contingent equity commitment
Economic Aspects
•Analyses if the benefits will justify the projectcost/investment done•A successful project gives following
benefits:
–Increased output–Enhanced services–Increased employment–Larger government revenue–Higher earnings–
Higher standard of living–Increased national income–Improved income distribution
Technical Aspects
 Review of Technical Expert/Independent Engineer‘s Report  Track record of proposed technology 
Adequacy and completeness of the project design  Quantities of inputs by type needed for investment and
operation  Labor required by type and time  Input prices and sources of supply  Environmental impacts
•Site and Location: RM supply, proximity to markets,transportation facility, power supply, manpower,
water,government policies, labour laws, climate, taxes
•Size of plant/scale of operations: Technological capacityis standardised for achieving economies of scale,
lowdemand or less resource availability result in economiesof scale
•Technical feasibility: Technology selected, availability of infrastructure, plant layout, project
implementationschedules etc
Market/Commercial Aspects
Market Analysis  Review of Market Expert‘s Report  Whetherthere exists a strong market for the project 
Demand – supply gap  Price elasticity  Availability of substitutes Sector/Industry Analysis should also be
done here  Industry competitiveness/structure/tariff/duty/tax/vat, etc.  Availability of inputs/raw materials 
Major industry players  State of regulations
•Analysis of market opportunities•Specification of marketing objectives•Planning and organising of marketing
process•Controlling of implementation of marketing plan.
Financial Aspects
 Determination of total project cost and sources of finance  How to forecast project earnings and costs? 
How to model project profitability under uncertainty?  What are the DCF tools used in project analysis? 
Key questions asked in financial analysis:  What is relative certainty of financial variables?  What are
sources and costs of financing?  What are minimum cash flow requirements for each of the stakeholders? 
What can be adjusted to satisfy each of the stakeholders?
•Cost analysis: Finding out the cost of production•Pricing: Deciding price of the product after
consideringdemand, profit and competition•Financing: Raising funds and efficient use of the same•Income and
Expenditure: Concerned with predictingprofit and costs involved

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Typical Structure of Financial Analysis  Capital cost and financing plan  Capital cost  Working capital
requirement  Engineering, procurement, and construction  Allocationof loan and equity and disbursement 
Operating costs and earnings projections  Revenues  Operating costs  Pro forma financial statements (IS,
BS, SCF)  Financial projection  Net present value (NPV) & internal rateof return (IRR)  Sensitivity
Analysis
Organisational Aspects---•Organisation structure, recruitment and training aspectsare studies•Appraisal done
to see if project is adequately staffed,initial recruitment is done.
Managerial Aspects-----•Financial institutions check if promoters are competentand have business sense•They
can appoint nominee directors on board•The Companies Act and Industries Act empowergovernment to
exercise control over management•They can also take over the management in case it isneeded.
Management review should answer the following:
 What are managerial and labor needs of the project?
 Does organization have the ability to get the managerial skills needed?
 Is timing of project consistent with quantity and quality of management?
 What are wage rates for labor skills required?
Environmental Analysis
 What are the likely environmental impacts from undertaking project ?  What is the cost of reducing the
negative impact?  Evaluation of the environmental impacts and risks with and without technical measures are
taken to reduce theseimpacts  Are there alternative ways of supplying the good or service of project without
incurring these environmental costs? What are the costs of these alternatives?  Is it a RED/ORANGE/GREEN
project?  Have DoE and GoB permissions been obtained?
Legal Analysis
 Is project operation lawful?  Review AoA/MoA, check certificate of incorporation, etc.  Does the project
has relevant permission in place?  Power project signs various agreements with government. Moreover, it
requires at least 30 different consents/permits fromgovt. line agencies.  CNG refueling stations requires 3
basic permissions from RPGCL, Dept. of Explosives and 9 other permission from various govt. line agencies.
 Schools, universities, hospitals, etc. all have their specific permission requirements.  If anything related to
export/foreign investment, check for Board of Investment, Bangladesh Bank approval.  If anything related to
tax, duty, VAT, etc. consult National Board of Revenue.  If anything related to capital raising, consult
Securities Exchange Commission.
Risk Analysis
 Fundamental Principle of Risk allocation:  Risk should be allocated by contract or otherwise, to the party
best able to mitigate or control risk.  Major Risks Involved in Project Finance:  Construction Risk  Credit
Risk  Marketing and Operating Risk  Financial Risk  Political Risk  Legal Risk  Environmental and
Social Risk  Force Majeure Risk
What Are the Types of Project Appraisal Methodologies?
Project appraisal methodologies are methods used to access a proposed project's potential success and viability.
A good project will service debt and maximize shareholders' wealth.
Net Present Value
A project's net present value is determined by summing the net annual cash flow, discounted at the project's
cost of capital and deducting the initial outlay. Decision criteria is to accept a project with a positive net present
value. Advantages of this method are that it reflects the time value of money and maximizes shareholder's
wealth. Its weakness is that its rankings depend on the cost of capital; present value will decline as the discount
rate increases.
Payback Method
A company chooses the expected number of years required to recover an original investment. Projects will only
be selected if initial outlay can be recovered within a predetermined period. This method is relatively easy since
the cash flow doesn't need to be discounted. Its major weakness is that it ignores the cash inflows after the
payback period, and does not consider the timing of cash flows.
Internal Rate of Return
This method equates the net present value of the project to zero. The project is evaluated by comparing the
calculated Internal rate of return to the predetermined required rate of return. Projects with Internal rate of
return that exceed the predetermined rate are accepted. The major weakness is that when evaluating mutually
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exclusive projects, use of Internal rate of return may lead to selecting a project that does not maximize the
shareholders' wealth.
Profitability Index
-This is the ratio of the present value of project cash inflow to the present value of initial cost. Projects with a
Profitability Index of greater than 1.0 are acceptable. The major disadvantage in this method is that it requires
cost of capital to calculate and it cannot be used when there are unequal cash flows. The advantage of this
method is that it considers all cash flows of the project.

18.Explain the different aspects of cost elements during appraisal of a sme project?
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
Vehicle (truck) e.Other machineries tools & tackles
5. Preoperative Expenses
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

19.What are the essential features of business plan?

When we're about to embark on developing a business plan, remember this: Form follows function, so we want
a plan that fits your exact business needs. The emphasis should change depending on whether it's a plan for
starting a company, raising investment money, supporting a business loan or managing an existing business. A
standard plan includes seven sections:
1. The Executive Summary. Write this summary last, and make sure it contains the highlights of your plan.
Assume your most important readers will read only this section.
2. The Company. A plan for a startup describes your strategy for creating the legal entity and how the initial
ownership will be divided among the founders. It should also include a table that lists startup costs and initial
funding. A plan for an ongoing or already existing company should describe the legal form of the business, the
company history and the business's past performance.
3. What You Sell. Describe the products or services you offer. Emphasize why buyers purchase those things,
what benefits they get, and what pain points they have before they buy. Show how much it costs to deliver what
you're selling.
4. Your Market. Describe your target market, including market demographics, market growth and trends.
Include a table that shows a market forecast. Describe the nature of your industry and the competition you
have.
5. Strategy and Implementation. Strategy is all about focus. So focus on certain target market segments,
certain products or services, and specific distribution avenues. Forecast your sales and the cost of sales. Define
your milestones with dates, budgets and specific responsibilities.
6. Management Team. Name and describe the key members on your team. Include a table that shows
personnel costs. List the gaps in the management team--if any--and show how they're being addressed.
7. Financial Projections. Describe your financial strategy and how it supports your projected growth. Include
a break-even analysis that shows risk as a matter of fixed vs. variable costs. Include projected profit or loss,
cash flow and balance sheets.

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1. Specific milestones, with deadline dates, spending budgets and a list of the people responsible for them.
I've seen this called "weaving a MAT," with MAT standing for "milestones, assumptions and tasks." That
normally goes into Section 5, Strategy and Implementation. Make the responsibilities specific for specific
people, and make sure every task gets assigned to a single person with a name and a face. This section must
describe how these different milestones are going to be tracked and measured.
2. Real cash flow. Your plan should show cash flow--either projected or actual or both--month by month for at
least 12 months. Show where you're getting money and how much, and show what you're spending the money
on. This is cash flow, not just profit and loss, and you have to understand how different cash flow is from
profits. Profitable companies go under all the time, but companies with positive cash flow can pay their bills.
3. Focus. A business plan should establish your company's priorities. Don't try to do everything, and don't try
to please everybody.
20.What are the main components of business plan?
a.Executive summary -This is your five-minute elevator pitch. It may include a table of contents, company
background, market opportunity, management overviews, competitive advantages, and financial highlights. It‘s
probably easiest to write the detailed sections first and then extract the cream to create the executive summary.
Try to keep it to just a couple of pages.
b.Business description and structure -This is where you explain why you're in business and what you're
selling. If you sell products, describe your manufacturing process, availability of materials, how you handle
inventory and fulfillment, and other operational details. If you provide services, describe them and their value
proposition to customers. Include other details such as strategic relationships, administrative issues, intellectual
property you may own, expenses, and the legal structure of your company.
c.Market research and strategies -Spell out your market analysis and describe your marketing strategy,
including sales forecasts, deadlines and milestones, advertising, public relations and how you stack up against
your competition. If you can‘t produce a lot of data analysis, you can provide testimonials from existing
customers.
d.Management and personnel
Provide bios of your company executives and managers and explain how their expertise will help you meet
business goals. Investors need to evaluate risk, and often, a management team with lots of experience may
lower perceived risk.
e.Financial documents
This is where you provide the numbers that back up everything you described in your organizational and
marketing sections. Include conservative projections of your profit and loss statements, balance sheet, and your
cash flow statements for the next three years. These are forward-looking projections, not your current
accounting outputs.
21. Define working capital and its significance for a firm.

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.
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.
5. Regular supply of raw material: Quick payment of credit purchase of raw materials ensures the regular
supply of raw materials from suppliers.
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 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.

22.Disciuss capital budgeting techniques.

A variety of measures have evolved over time to analyze capital budgeting requests. The better methods use
time value of money concepts. Older methods, like the payback period, have the deficiency of not using time
value techniques and will eventually fall by the wayside and be replaced in companies by the newer, superior
methods of evaluation. A variety of measures have evolved over time to analyze capital budgeting requests.

a. Payback Period : the Payback Period isn't a very good method. After all, it doesn't use the time value of
money principle. It is still used by a large number of companies, so we'll include it in our list of popular
methods.
Initial Investment
Payback Period =
Cash Inflow per Period
b. Net Present Value: Using a minimum rate of return known as the hurdle rate, the net present value of an
investment is the present value of the cash inflows minus the present value of the cash outflows.
When cash inflows are even:
1 − (1 + i) -n
NPV = R × − Initial Investment
i
In the above formula, R is the net cash inflow expected to be received each period;
i is the required rate of return per period; n are the number of periods during which the project is expected to
operate and generate cash inflows.
When cash inflows are uneven:
R1 R2 R3
NPV = + + + ... − Initial Investment
1 2 3
(1 + i) (1 + i) (1 + i)

Where,
i is the target rate of return per period; R1 is the net cash inflow during the first period;
R2 is the net cash inflow during the 2nd period; R3 is the net cash inflow during the 3rd period, and so on
c. Internal Rate of Return: The Internal Rate of Return (IRR) is the rate of return that an investor can expect
to earn on the investment. Technically, it is the discount rate that causes the present value of the benefits to
equal the present value of the costs. According to surveys of businesses, the IRR method is actually the most
commonly used method for evaluating capital budgeting proposals.
IRR Calculation
The calculation of IRR is a bit complex than other capital budgeting techniques. We know that at IRR, Net
Present Value (NPV) is zero, thus:
NPV = 0; or PV of future cash flows − Initial Investment = 0; or
CF1 CF2 CF3
+ (1+r + + ... − Initial Investment = 0
( 1 + r )1 ( 1 + r ) 3
)2

Where, r is the internal rate of return; CF1 is the period one net cash inflow; CF2 is the period two net cash
inflow, CF3 is the period three net cash inflow, and so on ...

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d. Discounted Cash Flow : The discounted cash flow method takes into account the time value of money by
discounting an investment's future return to a present value. The premise of the time value of money is that a
dollar in-hand today is worth more than the same dollar in the future.

23.Objecives of consumer banking

The main objectives of consumer banking is to develop the standard of livelihood of human life with the
availing of daily necessaries to them.
Some other objectives of consumer banking is given below-
a. to help the lower level or limited income people through consumer banking
b. help in personal or family purpose uses through consumer banking
c. to reach the house hold materials to the people easily.
d. To develop the purchasing power of lower level or limited income people
e. Make easy of transaction with the bank
f. Provide security less term credit to the customer.
24. Consumer Credit provokes inflation, do you agree with this statement? Discuss in the light of
monetary policy of Bangladesh Bank ?
The word "inflation" originally applied solely to the quantity of money. It meant that the volume of money was
inflated, blown up, overextended. Inflation, always and everywhere, is primarily caused by an increase in the
supply of money and credit. When the supply of money is increased, people have more money to offer for
goods. If the supply of goods does not increase—or does not increase as much as the supply of money—then
the prices of goods will go up.
When banks lend money for consumer purchases (e.g. through personal loans or credit cards) in effect they are
increasing the purchasing power in the economy without increasing the amount of goods available. If the
economy operating at near to its full capacity (i.e. low unemployment, using all its available resources etc. )
then this is likely to push up prices as there is no way to increase production any further. If the economy is
operating below its full capacity then the increase in demand from the consumer loan might lead producers to
produce a bit more, so that even though there is more demand and purchasing power there are also more goods
to spend it on.
From the above discussion we can say Consumer credit provokes inflation.
The current monetary policy stance of the Bangladesh Bank intends to ensure reasonable price stability and
provide support to high and sustainable economic growth. In this context, the policy keeps in view an average
inflation rate of around 7.5 percent in FY13. For this reason, BB aims to ensure that the composition of credit
is focused on productive sectors with an envisaged reduction in the share of consumer credit.
25.Explain different types of consumer banking product available in different bank.
Consumer banking may be of different types. Those are described below-
a. credit card-credit card is a short tern lending facility to the customer. They can lend money without
interest for a definite time under condition.
b. auto loan-this type of loan is given to middle stage customer.
c. housing finance-normaly given to the middle income family to to build house of renovation of house.
d. personal loan-this loan is given to the customer to meet their personal demand as little purchase, daily
expense or others.
26.Discuss what kind of consumer banking product does your bank can introduce.

*Salary Loan *Quick Loan *Auto Loan *Home Loan *Car Loan *Top Up Loan *Credit Card Loan *Study
Loan *Teacher‘s Loan *Now Loan *personal loan*consumer loan*byicycle loan

27.Different directon given by BB on consumer banking?

Priority given to the interrelationship among service quality, customer satisfaction and customer loyalty in
banking industry of Bangladesh.
To reveal the dimensions of service quality in commercial banks.
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To explore the condition of service quality inBangladeshi commercial banks.
To find out the reasons that led to customer satisfaction.
To analyze the factors influencing the customerloyalty in the banking industry of Bangladesh.
To examine the influence of perceived quality onsatisfaction.
To investigate the influence perceivedquality andsatisfaction on loyalty.
28.What precautionary measures a banker should take to prevent a sme loanfrom turning into bad?
What is NPL :
According to the International Monetary Fund‘s (IMF) -
―A loan is nonperforming when payments of interest and/or principal are past due by 90 days or more,
or interest payments equal to 90 days or more have been capitalized, refinanced, or delayed by
agreement, or payments are less than 90 days overdue, but there are other good reasons—such as a
debtor filing for bankruptcy—to doubt that payments will be made in full.‖
According to the Basel Committee on Banking Supervision-
"Loan is considered default when the bank declares that a borrower cannot meet its obligation and cover
its debt of the bank, or similarly to the first definition, the borrower past due more than 90 days on any
payment of the bank credit."
Causes Behind :
The growth of NPL share is driven by the following important factors :
1.Excessive risk tolerance; 2.Poor risk management; 3.Corporate Governance; 4.Lack of information of
borrowers; 5.Over-indebtedness (taking a loan for covering an existing loan); 6.Lack of proper documentation;
7.Inappropriate punitive measures; 8.Lack of enforcement of legislation. 9.Growth in interconnected
borrowings; 10.Unethical Practices; 11.Influenced by external forces which leads to the creation of loans which
are risky and marginal from the outset; 12.Poverty rate and Income inequality and
13.Political unrest.

NPL management
Precautionary measures:
Banks may adopt various measures to manage NPL :
1. Genuine information is necessary to assess a borrower. So, We have to ensure proper documentation ad
KYC.
2. The Relationship Managers awareness is required about the borrower's Non-Payment Behavior .
3. The borrower is unwilling to pay the debt if the mortgaged property contains any fault or fake mortgage
process. Banks must check legitimacy of the proposed property properly and directly.
4. Undue pressure of powerful authorities act as fence. The Credit Risk Management (CRM), Credit
Administration Department (CAD) and Audit Department should show their prudence having full autonomy.
5. Banks should be careful enough selecting the sectors for lending.
6. Borrower counseling is another vital factor. In the initial stage some defaulting borrowers feel ashamed in
contacting with the bank. On the other hand, bank officials look to the defaulting borrowers as 'thieves'. In this
panicky situation, a cordial relation is required to overcome the borrowers' non- performing attitude. .
7. All mortgaged lands were to be registered . Implementation of digitization may help to develop a Mortgage
Server. Mortgage Server may function as CIB server of regulatory body in order to prevent forgery of
mortgage.
08. Provision to be kept against unsecured loan such as CCS, SME, Credit Card are nominal and very hard to
recover. So, the general provision of this product should be more.
09. Recovery strategy is an ongoing process. At the time of rescheduling, banks should find out the terms and
conditions, which were breached by the borrower. Not only that it is very important and a must duty to check
behavioral pattern, either default intentionally or not in a position to overcome. Banks should do according to
the nature of the borrower.
Remedial Measures:
Remedial measures to manage NPL include:
1. New entrepreneur are not aware of Banking laws and regulations. Banks should arrange some workshop for
this reason. 2. Awareness program should be taken by the Government and the Bank itself against the Default
Borrower and Default culture. 3. Many banks convert NPL to non-Banking Assets (NBA) as well as clean the
balance sheet, which is actually not a recovery. Recovery and reducing of NPL should occur simultaneously.
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 4. In some instances, additional financing is the best solution for recovery of the loans. So, proper judgement is
essential. Shrinking in disbursement is not always a better solution. 5. Steps should be taken to set up Asset
Management Company (AMC) to take over default loan with much care. This type of company should have
full autonomy to exercise their prudence. 6.Restructuring of Loan is one type of solution. 7. Establishing a
―Bad Bank‖ perhaps jointly with other FIs.
8. Outright Sale or Securitization. 9. Recovery of NPL through existing laws are very much complicated due
to some factors. It is very urgent to amend this laws or introduce new law to avoid complexity and thus easier
the recovery. 10. Classification should be justifiable against the nature of defaulting.
11. written off the loan is not the solution. To recover, steps should be taken both in-court and out-of-court .
12. Series of discussion with the borrower are required, either he is a defaulter or not. Proper nursing is
mandatory to a Sapling become a big tree.
13.We have to take top-20 from all five components mentioned above. It gives us 100 accounts and those
accounts if reckon accumulate a significant portion of portfolio of a bank. If we are able to nursing them
properly, NPL will come down to a tolerance level.
Key impediment to efficient NPL Management :
Technology / Data
Weak MIS ----inability to measure efficiency & effectiveness •Incomplete data in loan files •Lack of customer
base segmentation •Lack of efficient monitoring & early warning systems •Low use of technology for
collections
Organization / HR
Decentralized Management (e.g. at branch level by account officers) •Lack of incentives & performance
management •Low training & lack of skills in NPL management •Weak understanding of loan restructuring
•Weak links of business units to risk management department •Lack of attention by senior management &
board members
Internal Culture
•Lack of pro-active management •Tendency to avoid the problem until too late •Hard to imagine the worst case
scenario / optimism •Too much emphasis on loan origination •Tendency not to involve legal department until
the last moment

29.Discuss the negative impacts of Non-performing loan

Or How non-performing loans affect profitability of a commercial bank? Analyze with example.--
I. A loan become classified, ceases to yield income, because interest accrued o such loan cannot be
credited to income account.
II. The source of bank income become limited which create a negative impact on profit
III. Provisioning is to be made against non performing loan which affect real profit
IV. Additional manpower needs to be employed in handling NPL resulting additional expenditure.
V. The project or business unit for which loan is extended cannot generate sufficient fund from its
operation to meet obligation for a continuous period of time.
VI. The operation of business unit is stopped, the loans become stuck up.
VII. A portion of bank loan portfolio turns into inoperative assets.
VIII. An adverse effect is noticed on liquidity position of the bank.
IX. The fund of the bank for investment becomes limited and normal fund flow hampered.
X. NPL paralysis normal banking business.
XI. The bank falls in several credit risk and faces reputation risk and may also be identified as problem.

30.What kind of measures you will take to recovery a Non-performing loan

Recovery of Non-Performing Loans & Investments
The NPL Recovery Unit will be responsible for all accounts assigned to it by the Credit Committee. The unit
will be staffed by seasoned senior officers who will undertake the following activities:
1. Review the accounts thoroughly and use a decision matrix to: a) diagnose business prospects; and
b) determine the best way to recover the Bank‘s exposure with the least possible losses.
2. Restructure those accounts which are deemed to be cooperative and in temporary distress, and monitor their
performance closely until they have substantially complied with the revised terms including payment of at least

18
six months‘ installments; rehabilitated accounts may be returned to the originating front offices for regular
monitoring and supervision after this prescriptive period.
3. Prepare accounts with security, whose operations are active but the owners are uncooperative, for legal
action; coordinate with the Bank‘s legal counsel and/or external lawyers in the filing and prosecution stage;
execute final judgment as may be determined by the courts.
4.Prepare accounts without any security, whose operations are either active or inactive and the owners are
uncooperative, for attachment of personal assets through legal means; as above, coordinate with the legal
agents of the Bank until the cases are resolved. Recommend write-off for accounts with no hope of recovery,
and blacklist the borrowers to ensure they are never entertained in the future. The Board shall have the sole
authority to approve write-offs.
31.What kind of preventive measure you will take to prevent classification of loan?
Following are the parameters for reviewing loans:
• SRO issued from People's Republic of Bangladesh.
• Rules and Regulations by Bangladesh Bank.
• Existing Credit Policy of the Bank.
• Credit Risk Management Policy.
• Delegation of Business Discretionary Power.
• Declaration relating to liabilities and confidential report.
• UCP & other rules & regulations in case of International Trade.
• Bank Books of instruction (BBI).
• Formulation & preservation of necessary loan documents properly.
• CRG guidelines.
• Credit Rating (if applicable).
• CIB Report.
• Rules & Regulations relating to documentation of loans and mortgage etc.
• Instruction relating to verification of ownership of collateral security.
• Existing guidelines & regulation in case of different loans.
• Green banking policy.
It is to be noted that Short Term Agriculture & Micro-credit loan may be excluded from monthly loan review.
In case of these loans, guidelines for loan classification and provisioning shall be applicable.
32. As a banker What legal & non-legal measures would you take to recover a loan when it becomes bad?

Non-Legal Measures:
1. Review all documentation, meet the customer, and prepare a Classified Loan Review Report.
2. Letter, Follow up & Persuasion over phone, Group visit by team member.
3. Letters to Guarantor, Employer, and Reference all above effort follows.
4. Final Reminder & Serve legal notice
5. Letter to different banks/Association
6. Repossession starts & Legal proceedings begin.
7. An incentive package for bank officials of NCBs to speed up the recovery of bad loans
8. Rescheduled Loan as per Bangladesh Bank reschedules guideline.

Legal Measures:
There is a famous maxim ―justice delayed is justice denied‖. This can be applied to banks, especially in
developing countries like Bangladesh, owing to the presence of corruption and opaqueness in the settlement
process as well as poor enforcement of laws that usually create a fertile ground for the willful defaulters. The
following legal measures should take:

1.Issue legal notice

3. suits filed to certificate court
2.Suits filed to Artha Rin Adalat.
3.Suits file at bankruptcy court as per the Bankruptcy Act and the PDR Act.

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Concerning recovery strategies, it is observed that Bangladesh has concentrated mainly on legal measures to
address the recovery of bad loans. Unfortunately, these legal measures have been found to be very time
consuming, resource draining and ineffective, and have ultimately resulted in poor recovery performance.
Despite being aware of this fact, non-legal measures such as out of court settlements, compromise settlement
schemes are better for loan recovery.

33.What are the various methods of creating charge on securities? Explain in details. Vvvvi
Security can be obtained through various forms. These are:
Charge: A charge is probably the most common form of security particularly when properties are frequently
taken as security. It can also be referred to as a Mortgage which usually relates to land or immovable property.
A charge or mortgage may be either legal or equitable. It is an interest in a property that passes conditionally to
a charge, normally without physical possession.
Charges can be either fixed or floating:
1. A fixed charge over the chargor‘s overall fixed assets. Fixed charges can also be created over
specific machinery, property and shares.
2. A floating charge, however, can be regarded as a charge coupled with permission to the company
to continue deal with its assets until the charge crystalizes upon the appointment of a receiver.
Assignment: An assignment involves a transfer of the rights under a contract by an assignor (borrower) to an
assignee (lender)
Pledge: In law, a pledge means the transfer of a movable asset. Possession of the asset is passed to the pledgee,
but the legal ownership remains with the pledger who has an equity of redemption for the physical possession.
This usually applies to cash deposits, shares, stocks and accounts receivable.
Lien: A lien can be taken on personalty or on realty. A lien is understood to be the right of a bailee to retain
possession of a mortgage entrusted to him until the debt due is paid. For example, a banker‘s lien conveys a
general right over documents of title subject to pledge (such as negotiable instruments) that pass through the
banker‘s hands while a debt is owing to him.
Hypothecation: This is a security whereby a debt is acknowledged and the particular goods or things are not in
the lender‘s possession. It is similar to the concept of pledge except that physical possession of the security is
not with the lender.

34.BASIC CHARACTERISTICS OF GOOD SECURITIES

The securities acceptable to banks either as primary or collateral must have certain, basic characteristics as
under:
 Ascertainment of value. A security will be considered good and will be acceptable to the bank only if its
value can be ascertained with a definite degree of correctness. Certain articles may be valuable but may not be
accepted as security if the value cannot be ascertained such as paintings/antiques etc.
 Marketability. A good security must have a ready market. Raw materials, articles of necessity, other
primary commodities are easily marketable and are considered good security. Semi-finished goods may be
more valuable than raw material for the borrower but may not be marketable at all and will thus be considered
inferior to raw material in as much as its acceptance as a security is concerned.
 Stability in value. A good security should have a stable value over along period. If the value of a security
fluctuates violently over a short period, it may not be considered a good security and may be accepted by the
bank only after keeping a very high margin.
 Ascertainment of title and transferability. An asset can be accepted as security by the bank only when
the title over that asset can be ascertained. Furthermore, the title should be easily transferable. Immovable
property located at a prime location may be very stable in value has a ready market and the value can also be
ascertained but may still not be considered as a good security due to difficulty in ascertaining the title and
elaborate legal process involved for effecting its sale through a court of law.
 Durability. The security accepted by the Bank must be durable. No bank advance is granted against
perishable commodities.
 In case loan or advances to Muslims offering their property as primary or collateral security, it should be
ensured, before accepting property as security that such property has not been alienated under the Muslim Law

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like 'waqf-ul-ulad' and/or 'Haq-rnehr' in favour of their wives or for the benefit of their heirs since it will
jeopardise the interest of the banker as lender.

35.How a repayment schedule is prepared? Give an example.

How is an Amortization Schedule Calculated?
A repayment schedule is a table or chart showing each payment on an loan, including how much of each
payment is interest and the amount going towards the principal balance. We provide the step-by-step
calculations below for a simple fixed-rate mortgage.
Let's say you are purchasing a new home for $280,000 with a $30,000 down payment. Your bank agrees to
provide you with a $250,000 mortgage at a fixed interest rate of 5% for 30 years. What is your monthly
payment? How much money are you paying towards interest and principal each month? Let's find out.
Determine the total number of payments
In this example, you have to make one payment per month for 30 years. This means you will make 360
payments over the course of the mortgage (12 x 30 = 360).
Determining a monthly payment
If there were no interest rate, determining your monthly rate would be simple: divide the loan amount by the
number of payments ($250,000 / 360 = $694.44). Obviously the bank has to make money so the mortgage
comes with a 5% interest rate.
It is important to note the 5% is an annual interest rate. Since all the following calculations are based on a
monthly payment schedule, the annual rate needs to be converted to a monthly rate. The monthly interest rate
would be 0.416% (5% / 12 = 0.416%).
Determining the monthly payment to account for interest requires a complicated formula shown below.

A is the monthly payment, P is the loan's initial amount, i is the monthly interest rate, and n is the total number
of payments.
Using our numbers (P = 250,000, i = 0.416% (i.e. 0.00416), n = 360), the formula yields a monthly payment of
$1,342.05.
Determining the total interest
We can now calculate the total cost of the loan since you will make 360 payments of $1,342.05. The total cost
is approximately $483,139. Subtracting away the original loan amount ($250,000) leaves us with the amount of
interest: approximately $233,139. So even though the interest rate is only 5%, you almost pay as much in
interest as the purchase price!
Determining the breakdown of each monthly payment
Even though the monthly payment is fixed, the amount of money paid to interest varies each month. The
remaining amount is used to pay off the loan itself. The complicated formula above ensures that after 360
payments, the mortgage balance will be $0.
For the first payment, we already know the total amount is $1,342.05. To determine how much of that goes
toward interest, we multiply the remaining balance ($250,000) by the monthly interest rate: 250,000 x 0.416%
= $1,041.67. The rest goes toward the mortgage balance ($1,342.05 - $1,041.67 = $300.39). So after the first
payment, the remaining amount on the mortgage is $249,699.61 ($250,000 - $300.39 = $249,699.61).
The second payment's breakdown is similar except the mortgage balance has decreased. So the portion of the
payment going toward interest is now slightly less: $1,040.42 ($249,699.61 * 0.416% = $1,040.42).

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This process of calculating interest based on the remaining balance continues until the mortgage is paid off. So
each month the amount of interest declines and the amount going to paying off the loan increases. After 360
payments, the mortgage is fully paid off.

It is important to note that our calculations do not include any additional costs such as closing costs, property
taxes, or mortgage insurance.

36.Define risk.

37.What is credit risk?

Credit Risk: Credit risk arises from the potential that a borrower will fail to meet its obligations in accordance
with agreed terms. It also refers the risk of negative effects on the financial result and capital of the bank caused
by borrower's default. It comes from a bank's dealing with individuals, corporate, banks and financial
institutions or a sovereign.

38. 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.
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.
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.
***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.
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:

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Risk Rating Grade Definition
Superior – Low 1  Facilities are fully secured by cash deposits  Government bonds or a counter
Risk guarantee from a top tier international bank.  All security documentation should
be in place.

Good – 2  The repayment capacity of the borrower is strong.  The borrower should have
Satisfactory Risk excellent liquidity and low 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 to sustain any major or
Fair Risk 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 conditions affecting the borrower,
Watch list 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.  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 and the possibility of loss is
Bad (non- extremely high.  However, due to specifically identifiable pending factors, such
performing) 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 progress in obtaining repayment
performing) (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 on the Risk Grade Scorecard

39.How CRG is compute?

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
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* 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

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 guarantee
2 Good GD 85+

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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

40.What are the different aspects of credit risk management?

Or, Discuss the risk management process for a Bank/ Financial Institution
A financial institution employ the following procedure to measure and manage institution level exposure are
mentioned below:
Policy guideline— a. lending guideline b. credit assessment and risk grading c. approval authority
d.segregation of duties e. internal audit procedural guideline a. approval process b. credit administration c.
credit monitoring d. credit recovery.
Principal guide lines a.eligibily criteria b.lending and investment limits c.single borrower exposure
d.viability e.creditworthiness f. sufficiency g.leverage h.security and protective requirements i. pricing j.
maturity k. authorization l.documentation m.disbursement n.account monitoring and recovery. ---1. Risk
identification: The institution must recognize and understand risks that may arise from both existing and new
business initiatives. Risk identification should be a continuing process, and should be understood at both the
transaction and portfolio levels.
2. Risk Measurement: Once risks have been identified, they should be measured in order to determine their
impact on the banking institution‘s profitability and capital.
3. Risk Monitoring: The institution should put in place an effective management information system (MIS) to
monitor risk levels and facilitate timely review of risk positions and exceptions that should be frequent, timely,
accurate, and informative.
4. Risk Control: The institution should establish and communicate risk limits through policies, standards, and
procedures that define responsibility and authority that should serve as a means to control exposure to various
risks
41.What are the risks inherent in lending? What are the risk mitigation tools and techniques? Discuss.
Credit risk arises from the potential that a bank‘s borrower will fail to meet its obligations in accordance with
agreed terms. Credit risk also refers the risk of negative effects on the financial result and capital of the bank
caused by borrower‘s default on its obligations to the bank.

The following risks are inherent in lending.

Business/ Industry risk Financial risk

 Industry  Profitability
 Size  Liquidity
 Maturity  Debt management
 Production  Post Balance sheet events
 Distribution  Projections
 Vulnerability  Sensitivity Analysis:
 Competition  Peer Group Analysis:
 Demand- supply situation  Other Bank Lines:
 Strategic importance for the group and
for the country
 Concentration
 Market reputation
Management Risk Structural Risk

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  Experience/relevant background  working capital requirement
 Track record of management in see  requirement of asset conversion cycle
through economic cycles  Purpose of the facilities
 Succession  Payments of wages & salaries and other
 Reputation daily expenses.

Security Risk Account Performance Risk

 Perishability  Credit Turnover vs stock movement &

 Enforceability /Legal structure sales
 Forced Sale Value  Hard Core element or good swing
 Repayment track record of working

Risk mitigation Tools & Techniques:

Introduction to Accrual Accounting
1. Scrutinize the information provided by the balance sheet and profit and loss account
2. Identify the connecting links between the two statements
3. Prepare and manipulate simple financial statements that reflect the business activities of a small
company
Industry Risk Analysis:
Managers should be addressing: Cost structure, Maturity, Cyclicality, Profitability, Dependence, Vulnerability
to substitute products & Regulatory environment (like Bangladesh Bank guidelines, Judiciary, Tax authority
guidelines e.g. work hazard, child labor etc.)
Business Risk Analysis
1. Determine whether the business‘s strategy increase or decrease the risks faced by all businesses in its
industry
2. State what additional risks are inherent in the company‘s strategy and practices on its financial
statements- state how you would expect those statements to look
Internal Credit rating system as like CRG & rating from authorized rating agency like CRISL, CRAB can
mitigate the credit risk some extent.

42. difference between Non-performing loan & performing loan

Performing Loans
 A performing loan is a debt on which the borrower has historically made payments on time. For
example, if a homeowner takes out a mortgage and pays his home loan faithfully each month, his
mortgage is considered a performing loan. In some cases, loans in which payments are less than 90 days
late may be considered performing.
Non-Performing Loans
 A non-performing loan is a debt on which the borrower is late on making payments or is in danger of
missing payments. Loans where the borrower is 90 days late on payments are considered non-
performing, but any loan in default or near default may also be called non-performing. Lenders take a
variety of steps to avoid and mitigate the impact of non-performing loans, such as denying loans to
especially risky borrowers and charging higher interest rates to borrowers with lower credit scores.

43.Normal measures to be adopted by bank officials for recovery of dues

Whenever, a borrower commits breach of agreement in respect of repayment of schedule of the amount of
loans with interest etc., we safely say that there are 'OVERDUES ' in the Loan Account.
Once the Loan A/c is an overdue A/c i.e. the borrower has committed default in repayment of loan amount as
per the dates specified in the Agreement, then the Banker has necessarily to adopt measures which will result
into recovery of overdue amounts.
The banker must be vigilant, right from the disbursement of loan amount till the recovery of the entire loan
amount. There should be effective supervision over the amount of loan sanctioned.
Recovery through salary / wages

26
Bank authorises his Employer to make deduction from borrower salary/wages, in order to satisfy the claims of
the society/Bank, then on receipt of requisition letter from the concerned Bank, the Employer shall proceed to
make deduction from the salary/wages from the concerned employee/member to meet the claims of the Bank.
Settlement of Disputes
Based on the noting of the Management, the Board of Directors may pass a Resolution authorizing the
Manager/or such other officer to file "Dispute Application‖ in the Co-op.Court against the defaulting principal
borrower and his sureties.
The Dispute Application shall consist of following papers/documents etc.
A. A copy of the plaint- the plaint should mention the date of
Loan Application
 The date of Promissory Note & other loan agreements, bonds executed in favour of the Bank.
 Description of the securities offered.
 Details regarding sanction of loan.
 Details regarding recovery effected.
 Details of the loan amounts outstanding together with interest, penal interest etc.,
 Date of issue of notice requesting the borrowings & sureties to repay the entire amount of loan with
interest.
Power of the Registrar to issue Recovery Certificate: Under the provisions of Section 101 of M.C.S. Act
1960, the Registrar of Co-op. Societies is competent to make an enquiry on the merits of the application made
to him by an Urban Co-op. Bank for grant of 'Recovery Certificate' against the borrowers and sureties.
Before issue of 'Certificate of Recovery' the Registrar has to satisfy about following important aspects -
 I) The opponents are members/Nominal Members of the Society / Bank.
 II) That the opponents have borrowed money from the Society / Bank.
 III) That the opponents have committed defaults in repayment of loan amounts and that they are
in 'ARREARS'
 IV) The Registrar, shall grant a Certificate that the opponents are in arrears and are responsible
to pay the amount to the society with interest, cost of recovery etc.
There are following broad methods / measures by which an award can be executed.
 By issue of Demand Notice to opponents directing them to repay the entire amount as mentioned in the
award.
 By attachment of movable property.
 By sale of movable property.
 By attachment of immovable property.
 Without attachment, in case of Mortgage Decree, immovable property can be sold out.
Procedure to be followed:
o Under Section 13(2) of the Act, a 60 days notice has to be served by the bank on the borrower
with a request to discharge the loan liability
o The notice must contain details of :
 amount payable by the borrower;
 ecurity interest intended to be enforced.
 on receipt of notice, if the borrower makes a representation or raises an objection, the
secured creditor must consider such representation or objection.
 if the secured creditor comes to the conclusion that the said representation or objection is
not acceptable or tenable, he must communicate the reasons for non-acceptance of
representation or objection within one week of receipt of the above.
 MODES OF RECOVERY AVAILABLE (S.13(4))
If borrower fails to discharge the liability, secured creditor has the following options
 Take possession of secured asset
 Take over the management of the business of the borrower including
 The right to transfer by way of lease, sale, assignment, etc.
 The said rights must be exercised only where substantial part of business of borrower is
held as security for the debt.
 Appoint a manager to manage the security asset taken over.

27
  Issue notice to persons who acquired the secured asset from the borrower or from whom
money is due.
 The CMM( chief metropolitan magistrate)or DM

Non-application under the Act- Section 31 -The exemptions under this Act i.e. properties which can not be
attached have been detailed in the schedule to the Act. Some of the important ones relevant for the UCBs are:
 Any security interest securing repayment of any financial assistance not exceeding Rs.1
lakh.
 Security interest not registered under this Act.
 Any security interest created in agricultural land.
 A lien on any goods, money or security given under the Indian Contract Act, 1872
 A pledge of movables u/s 172 of the Indian Contract Act
 Any conditional sale or hire-purchase or lease or any other contract in which no security
interest has been created.
 Rights of unpaid seller u/s 47 of Sale of Goods Act.
 Properties not liable to attachment under s.60 of cpc 1908 excluding properties
specifically charged for raising the loan.
 The amount due is less than 20 per cent of the principal and interest
 RIGHT TO APPEAL: Under the Act, the borrower can appeal before DRT by paying the fee within
45 days (S.17). The appeal can be entertained only when the borrower deposits fifty per cent of the
amounts claimed in the notice.
 DRT can consider the legality of action taken by the bank. If it finds it wrongful, it can restore the
business or management to the borrower
 An application for recovery of balance amount,
 Appeal to the APPELLATE TRIBUNAL under Section 18:
 Persons aggrieved by the order of DRT to prefer an application before the appellate tribunal within 30
days.
 The appellate tribunal is vested with power to reduce the deposit amount to not less than 25 percent.
Miscellaneous aspects: No civil court has any jurisdiction under this Act.

44.What are the components of a financial statement package?

The financial statement has prepared by a bank are listed in 4 categories:
1. Balance Sheet: It presents the financial position at a given date by-
A. Assets B. Liabilities C. Equity
2. Income Statement: represents the company's financial performance in terms of net profit or loss that
composed- A. Income: B. Expense
3. Cash Flow Statement: It presents the movement in cash and bank balances by- A. Operating Activities B
Investing Activities C Financing Activities
4. Statement of Retained Earnings: It presents the movement in owners' equity that derived by-
A. Net Profit or loss B Share capital issued or repaid C Dividend payments D Gains or losses recognized
directly in equity E Effects of a change or correction in accounting policy or error

45.Why are financial statement are analyze for credit assessment?

Significance
Financial analysis determines a company's health and stability. The data gives you an intuitive understanding of
how the company conducts business. Stockholders can find out how management employs resources and
whether they use them properly. Governments and regulatory authorities use financial statements to determine
the legality of a company's fiscal decisions and whether the firm is following correct accounting procedures.
Finally, government agencies, such as the Internal Revenue Service, use financial statement analysis to decide
the correct taxation for the company.
Liquidity
The balance sheet provides liquidity rations that show how much monetary worth the company has on a given
day, which helps determine if the firms financial reliability. The current ratio shows ―the 'working capital'

28
relationship of current assets available to meet the company's current obligations,‖ reports Credit Guru. The
debt to equity ratio establishes who owns more of the company, creditors or shareholders.
Efficiency
Efficiency ratios measure how efficiently the company turns inventory into revenue. The day sales outstanding
ratio focuses on the time required to turn inventory into cash and the age of your accounts receivable. The
inventory turnover ratio ―indicated the rapidity with which the company is able to move its merchandise,‖
reports Credit Guru. Accounts payable to sales shows the percentage of sales funded with supplier's money.
Profitability
Profitability ratios reveal a firm's success at generating profits. ―The profit margin of a company determines its
ability to withstand competition and adverse conditions,‖ reports Credit Guru. Return on assets, reveals the
profits earned for each dollar of assets and measures the company's efficiency at creating profit returns on
assets. Net worth focuses on financial returns generated by the owner's invested capital.
Limits
It is important to know that financial statement analysis has limits; simply manipulating numbers hides the
actual state of the company. Different accounting methods will look different on paper, and the method a
particular firm uses can change the visible health and profit levels for either better or worse. Quantitative
financial analysis is an art, and different analysts may get slightly different results from the same information,
or may return different data about the same business.

46.Discus the principle of sound lending?

Because the business of lending is subject to inherent risks especially when the lending banks depend largely
on the borrowed funds. As such credit management is based on principles of sound lending.
a) Safety •Banks are trustee of public money. Bank‘s deposits are always payable on demand. Bank has to
maintain trust of depositor for ever. As such the first and foremost principle of lending is to ensure safety of
funds lent.
b) Liquidity •The term liquidity refers to the extent of availability of funds with the banker for providing credit
to borrowers. •It is to be seen that money lent is not going to be locked up for a long time. •The money should
return to the bank as per the repayment schedule. •It is to be kept in mind that various deposits have various
maturities and some of itwould also be payable on demand.
c) Profitability •Bank are not charitable institutions. All banks are profit-earning institutions. •The ultimate
objective of lending is to earn profits. •Banks receive interest on loans and advances lent, and they pay interest
to their depositors. •The trust and confidence level of the customer and investor will be high with a bank that
has a good track record of profits and dividend rates.
d) Purpose •While lending the funds, the banker enquires from the borrower the purpose for which he seeks the
loan. •They ensure the safety and liquidity of their funds by granting loans only for productive purposes
e) Security •The security offered against the loans may consist of a large variety of items. •It may be a plot of
land, building, flat, gold ornaments, insurance policies, termdeposits etc. The banker must realize that is it only
a cushion to fall back upon in case of need. •The security and its adequacy alone should not form the sole
consideration for judging the viability of a loan proposal.
f) Risk management through diversification •A prudent banker always tries to select the borrower very
carefully and takes tangible assets as security to safeguard his interests. While this is no doubt an adequate
measure, there are other unforeseen contingencies against which the banker has to guard himself
g. National interest—credit operation contribute in the economic development of a country

47.What are the risk in credit concentration?

Concentration of Credit
It is to be identified whether the problem loans have been concentrated in specific sectors. The concentrated
problem loans should be categorized according to loan classification status, such as, SMA, SS, DF, BL & the
report will be send to Zonal Office and Zonal Office will send the same to Circle Office for onward submission
to Recovery & NPL Management Division on monthly basis.
Recovery & NPL Management Division will summarize the report and will submit the same before the
management on monthly basis and management will submit the same to the Board on quarterly basis.

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