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Rehabilitation of Sick Industries of BSB
Bureaucrat, political interference in case of project appraisal-all these problems are faced in our country.
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Rehabilitation of Sick Industries of BSB
In order to make the study effective and efficient, following two sources of data and information have been used widely. (a) Primary information/data The primary data have been collected by oral interviewing the responsible officers and and staffs of the BSB. Relevant documents studies as provided by the officers concerned. We also get the primary information by observing the departments of the BSB. (b) Secondary Information/data The secondary information comes from annual report of the BSB, relevant papers/books and periodicals publication and manual of different departments.
Secondary Sources
1. Practical desk work 2. Oral interview of the respective officers and staffs of BSB 3. Direct observations of the functions of various department of BSB 4. Relevant documents studies as provided by the officers concerned
1. 2. 3. 4.
Annual report of the BSB Annual budget of the BSB Various documents of the BSB Extensive literature search on the basis of these documents of publication 5. Shilpa Banks Website (www.shilpabank.com)
These reports and documents have been analyzed in the light of analytical review. Some graphical presentation, growth rate and trend analyses have also been used.
contribution of BSB since its inception. From this study one can be able to know about present practice of BSB in industrial development in our country. The finding of this report will help to take appropriate actions and steps for the betterment of existing practice, which basically help the industrial development of the country. It would also be clear what procedures have BSB has followed to rehabilitate the sick industries. It is well known to everybody that institutional education and practical life is totally different. Practical life is the application of institutional education. So, it is natural to face realities of life in practical oriented life.
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Rehabilitation of Sick Industries of BSB
Confidentiality is the main problem; as a result some confidential facts were not sufficiently disclosed by the respective personnel. Lack of available up-to-date information Only few days internships experience is not enough to find out all the pros and cons of such a vast project. The employees of BSB had no eagerness to supply more information because of extra hardness Most of the manual of BSB is maintained in Bengali. To translate these terms into English is very difficult and technical words are not understandable. As Bangladesh Shilpa Bank is a large financial institution; it is very difficult to understand each and every aspect of its operation within a very short period of time. Lack of previous practical experience in this concern, as I am a newcomer.
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Rehabilitation of Sick Industries of BSB
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Rehabilitation of Sick Industries of BSB
2.1 Background
Non-Bengali entrepreneurs and the public sector nearly monopolized economic activity in the Pakistan era. Of the very few business professionals are active in East Pakistan fewer yet survived after the war. Post independence Bangladesh therefore presented a unique set of opportunities and problems for the private sector. The good news was that without the stranglehold of the elite Pakistan business family the field was wide open for the development of a homegrown Bengali private sector, but that both a capital base and an entirely new entrepreneurial class would have to be developed out of an economic vacuum. Capital formation rapidly occurred and the newly nationalized banks found themselves with serious asset management problem because there were few professional entrepreneurial risk takers with business skills and proven track records to whom this capital could be made available under normal and prudent banking practice. Under this sort of circumstances, the former Industrial Development Bank of Pakistan (IDBP) and the Equity Participation Fund (EDF) both of which were established for the industrial development of Pakistan were converted into single institution named Bangladesh Shilpa Bank. Bangladesh Shilpa Bank comes into existence on October 31, 1972 by the Promulgation of Bangladesh Shilpa Bank order 1972 (presidents order no 129 of 1972). The BSB order, 1972 was amended subsequently by the parliament to provide more operational autonomy to its management. The main objective of BSB is to provide finance both in local and foreign currencies for establishment of new industrial projects as well as balancing, modernization, replacement and expansion of existing industrial units in Bangladesh both in private and public sectors. It provides other types of financial assistances like guarantees for credit/loans; equity support and working capital loan to BSB financed projects.
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Rehabilitation of Sick Industries of BSB
Table 01 Established Organization : October 31, 1972 : Head Office Division Department Zonal Office Branch Office Manpower : TK. 2,000 million : TK. 1,320 million
Dhaka 5 21 3 15 794
Authorized capital of Bangladesh Shilpa Bank is Tk.. 2000 million and the amount of paid up capital Tk.. 1320 million. Other sources of Banks fund are the Government, Bangladesh Bank, Commercial Banks, local/overseas financial institutions and suppliers credit. At least fifty one percent of the authorized capital of Bangladesh Shilpa Bank must be subscribed by the government and remaining forty nine percent may be subscribed Bangladeshi nationals or by financial institutions local or foreign. Presently, 100 percent ownership of the bank belongs to the government
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Rehabilitation of Sick Industries of BSB
2.4 Ownership
At least the government subscribes 51% of the authorized capital of BSB and the remaining 49% is subscribed by Bangladeshi Nationals or by local or foreign financial institutions. Presently, 100% ownership of the bank belongs to the Government.
2.6 Management
The overall policy formulation and the general direction of Banks operation vests in a board of directors appointed by the Government. This Board of Directors consists of 9(nine) members including the Chairman and the Managing Director. Non-Governments shareholders subscribing to the capital of the bank shall eventually elect 4 directors from amongst themselves. The Managing Directors is the chief executives of Bank. The General Managers assist the Managing Director in conducting the overall banking business.
2.7 Functions
BSB extends term loan facilities in local and foreign currencies to industrial projects (both new and BMRE) in the private and public sectors. Besides Bank also performs the following activities: Provides working capital loans to industrial projects; Provides equity support in the form of underwriting and bridge finance to public limited companies. Issues guarantees on behalf of borrowers for repayment of loan; Extend commercials banking services along with deposit mobilization; Purchases and sales shares/securities for BSB and on behalf of customers as member of Dhaka Stock Exchange (DSE) Ltd. and Chittagong Stock Exchange (CSE) Ltd. for capital market development; and Conducts projects promotional activities along with preparation of various subsectoral study reports.
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Rehabilitation of Sick Industries of BSB
Activities of BSB
Operational
Others
Profit and loss Deposit Mobilization Loan application receive Term loan sanction Commitment & disbursement of term loan Working capital sanction Other investing Project implementations Loan portfolio Loa recovery Legal action for recovery loan Loan written off
Advisory services Training Computerization Human resources Board news Annual general meeting Observance of National Days
environment in which the company operates. To put it an other way, the purpose of the strategic alternatives generated by a SWOT analysis should be to build on company strengths in order to exploit opportunities and counter threats and to correct company weakens. SWOT analysis explains in two broad ways on viewed of organizations environment. These are: A. Internal Environment Analysis: It includes Strength Weakness B. External Environment Analysis: It includes Opportunity and Threats
The prime weakness I found lack of motivation of workers, interpersonal clash, work environment and low salary structure. Absence of teamwork because of interpersonal clash Management - employee relation is bad in some cases. Political influence both in the time of recruitment & promotion Opportunity of BSB: To make the bank a vibrant one, a pragmatic business programme is now under implementation. The main features of the plan are as under: Gear-up recovery through setting up of pragmatic recovery targets Expansion of new area of investment Cleaning of loan ledger with exit facilities. All out efforts for deposit mobilization. Undertake need-based training programme including computer training To all officers & develop a computerized data-base system and Full computerization of bank's activities Threats of BSB: Loan recovery systems are very weak. Loan recovery policies are not practices properly in some cases. Introduction of certain harder banking rules and regulation Third Party (Bangladesh Bank, Ministry of Finance etc.) regulates the overall internal activities of the bank and bank must be bound to follow the rules of Bangladesh Bank. Some times without proper investigation loan is sanctioned to different employees relatives.
A. Industrial Credit programmes Long term Finance (up to 10 Years & up to 10 cr.) Medium term Finance (up to 3 Years) Short term Finance (up to 1 Year) (working capital) Syndication Finance (up to 10 Years & more than 10 cr.) B. Commercial Banking Services Maintaining all kinds of general banking accounts with one stop service for payment of cheques. All kinds of Letter of Credit (L/C) opening with nominal commission (0.5% for 1st quarter and 0.25% for subsequent quarter, not less than TK. 250.00). Issue of pays Order/Bank draft, DD/MT/TT. Guarantee issue, selling and encashment of Bangladesh savings certificates & Prize Bonds, etc C. EEF Programme EEF (Equity Entrepreneurship Fund) is a equity support program sponsored by Bangladesh Bank (Central Bank) with a view to inspire the risky but potential sectors like: Software Industry (for the projects costing not less than Tk 10.00 million) Food Processing and Agro-based Industries (excepting the traditional Sub-sectors like Rice / Flour Mills, Fishing Trawlers, Potato Cold Storages etc.) For the projects costing not less than Tk. 15.00 million.
D. Share Trading Service BSB Provides Trading facility and client service as well of DSE (Dhaka Stock Exchange) at its share-trading cell of head office with nominal commission 237 15
Rehabilitation of Sick Industries of BSB
members are presently enjoying this facility here. No fees required being a member of BSB share trading cell. CDS (Central Depository System) Service initiated in the cell for providing online Delivery of Shares in both ways. E. Incentive Programme for Loan Recovery Deferred payment of IDCP (Interest During Construction Period) after some moratorium period in installments. Regular Loan Repaying Projects are honored with special certificates and BSB Crests. They are encouraged to take more loans l working capitals. F. Deposit Mobilization Programme Bank tries to meet its fund requirement from various sources like private, government and non-government organizations for lending and investment.
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SECTION-03
VARIOUS FUNCTIONAL DEPARTMENT OF BANGLADESH SHILPA BANK AND THEIR MAJOR ACTIVITIES
3.1 Introduction
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Rehabilitation of Sick Industries of BSB
Bangladesh Shilpa Bank is the prime concern of development financing. It provides various functions continued its efforts to make an effective contribution towards expansion of industrialization process of the country. It emphasizes on the long term lending to the viable new projects having comparative advantage, export prospects, forward and backward linkage & local technology as well as raw material based projects. Bangladesh Shilpa Bank encompasses various department and zonal offices to discharge its activities. To perform efficient and effectively Bangladesh Shilpa Bank in its board meeting has determined the schedule activities of various departments and zonal offices and they supposed to perform the task accordingly and the respective employee have to report according to organizational hierarchy. 3.2 DIFFERENT FUNCTIONAL DEPARTMENT OF BANGLADESH SHILPA BANK (BSB) There are eight functional departments of Bangladesh Shilpa Bank. The operational activities of Bangladesh Shilpa Bank have operated by these departments in different way. Every department has its own policies, procedure, and strategy to lending, and implementing credit. Each of the department is depends on each other for sanctioning loan for propose industries, which applied for loan. Loan Operation Department is the first step of loan sanction procedure and it is comparatively most important department of Bangladesh Shilpa Bank. 1. Loan Operation Department 2. Project Implementation Department 3. Human Resource Management Department 4. Law Department 5. Loan Accounting Department 6. Project Rehabilitation Department 7. Central Recovery Department 8. Documentation and Machineries Procurement Department 3.2A LOAN OPERATION DEPARTMENT 18
Rehabilitation of Sick Industries of BSB
Bangladesh Shilpa Bank (BSB) grants loan on the basis of certain criteria. The loan operation department does the first activities of loan granting. Any entrepreneur who wants to borrow money, from Bangladesh Shilpa Bank must fulfill at first Bank Standard Questionnaire Form (BSQF) in terms of Tk. 1,000. Overview of Loan Operation Department
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Rehabilitation of Sick Industries of BSB
i. At first an application form is supplied to the entrepreneur (required Tk. 1,000), after the entrepreneur submits filling up the application form. After filling up the application form it is submitted by the entrepreneur. A project appraisal letter is supplied by the entrepreneur ii. To give advice to the entrepreneur about industrial investment. To give loan from and to appraise the proposed project from various aspects- Management & organizational appraisal, technical appraisal, marketing appraisal, economic appraisal & financial appraisal. iii. To take clearance from privatization board for proposed project, if necessary. iv. To take necessary action to process and approve co-financing project v. Loan sanction letter send to subsequent department vi. To take necessary action to implement the project vii. Re-evaluate the project on the basis of past evaluated loan agreement if necessary, according to the updated information viii. To issue gazette notification about loan procedure on behalf of government ix. To examine and appraise the joint venture proposal of Bangladeshi and foreign investors x. Advise about preparation of loan application form to non-resident people of Bangladesh xi. To encourage foreign lease-financing organization who provide equipment and new technology to set up business in our country. xii. Keeping of non-resident Bangladeshi and joint investment guarantee statement preparation, memorandum and approved letter xiii. To evaluate and give opinion about zonal office sanctioning loan and their lending activities xiv. After analyzing the project appraisal, the board decides the loan should be sanctioned or not; xv. If the loan is sanctioned it is forwarded to the project implementation department.
When the loan operation department it is forwarded to project sanctions the loan implementation department (PID) performs the following activities: i. Undertaking necessary initiative after granting loan in favor of the project. ii. Taking necessary action to make the factory lay-out. iii. Making necessary adjustment in case of change of the project place, change of board of directions and change/extension product mix etc. iv. Making necessary attempt to give the loan a stage by stage after the loan granting. v. To ensure that necessary capital has been supplied by the entrepreneur and to ensure its proper utilization. vi. To give necessary assistance in the case of Bridge loan from any financial institution. vii. Taking necessary indicatives to construct the lay-out of the project according to construction cycle. i. Monitoring the machinery of the project, inspection and taking any kind of advice regarding to any machine related problem from machinery department. ii. Verification of new material process of project ensuring the cash capital according to the loan terms and condition and providing necessary assistance in this matter. iii. Inspection and monitoring experimental production extension of loan period. iv. Making the final construction report (FCR) and transferring it to central recovery department (CRD) and concerned department/authorities. v. Determination of the construction period of the project preparing loan repayment schedule and taking after necessary action regarding this. vi. Monitoring and inspecting the project to see whether the project is implementing according to time schedule and taking necessary initiatives to solve any kind of problem arising out there form and providing necessary advice to the entrepreneur. vii. Receiving insurance letter against the predetermined risk of the implementation project assets n ensuring its deposit to bank. viii. Inspection of the utility of the principles regarding the project implementation and presiding up to date principles.
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After sanctioning loan by Loan Operation Department, it issues a letter to documentation department, parities and after concerned departments. The documentation department issues a letter to the parties to produce necessary documents. Those documents are: i. ii. iii. iv. v. vi. Memorandum of Association Articles of Association The loan upon which the project will be established, document of this land must be produced. Receipts of rent Documentation fee Mouja Map The documents that reveal that the land revel that the land were not sold within preceding two years. Then a form is filled up. These documents are sent to lawyer. It every thing is OK it is transferred to project implementation department. In the documentation process the borrower are required to submit a cop of memorandum of association and articles of associate. It is returned after the confirmation that in has been submitted according to the rules the borrower company must submit it after the authorization by direction of registration of Joint Stock Company and firm. The following activities are performed during the time of documentation process: The borrower company must submit necessary documents Verification of documents by documentation and machinery department and law department. Preparation of all documents of the borrower company director. Function of Machinery Procurement & Documentation Department 1. Documentation schedule preparation/selection and approving for tender 2. To assist the promoters to invite tender and other formalities 3. Give advice to investors/entrepreneurs about tender invitation to collect project machinery 4. To analyze the tender price, quality of machinery among the bidders and taking approval from the authority 5. Documentation and contract completion with loan recovery after loan sanction 22
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6. Examination of project memorandum and statement of affairs 3.2D CENTRAL RECOVERY DEPARTMENT Project implementation department make a repayment schedule and given it to the borrower. Normally the interval is 6 months. This department inspects the project after every 6 months to see whether there is any leakage. If the borrower fails to repay the loan as the application of the borrower it is rescheduled. Sometimes a portion of interest is exempted. If the borrower fails to repay the loan than it is transferred to law department to take legal action on the application of the borrower. Sometime the project is transferred to project Rehabilitation Department to restore the project. Principles of classification of loan and provision: For the purpose of classification all loans and advances are divided into 4. These are: a. Continuous loan, b. Demand loan c. Term loan d. Short-term agricultural and micro-credit. a) Continuous loan: The loan, which can be granted and recovered without any repayment schedule but have, an expiry date and maximum limit are called continuous loan. b) Demand loan: The loan which mist be repaid as the bank calls it is demand loan. c) Term loan: The loan that must be repaid as the banks cal it is term loan. d) Short-term agricultural and micro-credit: The loan, which is paid in less term and condition, is known as short-term agricultural and micro-credit loan.
If any continuous loan is not repaid within the expiry date that it is called irregular loan. The classification of loan re as follows: 6 months > continuous loan > 3 months = sub topped 12 months > continuous loan > 6 months = doubtful Continuous loan > 12 months = bad If any installment of any term loan is not repaid within specific date it is treated installment default. Maintenance of provision: 1. On the basis of the equity of the loan the following precession are maintained: A. Substandard B. Doubtful C. Bad debt 20% 50% 100% 5%
2. On short term agricultural and micro-credit the following provision to be kept: A. On all debt other than bad debt B. On bad debt 100%
3.2E LOAN ACCOUNTING DEPARTMENT Loan Accounting Department is the department, which centrally maintains all loan amounts of the bank. There are 4 sections, which performs the activities of the department. 1. Not due section: Not due is the installment not yet due for payment in schedule time fixed by the project department/Branch officer. 2. Amount due section/overdue section: The payment of installment and interest in not paid/cleared in time is overdue. The functions of this section are: a. Accurately list of balance preparation b. Advice sending to borrower c. Quarter/half year by interest charge. 3. Replacement section: When the overdue is rephrased or waived then the replacement section will do the needful activities. 4. General and policy section: 24
Rehabilitation of Sick Industries of BSB
General and policy section do the following: a. To prepare the monthly Trial balance. b. Monthly recovery statement. c. Monthly disbursement schedule d. To make entry all the transaction as per daily statement received from the branch officer. e. All list of balances of not due send to the Head Office and branch Office. f. To prepare distribution of work among the officers and staff as specific guidelines of the authorities. 3.2F LAW DEPARTMENT In the Bangladesh Shilpa Bank fails to recover its loan in the normal way, it must under taken alternative action and file case in the court. The cases, which Bangladesh Shilp Bank files, are: 1. Recovery case 2. Financial Loan Case 3. Certificate Case 4. Bankruptcy Case 5. Case if Check is not cashed (Petition Case) 6. Case if machinery of project is transferred form the project Section 37 7. Case if false properties are mortgaged -Section -----47 Section 33 Section 5(a) Section 35 Section 9 (1) Section 198
Legal action taken during the year 2003-2005 Position of projects under litigation 2003-2004 Number of projects 2004-2005 Number of projects 25
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Legal notice issued Filling of suit Cases settled outside the court Auction
126 205 6 2
33 23 11 11
3.2G HUMAN RESOURCE MANAGEMENT DEPARTMENT The department of Human Resource Management was not it name as now. Modernizing the structure of the administration of the bank and development the skill of the human resources and reducing operating cost of the organization. The directors 244th meeting was conducted on 23rd April 1996. In this meeting, rename of the Administration Department as Administration & Human Resources Department and Department of Labor as Department of Human Resources Management. There are five sections in department SL. No. 01 Section General administration & policy section Activities 1. Fixing principle relating to human activities/position 2. Fixing principle relating to organization 3. Fixing principles relating to delegation of power 4. Activities relating to trade union 02 Management section 1. Provide employment policy 2. Provide transfer policy 3. Provide promotion policy 4. Fixing pay scale 03 04 Disciplinary section Welfare section 5. Fixing annual increment policy Mitigate the compliant against personnel 1. Provide scholarship policy 26
Rehabilitation of Sick Industries of BSB
resources
2. Assist the helpless personnel 05 Leave & medical section 3. Provide retirement benefit 1. Provide medical facility & allowance 2. Provide vacation opportunities 3. Provide conveyance facility & allowance 4. Provide house rent allowance
Bangladesh Shilpa Bank has total 794 personnel. It divided into two categories. These are:
a) Job-wise distribution
b) Profession-wise distribution: Training & Development of Human Resource: Bank has a Training Department for upgrading the professional competence and skills of its Officers and Staff. Below are the main functions of Training Department: To prepare & implement Annual Training Program. To impart training of the Officers/Staff regarding business & operations of the Bank. To adopt measures to hold in-house training and make arrangements to send Bank's Officers to overseas training programmes. To establish liaison with domestic & overseas organizations relating to training. To send Officers to local training institutions for improving professional skills; and To organize Seminar/Workshop/Symposium on key economic/banking issues. Types of Training: There are as many as 3 (three) types of training as under: 27
Rehabilitation of Sick Industries of BSB
In-house. Local and Overseas. Logistic support: Training Department has the following logistic support: Training Hall with Air-condition facility accommodating about 25 (twenty five) participants. Multi-media Projector. Flip Chart. Mini Computer Lab and In-house Resource Persons.
2. The files of the projects are transferred to Law Department to take necessary actions, which are deemed not to be rehabilitated. Again if there is no opportunity to rehabilitate any it also rejected. 3. Verification of the proposal regarding rehabilitation recommendation preparing the implementation schedule and taking necessary initiatives to take care the project and deciding the single or joint management system of the bank and performing other activities regarding these. 4. Production of the rehabilitated project, making of the products analysis the targeted loan recovery and actual situation and taking necessary initiates regarding these 5. Making recommendation to restructure the capital to ensure fund management, profit sharing and loan recovery and making recommendation on the management and direction of the acquired project. 6. Reaction of bank participation stage by stage from the project, which is profitable 7. In case of apply right management after the certification that it will be effective and efficient.
documentation and machinery procurement the project is sent to Project Implementation Department. After sanctioning loan by Loan Operation Department a project is forwarded to Implementation Department. Project Implementation is one of the most important tasks done by BSB. Project Implementation Department conducts all the works according to the sanction letter, which is made according to appraisal report. Providing consultancy services and other necessary assistance implementation process is going on. They inspect and monitor physically whether the project is implementing or not. If not Project Implementation Department report to the authority to take necessary action. When the project started commercial production implementation process is completed and it refers to Central Recovery Department to recover installment money. Then Central Recovery Department starts to collect the loaned money. The project recovers the banks loan as per repayment schedule by Project Implementation Department. The sponsor default to pay their dues twice at a time then the bank goes to legal action. If the project stuck-up during construction or could not operate successfully after implementation then the sponsor will be unable to repay the dues and the project is sent to Project Rehabilitation Department. Project Rehabilitation Department first identified the sick firms of BSB, causes of sickness, impacts. This department also describes the rehabilitation policy of BSB, whether all sick firms are rehabilitated or not, management, rehabilitation program of Bangladesh Shilpa Bank.
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Rehabilitation of Sick Industries of BSB
4.1 Introduction
Industrialization is the prime concern of all the economies, especially in developing countries. Since the independence, numerous policies and efforts have been made to accelerate the pace of industrialization in Bangladesh. Bangladesh government has established specialized financial institution named Bangladesh Shilpa Bank on 31st October 1972 with view to providing long term and intermediate term loan to the entrepreneurs for 31
Rehabilitation of Sick Industries of BSB
accelerating the process of industrialization of the country by providing financial assistance and equity support. At the very beginning of Bangladesh Shilpa Bank, it was the only institution without whose support industrial project was impossible to build up. About the entire industrial unit established up to 1990 is the output of Shilpa Bank. It is the bank whose main objective is to encourage and motivate the potential entrepreneur to set up the new industry in the various part of the country. Although some commercial banks are providing short as well as long term industrial support to potential entrepreneurs, but still, Bangladesh Shilpa Bank is on the prior position. For the industrial development the contribution of BSB is incomparable. Bangladesh Shilpa Bank undertakes various projects by providing finance, machinery and other aids, some projects are implemented successfully and some projects are failed to attain the goal and these firms are called sick firms according to the BSB language. Sick industries means the industries, which either become stuck-up during construction or could not operate successfully after implementation. These projects could either pay back the banks dues or make any contribution to the national economy. These projects were identified as sick due to their inability to generate sufficient fund for debt servicing. There are so many sick industries in Bangladesh, which has no specific statistical data. Here the main objective is to identify the causes of sickness of these industries.
Sign
Pass 10
Total Mistakes
4 2 2 2 1 3 3 15 43 15 15 15 45 4 4 4
C.E.O is also the Chairman Passive Board of Directors Imbalanced Board Weak Financed Director Poor Management Depth No Cash flow Plan No Budgets/Budgetary Controls Poor Response to change 10 High Leverage (debt/equity) Overtrading Big Project Gone Wrong Financial Signs Weak Creative Accounting Rumors/Staff Turnover/Low Morals/Untidy Offices/Frozen Salaries
Total Symptoms
12 100
Pass: 25 or less
According to above model it is clear to identify the sick industry. The industry, which gets score less than 25, is not considered as sick industry. But the industry, which gets more than 25 score, is considered as sick industry.
Proper steps are taken to protect uneven breakdown of electricity Ensure that proper people are involved in the managing committee Ensure the financial capability of the initiator Ensure the procedure of makeup the preliminary cost and the doubtful loss Ensure the quality of the produced product Ensure the proper way to marketing the produced product Consider the change of test of customer Proper plan is taken to implement the project Steps are taken to avoid the potential conflict.
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When the project is not profitable When the production is not reached at the break-even point When they cant calculate appropriate risk level of sick Loan application with insufficient amount of money that would not meet fixed and operation cost Cash flow of the project is not available If actual cost of the project is more than the budgeted cost Shortage of working capital, i.e. if they do not manage the sufficient working capital If marketing interest rate increase cost of working capital increase as a result of the project may become sick Lack of operating capital Higher fixed cost, i.e. increase the fixed cost as a result of increasing of the price of machinery, land or other fixed items When variable cost increases When there is no sufficient mortgage Improper inspection of bank financed project Insufficient insurance facility Economic problem comes from the social cost benefit analysis.
Lack of modern technology like incapable to use the computer and modern machinery If the selection of machinery becomes faulty, it will not ensure the achievement of objectives Wrongly or inappropriate selection of the machinery Lower capacity of the machine resulting price will be higher, i.e. production cost higher Inconsistency between the origin of raw materials and the factory location Production of products and final consumption adversely affect the business Lack of communication system Lack of infrastructure facility Unavailability of supply of gas, electricity and water etc Selection of old and backdated technologies to be used in production Delay of machinery procurement & rapidly change in technological environment
Shortage of raw material supply High competition in the market Cheap price of the foreign product
Political problem like worker unrest, hartal Political pressure to loan procurement Inappropriate action taken by govt. to protect smuggling Political terrorism.
management either cant all raise the required working capital from the commercial banks, or they cant raise required amount in due time. As a result these projects could not go into operation on schedule time and they were unable to pay the interest and the principal amount. At last they are treated as sick industry. According to the bank statement, BSB has so far finance about 459 projects in which: The running projects In the implementation stage Stuck-up Existence less Sold projects : 176 : 09 : 214 : 26 : 34 Sick Industries
4.9(a) Some sick industries G.M.K Textile Ltd. Meraj Fabrics Ltd. Jahan Group of printing & packaging Al-Amin Printing & packaging Riad Products Pvt. Ltd Tas Toys Pvt. Ltd Micro Aliment Manufacturing Co. Ltd. Hasan Agro Engineering Workshop Ltd Ali & Sons Ltd. Shardar Textile Mills Ltd. Nima Corporation Ltd. J.K.K Industry Ltd Malik Auto Rice Mill Al-Amin Lee Factory United company Mitaly Enterprise Pvt. Ltd
Grand Dhaka Hotel Pvt. Ltd Helal Engineering Pvt. Ltd Hotel Konic Pvt. Ltd Quick Carrier Ltd Toronody Water Ways Pvt. Tempkul Ltd Ltd Companygonj Industry 41 Rubber Tito Textile Ltd
Tyre
Retarding Brick Linker Ltd Nakko Ice Ltd Oriental Foundry Khan & Khan Uttaran Engineering
Ltd Jahanara Moulding & South East Enterprise Engineering Workshop Allama Nails Allied Industry Pvt. Ltd North Bengal Silicate Coxbazar Aqura Resources D & S Auto Rice Mill
Industry Pvt. Ltd Complex Mohadevpur Auto Rice Bancharampur Textile Rangpur Food Company Hossain Electric Com. Agro Producer Ltd Mocca Mills Ltd Laksham flour Mills Altaf Rice Mills Noor Rice Mills Noor Cold Storage Rangpur Poly Com. Mrs. National Cold Storage Shovo Rubber Industry From the above statistics it is clear that there are so many projects in Bangladesh are sick. 4.9(b) Table: Causes of sickness of BSB financed projects SL N O 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Sectors No. of pr oje cts Food & allied Textile Metal products Jute Engineering Paper printing Service Electrical Petrochemicals Non-metallic Chemicals Pharmaceuticals Tannery Transport Total Percentage 71 61 17 19 14 11 13 10 11 9 9 10 13 6 274 15 11 3 4 1 5 1 3 2 1 2 48 18% 14 9 5 3 5 3 5 3 11 1 59 22% 13 30 2 1 2 1 5 1 1 56 21% Technica l Managemen t Marketin g Workin g cap ital 24 6 13 6 3 2 2 1 2 5 64 24% 17 7 1 11 1 2 1 6 46 17% Others
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An analytical discussion makes it clear to us that the reasons of their sickness and which projects are sick for which causes although the general causes of sickness are stated earlier.
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If we further analyze it we find a clear picture of the sick projects and their relevant causes. These things are explained below under a table:
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Tech. + Mkting
Mgt. + W/C+Mkting
Tech. + Mgt.
Mgt. + W/C
Mgt. + Mkting
Mkting + W/C
Working Cap.
Tech. + Mgt.
Tech. + W/C
Marketing
Technical
Others 13 3 1 5 1 5 4 33 9 5
Sectors
& 3 9 -
8 3 5
Management
9 33 -
19 3 2
3 -
1 -
6 7 2
5 1
3 1
75 64 13
- 1 1
product s Jute Engineerin g Paper printin g Service Electrical Petrochemi cals Nonmetalli c Chemicals Pharmaceu ticals Tannery Transport Total No. of proble ms 1 3 25
4 1
3 3 1
7 4
3 1
2 -
2 -
1 1
1 1
3 -
20 16 12
2 2
1 2 1 1
3 2 1 -
1 4
1 2 -
2 1
1 2 -
1 -
3 1 -
2 -
1 -
9 13 8 10
3 31
2 1 51
1 2 3 46
1 11
1 7
18
1 13
1 8
1 7
1 8
1 11
1 1 5
6 14
234
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Total number
Causes
46
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47
Rehabilitation of Sick Industries of BSB
5.1 Introduction
Rehabilitation means to reshape the existing industries or projects so that it may operate successfully in future. Keeping it mind I tried my best to find the appropriate way to rehabilitate a sick industry.
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1. Success about the proper way 2. Inspiration by providing motivation After considering an industry as sick, then the industry is taken into rehabilitation by aiding above additional support of those sick industry that can recovers the additional investment then it seems to be as rehabilitated industry otherwise not. In some extraordinary case they bound to take some terrible decision because of some political pressure.
Choose the value 1. Segmentation the reasons of sickness Uncontrollable Controllable The causes behind sick industries are discussed belowShortage of working capital Lack of marketing knowledge Technological obsolesces Administrative and managerial inefficiencies Present economic situation of home and abroad Political condition Other reasons behind sickness 2. Targeting to rehabilitate 50
Rehabilitation of Sick Industries of BSB
1. Management perspective 2. Technical perspective and 3. Financial perspective 3. Positioning in the market BSB rehabilitates the sick industries of their financed projects. Provide the value Their products areSupporting the management Providing the working capital Technological enrichment Their programs areDebt relief Injection of additional funds Direct management Communicate the value The personnel of Project Rehabilitation Department are employed for this purpose.
finally sued against the project. The main activities of rehabilitation department are as followsThe department primarily selects a sick project. PID investigates the project and find out the causes of sickness and formed a committee to investigate the project. Then it is taken to be considered for rehabilitation. After considering it as a rehabiliatable industry, it is taken it the implementation after the approval of rehabilitation consultant committee. Take necessary action to rehabilitate sick project after appropriate investigation. Take steps about rehabilitation document examination, recommendation preparation, implementation and activation of plan. Confirmation about project profitability Take necessary steps about production, marketing of product and loan repayment. Duties give up to the third party or previous management after successful managing of the project. Managing and directing recommendation preparation about take over project. Analyze and compare the production, marketing and recovery of the rehabilitated project and take appropriate action according. When there is scope to rehabilitate a project, document transfer to law department to take further steps.
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5.10 Which industries are rehabilitated and which industries are not rehabilitated
A. Sick industries, which are rehabilitable Changing of management structure Providing financial aids or loan without interest or lower rate of interest Financial treatment that the amount of interest is to be released Assisting for replacement of machine Rehabilitation is sometimes depending on merit of the project. Providing consulting service A. Success about the proper way B. Inspiration by providing motivation B. Sick industries, which are not rehabilitable After considering a firm as sick, then the firms are taken into rehabilitation by aiding above additional support of those the sick firm that can recover the additional investment then it seems to be as rehabilitated firm otherwise not.
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Rehabilitation of Sick Industries of BSB
Monitoring is to supervise and control after the implementation of during the implementation of the project. The monitoring from the viewpoint of the bank is to proper utilization of loans and recover the loan payment with due time. 5.10(c) Sickness When monitoring and appraisal practice is not accomplished properly then the project fall in sickness. So, project implementation that depends on appropriate monitoring and appraisal practice.
The bank also make a program of taking over management of the sick projects directly where the above measures were not considered sufficient due to inefficient 54
Rehabilitation of Sick Industries of BSB
management/mismanagement. So they created a department called Sick Project Management Department for ensuring efficient management of such sick projects. The responsibility of this department is to make such projects capable of debts servicing through profitable operation. So the bank continued sanctioning of term loans during FY 2003-2004. This year local currency loan of TK. 989 million, which was sanctioned to 27 projects. Of the total sanctioned amount TK 687 million was for 21 new projects and an additional loan of TK. 302 million was for on-going projects including 3 for BMRE purposes. Sanction of term loan Million TK. 2003-2004 Number of Number Local projects New projects Existing projects (BMRE) Additional loans Total 3 27 136 989 136 989 3 38 136 1009 136 1009 of projects 21 3 Foreign currency currency 687 166 687 166 of projects 34 1 2004-2005 Total Number Local Foreign Total currency currency 826 47 826 47
Under rehabilitation program BSB has taken so many measures to rehabilitate the sick industries. Summarized measures that are taken by BSB to rehabilitate the sick industries are given below-
Total outstanding
Block A/C
Additional Loans
Working Capital
12 21 5 3 2 2 2 2 1 1 1 53
21 (9) 161 (16) 6 (4) 1 (1) 14 (2) 7 (1) 5 (2) 33 (2) 1 (1) 6 (1) 8 (1) 263 (39)
Source: Project rehabilitation department of BSB Note: Parentheses indicate number of projects 5.13 List of a few successful rehabilitated industries After taking some initiatives and providing assistance in terms of management, technical, marketing and financial the following sick projects financed by BSB has become successful during the year 2003-2005. Chemicals and Pharmaceuticals 01. S.S.R Chemical Industries Ltd. 02. Islam Polymers & Plasticizer Ltd. 03. Raja Plastic Industries Ltd. 04. KDH Laboratories Ltd. 05. Asiatic Business Ltd. 06. Pharmadesh Laboratory Ltd. Location Dhaka Tangail Gazipur Dhaka Sylhet Dhaka 56
Rehabilitation of Sick Industries of BSB
Equity participation
Waiver of interest
Rephasement
Overdue
Projects
Cotton, Woolen & Synthetic Textiles 01. Azim Mannan Garments Ltd. 02. Desh Gannents Ltd. 03. Jems Sweaters (Pvt) Ltd. 04. Auto Spinning Mills Ltd. 05. Techno Textile Mills Ltd. Food & Allied Products 01. Meenhar Sea Foods Ltd. 02. Mimi Chocolate (Bd) Ltd. 03. Modern Industries (Bd) Ltd. 04. Mustafa Cold Storage Ltd. 05. Bangladesh Beverage Industries Ltd. 06. Bengal Fish & Frogleg (Export) Ltd. Paper, Paper product & Printing 01. Eagle Box & Carton Mfg. Ltd. 02. Holiday Printing Ltd. 03. Toka Ink Ltd. 04. Bangladesh Paper Product Ltd. 05. Orient color Printers Ltd. 06. Transfer Paper Ltd. Tannery & its products 01. Apex Footwar Ltd. 02. Lexco Ltd. 03. Leather Board Ltd. 04. Comfort Footwar Ltd. 05. Bangladesh Chemical Ltd. Non-metallic Mineral Products 01. Savar Refractories Ltd. 02. Tajma Ceramic Industries Ltd. 03. Standard Ceramic Industries Ltd. Metal products 01. Rangpur Foundry Ltd. 02. Scala Industries Ltd. 03. Oriental Foundry & Agro Engineering Ltd. 04. Bogra Metal Industries (Pvt.) Ltd. Electrical Machinery & Goods 01. Bangladesh Lamps Ltd. 02. National Fans Ltd. 03. Eastern Tubes Ltd. 04. National Accessories Ltd. Service Industries & Miscellaneous 01. Hotel Simon Ltd. 02. Hotel Elysium Ltd. 03. G.Q. Ball Pet Ltd. 04. Rajanigandha Tankers Ltd.
Chittagong Chittagong Dhaka Gazipur Gazipur Chittagong Dhaka Munshigonj Rangpur Dhaka Chittagong Dhaka Dhaka Dhaka Chittagong Chittagong Bogra Dhaka Dhaka Dhaka Dhaka Narayangonj Dhaka Bogra Gazipur Rangpur Gazipur Dhaka Bogra Dhaka Gazipur Dhaka Chittagong Coxs Bazar Dhaka Magura Dhaka 57
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6.1 Introduction
Bangladesh Shilpa Bank plays a vital role for industrialization as a developed financial institution. BSB is continuing its bolstering endeavor for up-graduation of our economy. Although there are a lot of favorable and strengthen position of BSB in respect of its activities. Nevertheless BSB has some drawbacks that are responsible for huge amount of losses each year. BSB should overcome such problem as early as possible to become a profitable one. One important problem of BSB is that it is a decentralized organization and each department is responsible for particular activities but they have lack of co-ordination to achieve the central objectives. We observed a large number of projects are sick and they are loan defaulter. For that I criticize the loan appraisal procedure because it is the vital documents for loan issue. In this situation I recommended some points that will help BSB to overcome some of their problems.
Management conflict is one of another important problem in the situation of sickness. Lack of motivation and team speed Lack of proper scheduling in projected work. Absence of an up-to-date project appraisal manual, because the present manual was designed 18 years ago. So many aspects should consider which do not cover by the existing manual. Dependence on imported technology and non-availability of adequate information about that from local source. Lack of adequate, updated and accurate information in the country. Both primary and secondary data are not readily available. Inadequate attention is paid to analyze risk and an uncertainty associated with the projects, means only sensitivity analysis is done to analyze the risk. There is no system of accountability of the project appraisal team if the approved project fails due to their improper appraisal. Most of the personnel are not as much experienced and skilled to operate banks activities in proper way. Shortage of working capital is another problem because some industry may sick for this problem. Inefficient project cost estimation, not considering inflation, different changes in the cost factors, waste and spoilage, personnel replacement cost etc. As a result sometimes project become sick. Because of countrys existing political instability, unstable tariff and fiscal policy some industries may become sick. No use of latest technology and permanent IT specialist Poor quality of local machinery, equipment and construction materials is another cause for sickness. Lack of co-ordination among various financial institutions in exchange of information. Lack of proper control over the project may cause of sickness. Delay in settlement of case Project rehabilitation is one of the criteria of BSB that revives the sick project Finally contribution of BSB is the highest in the industrialization of Bangladesh though there are some problems. 60
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6.3 Recommendations
As a student of MBA it is very tough to give suggestions to BSB to implement a project and to rehabilitate a sick industry. Being the prime Development Financing Institution BSB continues its efforts to make an effective contribution towards expansion of industrialization process of the country. With keeping this view, I recommend some suggestions considering the noted problems. The recommendations to resolve sickness from my viewpoint are as follows: Sanctioning of loan to the sponsors should be made through making feasibility report properly. Loan appraisal procedure is time consuming and to some extent project plan become irrelevant after getting the loan. Since all the process is completed, he is bound to take this loan because some expenditure has already been incurred (sunk cost). As a result loan recovery may slow and sometimes difficult. My suggestion is that BSB should rearrange appraisal procedure so that the entrepreneurs can take loan within short period of time. Experienced and motivated entrepreneurs should be allowed for sanctioning the loan. BSB should avoid unnecessary political interfere. If political problem influences the baking activity must create new problem, no doubt. BSB should give more consideration on physical investigation before issuing loan. However project appraisal should be strict so that nobody cal use its loopholes. Sometimes real entrepreneur does not get bank loan. So actual entrepreneurs should be identified and give loan. The projects/industries, which are profitable, should be identified and sanctioned loan to those projects/industries. Risk adjusted discount rate method; program evaluation and review technique (PERT) and probability analysis should be introduced. Market Research Institution should be established for proper market survey. A co-ordination cell should be established for sharing information among various institutions. 61
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Responsibility should be established to all employees according to their involvement in appraisal project. Honesty, morality, responsibility and patriotism of employees should be enhanced. Properly check the feasibility report before issuing loan. Proper policy to be adopted and implemented. BSB must have to identify viable project and make feasibility study through efficient personnel before sanctioning of loan to an industry. Employees who are directly involved with loan recovery should be motivated and experienced. BSB should introduce modern communication system so that every department or unit can get information in his or her desk. Now one department must have to go other departments for information. It is also time consuming. Preserving documents also need to be computerized instead of filing. Encouraging the borrower to repay the loan in time. Special arrangements should be introduced in this respect. Legal steps should be dynamic so that default loan recovery should be accelerated. And security against the recover the loan. Project must be scrutinized in and appropriate manner as well as the sponsor taking into consideration on the changing environment and economic reforms and globalization. National observation committee can be established to analyze, evaluate and solute proper loan recovery. In selecting borrower, 5Cs (capital, capacity, character, condition, collateral) must be considered. Proper communication should be established with the clients. Ensure accountability among the appraisal team who appraise the sick industry. Number of trained supervisor to be revised Both primary & secondary database of the BSB should be improved & strengthened. loan should be sufficient to
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6.5 Conclusion
Bangladesh Shilpa Bank is a well-known special bank of our country. We cannot think industrialization in our country without meaningless contribution of Bangladesh Shilpa Bank. Although there are some drawbacks of BSB activities nevertheless it plays an important role in the industrial sector of Bangladesh. We get clear idea about this contribution through the analysis of the BSB activities from 1972 to till now. Although some unexpected political pressure hamper such activity but BSB always tries to overcome these sort of problem by his own policy and procedure. We observed that BSB able to contribute to GDP through their industrialization. It is clear that industrialization is the base of the economy of the economy. I observed that the loss of BSB is 100 crore less than that j of previous year. It present that the position of BSB is more strength than previous year. Another notable thing is that BSB reduces their loan sanctioning area. As a result their loan sanctioning reduced to 429 million taka. I think it is not good news for our economy. Because new industry essential for employment generation. At present BSB carefully takes steps for sanctioning loan because of a huge fund become irrecoverable due to sickness of various projects. It is indeed that sickness is the consequences of unconscious and lack of investigation in case of issue of loan. We know sick project is the burden of bank as well as overall economy of Bangladesh. So, now-a-days BSB is reducing rehabilitation of sick industries. Because those industries, which are unable to pay their previous loan amount, if they are rehabilitate by the BSB most of them will not be able to pay the rehabilitated money also. So there was huge amount of loss occurred and for this reason project rehabilitation of sick industry and the work of this department is decreasing day by day. So I think BSB will close their rehabilitation to reduce their loss. I think proper scrutinizing of project proposal and careful physical verification may make sure to be profitable of that industry as well as Bangladesh Shilpa Bank. Bangladesh Shilpa Bank should concentrate on loan recovery that is necessary for long-term profitability and sustainability. Without pros and cons everybody should to confess of BSB contribution. We expect continue their operations without influence and contribute more and more to our industry that brings good luck to the nation. 64
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Bibliography
1. Bangladesh Shilpa Bank "Annual Report 2004-2005" 2. Different Project Appraisal reports of BSB. 3. Loan sanctioning letter of BSB. 4. Bangladesh Shilpa Bank Ordinance 1972. 5. Manual of different departments of BSB. 6. BSB web side " www.shilpabank.gov.bd" 7. Manual of Project Rehabilitation Department.
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