3.17 The Process of Giving Credit

3.17.1 Loan Sanction Activities

The respective unit office sanctions loan to the clients if it is between 2 & 5 lacs and then send the sanction letter including all necessary charge documents to the asset operation division for disbursement the loan. If the amount is higher than 5 lacs then the respective unit office sends the proposal to SME head office for sanction. The head of SME sanctions the loan and sends the sanction letter including all documents to the AOD for disbursement and inform the respective unit office regarding sanction of the loan.

Select potential enterprise: For loan, in this step the CRO conduct a survey and identify potential enterprise. Then they communicate with entrepreneurs and discuss the loan program.

Loan Presentation:
The function of CRO is to prepare loan presentation based on the information collected and provided by the entrepreneur about their business, land property (Where mortgage is necessary).

Collect confidential information:
Another important function of a CRO is to collect confidential information about the client from various sources. The sources of information are suppliers regarding the client’s payment, customers regarding the delivery of goods of services according to order, various banks where the client has account which shows the banks transactions nature of the client.

Open client’s accounts in the respective bank:
When the CRO decided to provide loan to the client then he/she help the client to open a bank account where Dhaka bank has a STD.A/c. Dhaka bank will disburse the loan through this account. On the other hand the client will repay by this account. Although there is some exception occur by the special permission of the authority to repay by a different bank account.

Fill up CIB form: CRO gives a CIB form to the client and the client fill and sign in it. In some case if the client is illiterate then the CRO fill the form on behalf of the client. Then CRO send the filled and signed form to the SME, head office.

Sending CIB to Bangladesh Bank: The SME, head office collects all information and sends the CIB form to Bangladesh Bank for clearance. Bangladesh Bank return this CIB form within 10-12 days with reference no.

CIB report from Bangladesh Bank: In the CIB report Bangladesh Bank uses any of the following reference no:
• NIL: if the client has no loan facility in any bank or any financial institution then BB (Bangladesh Bank) use ‘NIL’ in the report
• UC (Unclassified): if the client has any loan facility in any bank or financial institution and if the installment due 0 to 5.99 then BB use UC in the report
• SS (Substandard): if the client has any loan facility in any bank or financial institution and if the installment due 6 to 11.99 then BB use SS in the report
• DF (Doubtful): if the client has any loan facility in any bank or financial institution and if the installment due 12 to 17.99 then BB use DF in the report
• BL (Bad lose): if the client has any loan facility in any bank or financial institution and if the installments due for more than 18 or above months then BB use BL in the report. This report indicates that the client is defaulter and the bank should not provide loan the client.

3.17.2 CIB Obtaining Process
CIB is a regulatory requirement for Loan Documentation. Credit Information Bureau (CIB) of Bangladesh bank has a central database for all the lenders of Bangladesh. It contains the total credit history of a client and act as the most dependable source to analyze the credit worthiness of a prospective client. Obtaining the CIB clearance is a precondition of fund disbursement and all type of Retail, SME and corporate loan require CIB report before disbursement. For some retail unsecured assets, BBL obtains post-facto CIB clearance. However, in most cases AOD obtains the CIB for a client before disbursement of fund.

To obtain a CIB report, AOD fills up the following Bangladesh bank prescribed forms for each loan application:
Inquiry Form: CIB – 1A: For each individual/ institution
Inquiry Form: CIB – 2A: Owner information if borrower is institution
Inquiry Form: CIB – 3A: Group/ related business information of borrower
CIB Undertaking form “KA”: For each individual/proprietor/director/partner

These forms are filled up by the business units and sent to the CIB segment of AOD. CIB segment maintains a central database for all the CIB inquiry forms. Each form is registered under a Head Office serial number and a Branch/ Unit office serial number. Therefore AOD prepares a forwarding letter with reference to 20 such inquiry forms, and sent them to Credit Information Bureau of BB once in a day. Usually the CIB reports are received within 7-10 working days.

After receiving the reports from BB, AOD prepares a summary of the report and put that as reference in the loan file along with the photocopy of the CIB inquiry forms, undertaking and copy of the original CIB report. For any mistakes made in the forms, writing wrong spelling, incomplete name of individuals or institutions, CIB report may show error as mismatch exists there. Those CIB inquiry forms require to be sent again correcting the facts. CIB reports are usually updated quarterly and half-yearly.

Therefore most updated CIB reports are required to be obtained and CIB report is also require for the same client for repeat loan. All forms need to be supported by the Applicant’s Undertaking and all the forms are signed by designated officers of the business division:
• Relationship manager for Corporate Application
• Sales Manager for Retail Application

3.17.3 Sanction letter
All letters addressed to the borrowers sanctioning credit facilities should be prepared in duplicate and signed by two authorized officers of the Bank. Among the two authorized Officer one must be a Manager of the Credit Team. If the terms and conditions of loan sanction letter are acceptable to him the borrower should return the duplicate copy duly signed.

Client’s information & Loan details is matched with the Credit approval then loan is sanctioned & a Loan Sanction Number is auto generated.

3.17.5 Loan Account Opening and Activation
Using the “Loan Advance Module” of MYSIS, AOD opens a new “Loan Account” for a specific SME loan application and link the “Customer ID No.” and “Link Account information (Which is in JB, AB, RB, PBL, BKB, CBL and BBL)”. All SME unit offices have a “mother account” in any of the 6 banks mentioned above. A client has to open the “Link Account” in that branch of the Bank. Before fund Disbursement AOD checks whether the voucher for fee received from the respective unit office and payment voucher from client’s link account for loan processing fee, documentation fee along with VAT and data verification charges against the loan are received with the loan application. The loan applicants also pay Insurance Premium along with other fees. After opening the loan account, the officer authorized to sanction a loan “Sanctions” the approved amount and a “Repayment Schedule” is prepared. After the Sanctioning, the Loan is then “Activated” by the authorized officer. After the activation of the loan account, details of the securities provided for this facility, are entered in MYSIS. When the loan account is activated a disbursement instruction is sent to the central “NOSTRO Account” of the respective Bank (Any of the 6 banks). After the disbursement, AOD fill up the security and guarantors’ information in MYSIS.

3.17.6 Pre Disbursement Activities
Prepare loan file: Receiving all documents, Loan Administration Division prepare a loan file with all documents received from the unit office.
Charge documents checking: The loan administration division checks all charge documents. Following charge documents are checked:
-Money receipt (Risk fund)
-Sanction letter
-Demand promising note (With stamp of Tk 20/=)
-Letter of arrangement (With stamp of Tk 150/=)
-General loan agreement (With stamp of Tk 150/=)
-Letter of undertaken (With stamp of Tk 150/=)
-Letter of stocks and goods (With stamp of Tk 150/=)
-Letter of hypothecation book debt and receivable (With stamp of Tk 150/=)
-Letter of disbursement
-Photocopy of trade license (attested by CRO)
-Insurance (Original copy)
-Blank cheque with signature (one cheque for full amount and others same as no of installment on Favor of Dhaka Bank, no date, no amount)
-Two guarantors (one must be Spouse/parents)
-If the loan provide for purchase of fixed assets or machineries and if the loan amount is over Tk 50,000/= then the stamp of a certain amount is require)

For all SME Loans, Applications are received from the following sources:
• From Zonal / TM Offices – For loans up to their approval limit
• From SME Credit department- For loans exceeding the limit
• From Credit Committee - For any Loan exceeding the PPG Limit

“Approved” Applications are received everyday and a list of documents received is prepared everyday especially for the Loan Applications received from SME Unit Offices via GIS (Dispatch section). Ref. No are unique for the applications. Any repeat loan application requires AOD to bring the previous loan documents and process depending on the previous documents also.
AOD checks the documents from various aspects as described for the retail loan applications. Besides, some other documents are checked like:
Prepare disbursement list: The loan administration division lists all new sanctioned clients’ details and send a request to the treasury through internal mail.

Disbursement of the amount: Sending the list to the treasury of Dhaka Bank for disburse the amount, the treasury disburse the amount to the client through the mother account of the clients bank. Dhaka Bank disburse amount through any of the following banks corporate branch nearer the Dhaka Bank head office and the corporate branch of the respective bank send the amount to the client account in the respective branch. These banks are:
-Dhaka Bank Limited
-The City Bank Limited
-Janata Bank
-Bangladesh Krishi Bank
-Pubali Bank and Agrani Bank etc.

After the loan documents are checked by AOD, complete and OK files are sent for disbursement. All the files in AOD have a checklist attached and the officers who check the documents initial the files and approve them for disbursement clearance. Disbursement process for retail, SME and corporate are different as discussed below:

Client ID is created in the AOD and details customer information are filled in client information module. Repeat applicants have the same client ID but a new Loan Account number. After the client ID creation, a list of clients is created where the following information are entered:
• Client ID
• Name of the business
• Bank information (Rupali, Agrani, Janata, Pubali, City, BKB, and BBL)
• Accounts information (Branch, A/C No.)
• Approved Loan amount
• Unit Office & CRO information
• Disbursement date (As per the Loan application)

The senior officers check this file and after loan account activation, disbursement is made to clients’ link account, which is mentioned in loan application. Disbursement process flow is: Opened Loan A/C BBL Central Nostro A/C in that Bank BBL mother A/C for that Unit Office Client’s Link A/C

3.17.7 Post Disbursement Activities
- Repayment Schedule Sent to Business Unit
- Loan details MIS entry
- Loan files sent to Central Archive

3.17.8 Recovery Activities
- Receive & print SMS/ Fax for installment deposits (SME)
- Check SMS data in MYSIS & resolve problems
- Post recovery checking with unit office/ branch statement
- Repayment schedule checking
- Inter branch Account- Other Bank’s Cheque clearing (for corporate)
Completing the disbursement, loan administration division sent to the respective Customer Relationship Officer informing the disbursement of the sectioned loan.

3.17.9 Documents deficiency and problem resolving:
If there is any error found then it informed to the respective CRO. If the application form is not filled properly then the file is sent to the CRO to fill the application properly. If any document error is found then the loan administration division asks the CRO to send the required documents and the file stored to the loan administration division.

3.18 Approval process
Loan Applications in the prescribed format shall be received at Credit Approval unit recommended by sales team along with annexure that covers comprehensive LPF information detailed in the Prudential Guideline advised by Bangladesh Bank.
The sales team is responsible for loan sales and should be the owner of the customer relationship, and must be held responsible to ensure the accuracy of the loan application submitted for approval. They should be familiar with the bank’s Credit Policy and PPG and should conduct due diligence on new borrowers, purpose of the loans and guarantors. During recommending for a client it is expected that the respective Officer has adhered to Know Your Customer (KYC) and Money Laundering guidelines.
Credit Approval Sheet should have, as a minimum, the following details:
• Amount and type of loan(s) proposed.
• Purpose of loan(s)
• Loan Structure (Tenor, Covenants, Repayment Schedule, Interest)
• Security (if any)

The following diagram shows the flow chart of the loan disbursement procedure.
Client Loan Application > Risk Assessment Unit Recommendation > Credit Approval > Asset Operation, Docs checking, loan disbursement & Custodian of securities

Approvals must be evidenced in writing, or by electronic signature. Approval records must be kept on file with the Credit Applications. Loans and advances on becoming inoperative / stuck up should not be renewed and / or re-scheduled without getting prior approval from the Credit Committee.

In case of loan take over from any bank/financial institution, then any correspondence should be made with the bank/financial institution directly, such as security takeover.

3.19 Approval authority
Lending Authority is delegated to officers related with approval individually by the Managing Director in writing. Records of such authority are retained with Head of Credit. Copies of all Delegation of Lending Authorities are also retained by Loan Administrations Department. Any breaches from Lending Authority should be reported to the Managing Director, Head of Credit and Head of Risk Management.

The executives charged with approving loans shall have relevant training and experience to carry out their responsibilities effectively. As a minimum, approving executives should have 5 years experience working in Branch / Sales team as a relationship manager or account executive. However experience can be compromised to some extent if it is sufficiently compensated by the following:
• Training and experience in financial statement, cash flow and risk analysis.
• A good working knowledge of Accounting.
• A good understanding of the local market.

3.20 Registered Mortgage
In case of the loan files where registered mortgage is a requirement, AOD checks the following land documentation:
• Original Title deed for the entire mortgaged property.
• Bia Deeds/ Duplicate of Bia Deeds to support the Title Deed.
• Mutation of the Mortgaged Property by the concerned AC Land
• Original Khatians
• Revisional Survey (R.S) - most important one
• Bangladesh Survey (B.S) –if done and issued
• State Acquisition (S.A) & Catetal Survey (C.S) – If there
• Up to Date Duplicate Carbon Receipt for the property after mutation.
• Non Encumbrance Certificate issued by the Sub-Registrar’s Office for the past 12 years.
• Up to date Rental Receipt for the property.
• Mortgage deed between AB Bank Limited and the enterprise.
• Notarized Memorandum of Deposit of Title Deeds.
• Legal Opinion
• Power of Attorney in Favour of Dhaka Bank Ltd
• If the business is situated in land owned by Parents/ Siblings/ Spouse –
• Mortgage given by third party (For Registered Mortgage)
• MDTD sign by all land owner (For Equitable Mortgage)
• PG or NOC (Non objection certificate by third party)
• Ward commissioner’s (warission) certificate in case of clients parent’s death

If any documentation deficiency is found, the concerned CRO, ZO is informed for resolving the deficiency. After checking the required fees submission for Loan Documentation, the application is sent for Insurance Premium Checking.

3.21 Insurance Premium Checking Risk issues while checking Loan Documentation:

• No Fluid or overwriting should be there
• Missing of seal and sign (Check all Pages)
• Missing of Signature verification by CRO
• Lack of witness CRO and Guarantor
• Missing of any clause of charge documents
• Missing Guarantors sign in Guarantee page
• Mismatch in Client’s Name, Business Name, Addresses and business type
• Incomplete documentation for registered mortgaged property
• Validity of licenses and deeds
• Bank’s name, client’s name, seal, signature and number of undated cheques

Besides, some particular licenses are required for categorized enterprises, like:
• Drug license (Medicine Business)
• BSTI (Food Business)
• Diesel / LP gas / Petrol (Fire license from Directorate of explosives)
• Saw Mill (Permission from District Forest Department)