Complete

Chapter- One
Introduction
Department of Accounting and

Information Systems
University of Rajshahi
INTRODUCTION
1.1 Preamble
Internship is an assigned work performed usually by the students
of MBA at the end as partial fulfillment of the requirements for the degree
MBA of the Dept. of Accounting and information systems of University of
Rajshahi. The aim of internship is to apply ones theoretical knowledge in
practical fields. As a student of Accounting and information systems we are
to complete our internship program at financial institutions. And for this
purpose I have been sent to Rajshahi Krishi Unnayan Bank (RAKUB),
Godagari Branch, Rajshahi. The program is completely supervised by our
respected teacher Dr. M. Ahsan Habib, Associate Professor, Department of
Accounting and information systems, University of Rajshahi. The program
starts from
25th
January and continue up to
24th
March 2010. After
joining the branch, I was first introduced with

respectable manager Susil Kumar Ghosh and Senior
officer Md. Ahsan Alam.
Later on, he introduces me with other
officers of the branch who accept me cordially. They were very helpful in
collecting information and helped me as much as possible.
This was the first practical experience of mine, so that I have
enjoyed it very much. The cordial help of manager and officers make it more
enjoyable. Since I have completed a course on Bank management, I have
some theoretical knowledge about different activities of bank. And practical
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experiences of bank activities enrich my knowledge through getting real

view.
The report is prepared from the knowledge which I have had
from theoretical learning and practical experience which I have got from the
internship program. Though I have got a conception about overall banking
functions but in this report I have focused on loan management function of
RAKUB, Godagari branch.
1.2 Objectives of the study

The main objective of the study is to examine the loan
management activities of RAKUB, Godagari branch for the period of 200506 to 2009-10 to achieve the objective; the study seeks to realize the
following:
1. To assess the activities of RAKUB, how it contributes in
agricultural development of Rajshahi division
. 2. To assess the loan management system during the period 2005-06
to 2009-10.
3. To assess the loan disbursement condition of Godagari branch for
the
period 2005-06 to 2009-10.
4. To assess the loan recovery position of RAKUB Godagari branch

during the period 2005-06 to 2009-10.
5. To determine various sources of loanable fund

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6. To know the security evaluation system before providing loan to the

customer.
7. To examine the loan monitoring system of the bank
8. To know the different services provided by the bank to its
customers.
9. To know how they deal with problem loan.
10. To know the criteria of classifying loan.
11. To know the competitive position of the bank in the area with
different financial institutions providing agricultural credit.
1.3 Scope of the study

Evaluation of loan management is one of the most important parts
for evaluating any commercial or specialized bank. Loan management
mainly comprises of loan disbursement and loan recovery, at the same time
it deals with classification of loan and balancing liquidity and profitability
position of the bank. The study is emphasized on whether the bank providing
loan considering all required aspect and recovering loan in timely manner
and what initiative they are taking in respect of problem loan. That is how
profitably the bank is operating with keeping loan disbursement and loan
recovery position at optimum level.
1.4 Methodology of the study

Methodology of the study comprises of
questionnaire method, direct observation, direct talking with executives and
officers, graphic representation, statistical analysis etc. Qualitative and
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quantitative information are collected through different media. Basically

information is collected in following way;
1. Primary sources of information
2. secondary sources of information
Above mentioned sources are described below;
1. Primary sources: Primary data are measurements observed and recorded
as part of an original study. Primary sources are the sources from where
information is collected directly. In this case information is collected
from field. The ways through which I have collected information in my
internship program are described below;
a. Questionnaire method: Questionnaire method is one of the most
usual systems used in collecting data or information. Questionnaire
is two types such as open ended questionnaire and close ended
questionnaire. I have prepared an open ended a questionnaire under
the supervision of my respected supervisor about different
functions and mainly loan management activities of Godagari
branch of RAKUB. The manager and specially the second officer
of the branch answer most of my questions. The questionnaire is
given at the end of the report.
b. Observation method: According to oxford dictionary the
observation means the act of watching something carefully for a
period of time specially to learn something. I went to the
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Godagari branch of RAKUB and observed the different activities

of officers and the different problems and requirements of
customers through which I have collected some information. But
one true thing is that I could not ask question to the officer in all
the time when I can not understand, the reason is that in my branch
the month of recovery is going on, so most of the officer stay busy
in most of the time.
c. Interview method: The interview is face to face interpersonal
discussion in which one person asks pertinent question to a person
called respondent about a selected topic or area. I have collected
some information through asking the officers.
2. Secondary sources: When an investigator uses the data which has
already been collected by others, such sources or data are called

secondary sources or data. I have collected some secondary information
which is already published by the bank authority. I have collected
secondary information from the following sources;
a. Statement of affairs of the branch
b. Documents supplied by branch
c. Different articles
d. Magazines and papers
e. Banks website
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f. Rules and regulations provided by agricultural credit department of

Bangladesh bank.
g. Annual report of the bank from 2004-05 to 2005-06.
h. Some statistical graphs and charts of the bank.
Analysis of questionnaire: There are different techniques of analyzing
questionnaire. I have asked different questionnaire about the functions of
RAKUB, activities of Godagari branch and specially their credit policy, loan
disbursement, loan recovery, initiatives taken to improve recovery position
etc. I have analyzed this information giving special emphasis on loan
management.
1.5 The significance of the study

Now-a-days the banks are playing a
vital role in the economic development of any country. The RAKUB is a
specialized bank which is established with a view to developing the
agricultural condition of the northern region of our country. The success of
any bank depends upon how properly they are utilizing their funds. RAKUB
is lending money to the people related to agriculture and contributing a lot in
agricultural development of our country. The bank should provide loan after
examining some important aspects and should recover cent percents of its
loan. But in reality that is not going on, their recovery rate is very poor. I
have chosen the topic loan management for the reason to analyze what
problems are related behind the scene.

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1.6 Limitations of data collection

Nothing is out of limitation. So my
report also has some limitations. For these reasons I can not prepare it
properly. The common culture of Bangladesh is that some government
officers are not interested to do more than their assigned work. The
major problem I have faced at the time of data collection because the
manager and officers are busy and do not get enough time to discuss
frankly. The major limitations are given below;
1. I have been sent to RAKUB, Godagari branch for only two months
which is not sufficient to understand different activities of the
bank.
2. In my branch the month of recovery is going on, so the officers are
always remain busy.
3. The reports is basically prepared on published income statement,
Balance sheet, information about loan and advances but for
preparing report more details information are required.
4. Since we are student so we have no in depth knowledge about
preparing report.
5. The banks accounting period is from July to June, so now the
officers are busy in making arrangements for preparing financial
statement.
6. Some officers are too much conservative, they are not interested to
discuss about any matter.
7. In some cases, officers are not interested to disclose information
because of secrecy.
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8. To prepare report minimum four to five years information is

required, but the branch has no computer, all records are kept
manually. So the officers are not interested to provide information
other than recent year.
9. To complete internship program a lot of money is required but we
do not get necessary money.
10.Information collection through observation method is possible
when ones have complete knowledge about the work, but I have
no clear knowledge about different activities, so the effort to
collect information through observation is go in vain.
This is the first internship program and report preparation of my life, so for
the limitation of my knowledge I can not prepare it more effectively.

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Chapter- Two
An overview of RAKUB

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AN OVERVIEW OF RAKUB
2.1 Introduction
Rajshahi Krishi Unnayan Bank (RAKUB) is a stateowned bank in Bangladesh with regional approach. The bank emerged as a
governments plan of intensive care to agriculture of Rajshahi division
providing livelihood to 35 million people of the area. The region is less
developed compared to other parts, yet full of potentials in agriculture.
Rajshahi division characterized by its surplus food grain production is
popularly called the granary of the country. Besides catering to
agricultural credit, RAKUB, as it is acronym renders deposit banking service
through all the 364 branches. The headquarters of the bank is stationed at
Rajshahi city, some 270 kilometer to the north of Dhaka.
2.2 Historical Background of RAKUB

Bangladesh is agriculture based country from
the very beginning. Most of the people are depended on agriculture. From
British period till today, farmers of this country are dominated by different
quarters of the society. In village level farmers take loan from different
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11
money lenders at high interest which is totally unreasonable. To save the

farmers from village money lenders, British Govt. took step under special
program in order to disburse the agricultural loan to the farmers in 1905.
Later on, in 1932 India-British Govt. took a step for the socioeconomic development of the small and marginal farmers, which was
implemented through providing agricultural loan to them.
In 1952 the Government of Pakistan established a financial institution
named Agricultural development finance corporation (ADFC) in order to
disburse loan in agricultural sector. Feeling the importance of agricultural
production and agricultural loan the Pakistani Govt. established another
bank namely Pakistan Krishi Bank in 1957.
In 1971 Bangladesh has been emerged as an independent country
through a historic war of nine months. After the liberation of Bangladesh the
Government renamed the Pakistan Krishi Bank as Bangladesh Krishi Bank
(BKB) in 1973 according to the Presidential order 27. As Bangladesh is an
agro-based country, the demand for the agricultural loan of Krishi Bank is in
increasing trend. To manage agricultural loan it becomes very difficult for
Dhaka based head office of Krishi Bank to serve the remote areas of the
country. For this reason the government takes the decision to decentralize
the Krishi Bank in the divisional areas. The people of the northern areas of
Bangladesh are lagging behind in all respects than the other parts of the
country. Rajshahi Krishi Unnayan Bank (RAKUB) was established by the
presidents ordinance no 58 of 1986 with the aim of providing institutional
agricultural credit for optimum utilization of agricultural potentials of
Rajshahi division. Taking over the branches and offices along with assets
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and liabilities of the Bangladesh Krishi Bank within in the Rajshahi division,
the bank started functioning on 15 March 1987.
2.3 Objectives of RAKUB

The main objects of RAKUB are as follows:
a) To provide credit facilities for all kinds of agricultural and agrobased economic activities keeping in view the needs of small and
marginal farmers.
b) To earn a normal profit for meeting the operational expenses,
building of reserve and expansion of activities to cover wider
geographical area.
c) To extend counseling and advisory services to the borrowers/
entrepreneurs etc. in utilizing credit facilities of the bank.
2.4 Functions of RAKUB

As the largest development partner in the
northwest region Rajshahi Krishi Unnayan Bank (RAKUB) aims at overall
development of farmers and all the sectors and sub-sectors of agriculture in
this region. Besides, catering to agricultural credit the bank performs
ancillary functions as financing agri-business and agro-based industries and
poverty alleviation programs.
2.5 Management
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The board is vested with the responsibility of formulation

of policy in line with attainment of growth in agriculture and economic
development of the region through agricultural credit support. The board of
directors is constituted by seven members, all appointed by the government.
Besides, for emergency decisions there is an executive committee
constituted of the chairman of the board and two other members: the
managing director and one of the directors elected by the board. The
managing director is the chief executive of the bank.
2.6 Capital and its sources

RAKUB is a governmental banking institute. So the main sources of
capital are government fund, as on 31st March 2010 the details about capital
are as follows1) Authorized capital
: Tk. 7500 million
2) Paid up capital
: Tk. 5700 million
3) Reserve capital
: Tk. 208.49 million
2.7 Organizational structure

The Head Office of the bank is stationed at Rajshahi. The branch-network
comprises 364 branches including one in Dhaka. It has also eighteen zonal
and regional offices. The bank has a training institute located at Rajshahi.
Total workforce of 3410 as on 31-03-2010 was composed of 1521 officers
and 1889 other staffs. Regional offices stationed in district headquarters
control branches under them. There are independent regional audit offices
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for conducting regular audit in branches as well as in regional and zonal

offices.

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ORGANIZATIONAL STRUCTURE
Board of Directors
Secretariat
Managing Director
Public Relation
Secretariat of M.D.
General Manager
Adm.& A/C.
LPO
Regional
Office
Rangpur
Regional
Office
Thakurgoan
Regional
Office
Phanchogor
General Manager
Operating
General Manager
Audit& Recovery
General Service Dept.
Resource &
evelopment Dept
Loan Recovery Dept-1.
Central Account
Dept-1
Budget& Cost Control

Dept.
Loan Recovery
Dep-2.
Central Account
Dept-2
Branch control
Dept.
Loan Recovery
Dept-2
Personnel
Management Dept.
Loan & Advance

Dept-2
Regional Audit
office- 18
Training institute
Loan & Advance

Dept-1
Dhaka
Branch
Zonal
Office
Rajshahi
Regional
Office
Naugoan
Regional
Office
Nawabgong
Regional
Office
Natore
Zonal
Office
Pabna
Branch
18
Branch
22
Branch
13
Branch
17
Branch
19
Branch
21
Branch
19
Branch
14
Branch
15
Branch
13
Branch
16
Regional
Office
Sirajganj
Branch
12
Branch
17
Regional
Office
Dinajpur

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Branch
16
Branch
15
Branch
17
Zonal
Office
Dinajpur
Regional
Office
Lalmonirhat
Regional
Office
Nilfamary
Branch
18
Regional
Office
Kurigram
Branch
17
Regional
Office
Natore
Zonal
Office
Pabna
Regional
Office
Sirajganj
Regional
Office
Gaibanda
16
2.8 Organizational set up

The affairs of business of the bank are managed
through three functional tiers:
The Head Office
The Zonal/ Regional offices
The Branches
Head office: The head office of RAKUB is stationed at 280 km far from
capital city Dhaka, at North-west divisional city Rajshahi. All operation is
controlled by head office. The managing Director is assisted by the three
following functional divisions. Each headed by a General Manager:
Administration and Accounts Division.
Operation Division.
Audit and Recovery Division
The three divisions further divided into 17 departments are as follows:
a) Administration Division:
Personnel Department
Common Services Department
Computer Department
Budget and expenditure control Department
Training Institute
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Human resource Department

b) Operation Division:
Branches control Department.
Loans and Advances Department-I
Loans and Advances Department-II
Research and Development Department.
c) Audit Accounts and Recovery Division:
Loan Recovery Department-I
Loan Recovery Department-II
Audit and Inspection Department
Central Account Department-1
Central Account Department-2
Law Department
Engineering, Procurement & Maintenance Department
2.9 Branch Network

Region wise branches of RAKUB are given through
table at next page.

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Table-1: Region wise total branches (Up to 30 June, 2009)
SL. No.
Zone/Region
No. of Branches
01.
Rajshahi
24
02.
Naogaon
28
03.
Natore
20
04.
Chapai Nawabgonj
16
05.
Bogra (North)
20
06.
Bogra (South)
14
07.
Pabna
24
08.
Jaipurhat
15
09.
Rangpur
26
10.
Gaibandha
24
11.
Nilphamari
20
12.
Kurrigram
21
13.
Lalmonirhat
17
14.
Dinajpur (North)
17
15.
Dinajpur (South)
18
17.
Thakurgoan
18
18.
Panchagarh
18
19.
Dhaka
20.
L.P.O (Rajshahi)
21
Sirajgonj
22

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Total
364
Source: Personnel department of RAKUB
2.10 Employee Summery

Table-2: Employee Summary of RAKUB (Up to June 30, 2009)
Designation
Authorized
1.Managing Director (MD)
Vacant
01
2.Deputy Managing Director (DMD) 01
01
3.General Manager (GM)
03
03
4. Deputy General Manager(DGM)
36
28
5.Assistant General Manager(AGM) 66
58
6.Senior Principal officer(SPO)
147
138
7.Principal officer(PO)
336
271
65
8.Senior officer(SO)
620
299
321
9.Officer
900
723
177
2110
1521
589
2126
1889
237
4236
3410
826
Total Officer
10.Other Employee
Total
01
Existing
Source: Personnel department of RAKUB
2.11 Training Institute

The only training Institute at Rajshahi Imparts
training to the junior and mid-level officers and other staff according to the
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annual training program designed on such subjects of professional interest as

management of credit and accounts, Commercial banking, audit and
inspection etc.
2.12 0ffice automation

A local area network (LAN) connects all
computers in departments at head office. Internet connections in the head
office as well as field offices have facilitated exchange of information
through e-mail. The bank has its own website www.rakub.org.bd to represent
it to the cyber world. Computerized branch banking has been introduced on
experimental basis in two branches of the bank. Necessary steps have been
taken to set up a complete computer department at head office. The bank has
been giving much importance to training courses for enhancing computer
skill of officers and other staff.
2.13 Audit and Inspection

Internal audit and inspection plays an
important role in establishing transparency and accountability of the bank's
accounting system. Besides there are commercial audit, Bangladesh Bank
inspection and external audit for detecting and checking repetition of
irregularities frauds and forgeries, if any, in different levels.
The government appointed M/s Zoha Zaman Kabir Rashid & Company,
Chartered Accountants and M/s Khan Wahab Shafiq Rahman & Company,
Chartered Accountants for conducting audit for the financial year 20072008. The audit report submitted by them on 13-01-2009 was sent to the
ministry of finance on 19-02-2009 after approval of the Board of Directors.
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2.14 Special credit programs

RAKUB has taken some special programs which are mentioned
below;
1. Consumers credit scheme
2. Credit for small holding tea plantation
3. Potato seeds production
4. Intensive maize cultivation project
5. The production of import substitute agri-crops
2.15 Poverty alleviation credit programs

The bank has been disbursing micro-credit for poverty
alleviation in the 16 northwestern districts since inception. Besides, the bank
finances short term collateral free credit under select individual or group
based programs for income generating activities among poor and
unemployed youth in compliance with government policy. The bank has
financed Tk. 289.03 million as against of Tk. 340 million annual
disbursement target in 11 poverty alleviation credit programs in the year
2008-09. Following are the banks poverty alleviation credit program;
1. RAKUB self-help credit program(RSCP)
2. Marginal & small farm system crop intensification project
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3. Swanirvar credit program

4. Shogorip (Food grain godown credit program
5. UN Capital development fund credit program
6. Women entrepreneurship development program
7. Pilot employment generation program
8. Semi-intensive goat rearing program
9. Medicinal plants/orchard nursery
10. Credit program for the disable persons
11.Zero poverty loan scheme
Foreign aided project:

RAKUB takes some project with the help of foreign aid, those
are mentioned below;
1.
Small enterprise development credit project (SECP): Small

enterprise development credit project (SECP) has been lunched
under Norwegian assistance to promote new small enterprises
and streamline existing ones in 51 upazilas of greater Rajshahi,
Bogra, Pabna and Kurigram districts.

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2.
North West crop diversification project (NCDP): The bank

has undertaken a project named North-West crop diversification
project under financial assistance of Asian development bank.
The project is under implementation by the department of
Agricultural Extension under ministry of Agriculture in 61
upazilas of 16 districts of Rajshahi division.
2.16 Highlights of overall activities of RAKUB

Table-3: Highlights of overall activities as on 30th June 2008
SL. No
Particulars
Taka
Paid up capital ( On 31-03-2010)
570,00,00,000
Total capital
(41,94,78,056)
Surplus capital(Deficit)
260,34,68,206
Total assets
3765,06,32,550
Total deposit
1538,97,55,298
Total loan and advances
2711,20,80,472
Total contingent liability
70,65,64,886
Loan deposit ratio
1:0.57
Ratio of classified loan against total loan &
1:0.34
advances
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10
Profit/(loss) after tax
(64,08,65,618)
11
Amount of classified loan
933,35,89,000
12
Provision for classified loan
186,23,22,000
13
Provision for surplus/deficit
89,57,93,000
14
Cost of fund
15
Interest earning assets
2574,26,02,983
16
Non performing assets
1190,80,29,567
17
Return on investment(ROI)
18
Return on assets (ROA)
19
Interest on investment
20
Income per share
21
Income price ratio
8.30%
17,40,545
197,47,18,147
Source: www.rakub.org.bd
2.17 RAKUB Perspective Plan

This is the ninth year of the RAKUB
perspective plan. Bank's operational activities tracked the directives of the
perspective plan through out the year. On the backdrop of negative impact
upon overall income and profit earning of the bank due to reduced interest
rates of deposit and advance the bank took precautionary measures of
counter balancing the shortfall by enhancing disbursement of new loans,
recovery and rescheduling of classified loans and raising income from
commercial banking activities. In addition, measures were taken to curtail
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expenditure on controllable items. The bank plans to undertake a midterm

evaluation on the RAKUB perspective plan as per demand of the changed
scenario.
Table-4: Estimated income under perspective plan (In million Taka)
Sources of income
2003-04 2005-06
Interest on unclassified loan 760

Interest on fresh loan
110
Recovery from classified
loan
By adjusting deferred200
income
By rescheduling
30
Interest income on deposit 130
Income
from
loan260
provisioning
Interest on staff loan
40
Commercial income
10
Miscellaneous
30
Total income
1570
2007-08
840
120
920
130
2009-10 Average
Amount %
1000
840
48
140
120
7
220
230
250
230
13
30
140
290
40
140
310
50
150
330
40
140
280
2
8
16
40
10
30
1720
50
10
50
1880
50
20
50
2040
40
10
30
1730
3
1
2
100
Source: www.rakub.org.bd
2.18 RAKUB at a Glance : (Up to 31 March, 2010)

01)
02)
03)
04)
05)
Establishment
Authorized Capital
Paid up Capital
Reserve
Area of RAKUB:
a. Area
b. Spread
c. District
d. Upazilla

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:
:
:
:
15 March, 1987.
Tk. 7500.00 (in million)
:
:
:
:
Rajshahi Division
34,513 Square.K.M.
16
125
26
e. Union
i) SACP
ii) Non- SACP
f. Total Populations
g. Total No. of Family
h. Agricultural Family
06) Total Branch
i) Municipal
ii) Union
07) Total manpower
i) Officers
ii) Workforce
08) Zonal /Regional office
09) Regional Audit office:
10) Regional officer
11) Zonal officer
14) Website

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:
1092
:
908
:
184
:
About 3.50 crore
:
51 lakhs.
:
32 lakhs.
:
364
:
64
:
300
:
3410
:
1521
:
1889
:
18
18
:
13
:
5
: www.rakub.org.bd
27
Chapter- Three
RAKUB, Godagari branch
And its functions
RAKUB, PUTHIA BRANCH

AND ITS FUNCTIONS
3.1 Location
Rajshahi Krishi Unnayan Bank (RAKUB), Godagari branch is
stationed at ground floor of Rajshahi Krishi Unnayan Bank Bhabon, on
southern side of Rajshahi-Natore road & infront of Puthia girl High Puthia
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upazila of Rajshahi district. It is established in 1975 and starts its operation

from that date. It is one of the busy branches of Rajshahi. It covers five
unions, one upazila and about 125 villages of Puthia upazila.
3.2 Puthia Branch at glance

1. Establishment
: 1975
2. Area
: About 25 km
3. Location
: southern side of Rajshahi-Natore road &

infront of Puthia girl High School Puthia
upazila of Rajshahi district
4. Total no of lonees
: 4852
5. Total no of depositors: 8385

6. No of employee
: 11
7. No of village
: 125
8. Total Population
: About 310000
3.3 Functions of Godagari branch

Like other banks Godagari branch does the
following activities:
I.
II.
Receive deposit from customers

Payment to customers according to payment order given
through check by customers.

III.
Disbursements of loan and recovery of the given loan.

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IV.
V.
Giving advice to the client of the bank

Transfer money from one place to another place.
3.4 Services given to customers by Godagari branch

Different deposit related services provided by the bank are
mentioned below;
A) Deposit Service:
1) Current Deposit Account
2) Savings Deposit Account
3) Term Deposit Account
a) Short Term Deposit Account (STD)
b) Deposit Pension Scheme (DPS)
c) RAKUB Deposit Pension Scheme (RDPS)
d) Fixed Deposit Account
B) Commercial Service:
a) Demand Draft (DD)
b) Mail Transfer (MT)
c) Telephone/ Telegraphic Transfer (TT)
d) Payment Order (PO)
C) Loan Service:
a) Short Term Loan
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b) Medium Term Loan

c) Long Term Loan
The above services of RAKUBs Godagari branch are discussed in
following pages respectively;
A. Deposit Services:
The following 3 types of accounts are available at Godagari branch
1. Current Account:
From this type of account any amount of money is deposited and
drawn at any time in the office hours. There is no interest on current account.
Bank over draft is sanctioned based on it. This account is opened with
minimum deposit of Tk.1000.

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2. Savings Account:
Savings account opened for the individual customers except
companies, firm and Co-operative society. Money is withdrawn two times a
week and deposited at any time in the office hours. If an account holder
draws money from account he/she will not get interest for that month. To
open an account bank requires Tk.200 only.
3. Term deposits:
a. Short Term Deposit Account (STD):
Short Term Deposit Accounts are opened for company, business firms
and government demonstrative body. This account is operated like current
account.
b. Deposit Pension Scheme (DPS):
It is one kind of deposit program circulated by government. In this
savings scheme a person receives the opportunity to build up saving by
contributing monthly installment to get an attractive fixed amount at the end
of a specific period. The size of monthly installments is Tk. 100, Tk. 200,
Tk. 300, Tk. 400, Tk. 500, or which is to be deposited within the first week
of each month. In this case compound rate of interest is charged.
c. RAKUB Pension Scheme (RPS):

RAKUB has some savings schemes to motivate the people for
savings. In this case RPS is regarded as the special product of this bank. The
RPS is same as DPS. But terms of savings of RPS are 5 years and 10 years.
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d. RAKUB Grameen Pension Scheme (RGPS):

It is for the grameen poor people to motivate them increase in savings.
It is same as DPS & RPS.
e. Fixed Deposit Account (FD):
Fixed deposits are taken for the following terms:
From one month to below three months
Above three months to below six months
Above six months to below one year
Above one year to below three years
Above three years
Table-1: The rate of interest in deposit accounts
SL. No
Types of Accounts
Interest rate
Current Account
No interest
Savings Account
Fixed Account
Short Term Deposit(STD)
4%
RAKUB Pension Scheme(RPS)
12%
Deposit Pension Scheme(DPS)
15%
RAKUB Grameen Pension Scheme (RGPS)
6%
7%
7% to 8.5%
Source: Manager, Godagari Branch, RAKUB.
B) Commercial Functions of RAKUBs Godagari branch:

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The following types of commercial service are available in RAKUBs

Godagari branch
a. Demand Draft (DD):
DD is the most popular instrument of remitting fund. It is an order to
pay money drawn by one branch Payable to another branch on demand. DD
is issued in against at Tk.20 commission up to Tk.1000. When the limit
exceed commission amount increased in a certain rate.
b. Mail Transfer (MT):
This branch transfer money another branch of this bank in another
place in against of commission money of this security paper has to be
transferred to an account of another branch. Here the bank commission is
minimum Tk.30 and the postal charge is Tk.50.
c. Telegraphic Transfer (TT):
It is the quickest method of remitting fund from one place to another.
In this procedure no instrument is sent to the paying branch. Only message is
sent over telephone or telex and the paying branch makes payment after
getting message. Due to lack of technology this branch cannot operate TT.
d. Payment Order (PO):
It is a written document. This PO can be encased on that branch from
where it is issued. Several supplier organizations use this PO and here no
account is needed to open with bank. It is issued locally.
Table-2: Commission charged on commercial service

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Service
Charge Tk.
Demand Draft
Tk.20+VAT
Telegraphic Transfer
Tk.30+VAT
C)
Payment Order
Up to Tk.1000
Tk.20+VAT
Up to Tk.1,00,000
Tk.30+VAT
Over Tk.1,00,000
Tk.50+VAT
Up to Tk.5,00,000and over
Tk.100+VAT
Mail Transfer
Minimum Tk.30+ Postal

cost(Tk.50)+VAT
Cancellation Charge of DD, MT, TT,

PO
Up to Tk.500
Tk.25+VAT
Over Tk.500
Tk.50+VAT
Loan services:
Banks loan portfolio has been classified under the following
heads;
a) Short Term Loan (STL): Loan period is 1 year.
b) Medium Term Loan (MTL): Loan period is above 1 year to 5
years.
c) Long Term Loan (LTL): Loan period is more than 5 years

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3.5 Procedure to open an Account at Godagari branch

RAKUB provides opportunity for opening an
account to customers like other banks. To open a Current Deposit A/C,
Savings Deposit A/C an individual has to carry out the following procedure
given below;
I. Obtain a prescribed application form from the bank.
II. Submit the duly completed form with necessary papers to the
concerned officer.
III. Face a brief interview
IV. Put specimen signature in the signature card supplied by the bank
V. Deposit of money
VI. Get counter folio of the payment slip.
With the prescribed application form, the applicant should submit the
following papers and information.
I.
Nationality certificate from the appropriate authority.
II. Two copies of recent passport size photograph.

III. If the applicant is a service holder he should collect employee
certificate from his employer and is to be submitted.
IV. The applicants signature should be identified by an introducer who
has a Current Deposit A/C with the respective branch.
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V. The applicant should deposit minimum taka 200/- to open an account.
Things considered to open an account are:

Proper fill up of the application form.
Getting an specimen signature of a customer
Taking initial deposit in cash.
Basically a person whose age is 18 years or more is competent to open
an account with the bank. But there are some special types of account holder
like joint account, minor account, illiterate person account, blind person
account, Deaf and dumb account etc. The following parties can never open
an account with the bank Person who is still bankrupt.
Person whose mind is unsound.
Person who is totally mad.
3.6 Procedure to close an Account

In order to close an account (some time before
maturity in case of FDR) the holder has to place a written application to the
bank. After receiving the application the bank will deduct service charge at
an amount necessary for the respective account as closing fee from the
balance and rest of the money is given to the account holder.
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3.7 When bank close an Account

The relationship between bank and his customer is a
contractual one and may be terminated by either of them. Bank closes an
account in the following situations;
1. If a customer places written application to the bank to close his

account.
2. If the customer does not properly follow the rules and regulations
necessary to operate his account.
3. If the bank is notified the message of death of a customer.
4. If the bank receives a notice regarding the insanity of his
customer.
5. If the bank receives any order from court regarding the closing of
the customers account.
3.8 Sectors in which RAKUB extend credit

Rajshahi Krishi Unnayan Bank, Godagari branch extends
credit in sectors and sub sectors, which are as follows:
SL
No.
Name of the Description of project item

Project

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Tea industries
Seeding production, Tea garden development,

Tea marketing.
Rubber
plantation
project
Poultry
Rubber garden development, Rubber production

and marketing.
3
4
5
6
7
8
9
10
11
12
Poultry boiler farms, Poultry hatchery, Poultry

feed and allied project.
Mixed farming Dairy live stock and Fishery based horticulture

crops; Agriculture based poultry dairy and
fishery project.
Black Bengal Black Bengal goats, Sheep & Cattle farming for
goat
quality meat production, and Meat processing
production
and Marketing.
Dairy farming Milk production, Milk collection and processing.
Agro
based Commercially profitable sweet water fish and
industries
Shrimp feed production, Ice plant, Ice-cream
factory and so on.
AgroEngineering work shop for Agro-equipment,
equipment
Repairing agro equipment and Marketing.
production
Cold storage
Cold storage for potato preservation, Specialized
mini-cold storage for fruits, Vegetables and Fish
preservation.
Export
Fish freezing plant, Fish dehydration plant,
processing
Leather processing and manufacturing Leather
products.
Animal
and Poultry and Fish feed meal production, Cattle,
fish feed meal Goat, and Lamb feed meal production.
production
Import
Fish net manufacturing/Netting yarn production,
substituting
Insecticide production.
goods
production
3.9 Interest rate on loan

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Bank determines the interest rate differently for different

sector. Considering interest rate on deposit, administrative cost, bank rate,
interest rate at others bank and financial institutions, competitive money
market etc, the banks use its rate of interest on loan.
Table-3: Rate of interest in different sectors.
SL No
Heads of loan
Rate of interest
Crops loan
10%
Fisheries
10%
Export credit
9%
Working capital
Commercial purpose
13%
Agro-based industries
12%
Cottage industries
10%
SECP
12%
Poverty alleviation
10
Live stock
10%
11
Irrigation equipment and firm machinery
10%
12
Other special program
11%-13%
10%-12%
3.10 Organizational structure of Godagari branch

The organizational structure of Godagari branch is shown below
through diagram;

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Manager (SPO)
Second Office (Senior Officer)
Officer
Supervisor
Data Entry Operator
Cashier
eeeeeee Peon
Security
guard
ppeon
3.11 Employee Summery
SL
No
Designation

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41
Manager( Senior Principal Officer)
Second Officer ( Senior Officer)
Officer
Supervisor
Data Entry Operator
Cashier
Peon
Security Guard
Total
11
11
Table-4: Employee summery of Godagari branch

3.12 Books maintained by Godagari branch

The main objectives of maintaining the books of
RAKUB, Godagari Branch are to achieve the following goals.
1. To record day-to-day transaction
2. To reflect the financial position periodically
3. To supply necessary information for monitoring the bank activities

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In that purposes cash transaction and other transaction is recorded in

the books of accounts under the double entry system. In this bank, generally
two types of books are used.
A. Control Books:
It represents the immediate accounting picture of the bank at any time
and it includesa) Cash Scroll Book
b) Clean Cash Book
c) General Ledger Abstract
d) Supplementary ledger Book
B. Subsidiary Books:
Subsidiary Books are used to explain the total particulars in General
ledger and it includesa) Saving account ledger
b) Fixed deposit ledger
c) Income ledger
d) Expenses ledger
e) The general ledger of RAKUB,
3.13 Accounting procedure of Godagari branch

The procedure followed in Godagari branch is presented through
diagram at next page;

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Transaction
Cash
Transfer
Clearing
Voucher
Record in Register
Posting in ledger
Supplementary sheet preparation
Summary preparation
Cash cum day book preparation

General ledger posting
Affairs frond page
Subsidiary ledger posting
Affairs back page

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Chapter- Four
Loan management
LOAN MANAGEMENT
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4.1 Definition of loan

A loan may be defined as money lent at interest or on
profit. It is nothing but temporarily parting with ones resources in order to
augment the purchasing power of the receiver of such facility with a promise
to return the same with interest or profit or otherwise as mutually agreed
upon. It is a type of debt. Like all instruments, a loan entails the
redistribution of financial assets over time, between the lender and the
borrower.
In banking arena, many types of financial facilities are extended to the
clients with the expectation of getting the same returned along with interest.
The provided Purchasing Power can be termed as loan, credit or advances.
These three terms have similarities as well as some differences.
According to the Dictionary of Banking & Finance loans can be
defined as, the lending of a sum of money by a lender to a borrower to be
repaid with a certain amount of interest.
Timothy W Koch defined loan as, formal agreement between a
bank and a borrower to provide a fixed amount of credit for a specified
period.
We can say, if a bank gives its resources temporarily under certain
conditions and for a specific duration, it will be called loan.
4.2 Characteristics of bank loan

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Banks loans have some unique characteristics

according to purpose, usage and nature. The major features of bank loan are
given below;
a) Parties: There are two parties involved in the loan transactions. One is
the bank and the other is the loan applicant. Here, the applicant will apply
for loans to the bank and bank will accept the application, if logical and
will reject if found financially not viable.
b) Amount of loan: Loan amount may vary- small, medium or large. There
might be difference between the applied amount and the sanctioned
amount on the basis of the quality and capability of the borrower and
purpose for which applied.
c) Ultimate decision: Banks decision is final in case of loan application.
That is, bank can fully sanction, partly sanction or may totally reject the
loan application after considering its own fund, goodwill of the clients
and other issues connecting with judging creditworthiness. Loan
distribution can be lump sum at a time or can be in installments.
d) Mode of loan: Generally, loans are given in cash. But in exceptional
cases, the same may be provided in kind, for example, raw materials,
machineries, other inputs etc.
e) Nature of distribution: Generally, banks disburse loans on installment
basis. But when bank is convinced, it may disburse the whole amount of
sanctioned loan at a time.
f) Process of disbursement: Banks often disburse their loan against the
existing current account of the client. If the client is new, bank asks the
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client to open a current account. Then the bank provides the sanctioned
loan through that account.
g) Security: Generally loans are sanctioned against collateral. But,
sometimes small amount of loans can be sanctioned on the basis of
personal guarantee.
h) Loan price: Banks never provide loan without interest or profit. But,
interest rate can vary on the basis of types of loan or status and track
records of the clients. Sometimes at the time of providing some special
loans, banks may take a small interest as service charge.
i) Repayment of loan: Loans are repaid on the installment basis or it may
be a one-shot arrangement. In preparing loan repayment schedule, banks
generally focus on the possible cash flow stream of the clients projects.
4.3 Importance of bank loan

Bank is an important tool of economic development for
any country. Bank loans are required to use improved technology to increase
the volume of production in the agriculture sector as well as to facilitate the
business activities. Primary sector agriculture and farming is also
significantly dependent on the banking system, quality input to be
adequately arranged on time is largely determined by the supply of farm
credit on easy terms & conditions. Areas of the importance of loan are given
to the next page;
A) Importance of bank loan in trade and commerce:
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1. Creation of credit deposits

2. Increased formation of capital
3. Increased volume of investment of capital & working capital.
4. Raise the proportion of the sectoral GDP to the total GDP.
B) Importance of loan in agriculture:
1. Crop credit
2. Cash crop credit
3. Horticulture credit
4. Warehouse credit
5. Rural housing credit
6. Poultry and fisheries
7. Small and cottage industries credit
8. Improved technology credit
9. Improved seed credit
10. Chemical fertilizer credit
C) Importance of loan in international business:
1. Financing export& import
2. Discounting bill of exchange, bank draft etc.
3. Regional development
D) Importance of providing consumption:
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1. Housing loan
2. Education loan
3. Car loan
4. Marriage loan
E) Self employment loan:
1. Women self employment loan
2. Technician self employment loan
3. Shop keeper self employment loan
4. Small business self employment loan
4.4 Classification of loan

A) Classification based on security:
(1) Unsecured loans: Banks provides loan without any type of collateral to
the reliable persons or institutions as clients having profound goodwill,
excellent track records or sometimes to the very poor clients.
(2) Partly secured loan: If the amount of loan is not fully secured, rather
partial amount of collateral is provided to cover the loan sanctioned, it is
called partially secured loan.
(3) Fully secured loan: Secured loan means any which is guaranteed by the
borrower giving valuable property as security. If the loan is given by taking
the security of the amount exceeding the amount of security is provided to
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cover the loan sanctioned or just equal to the amount of loan, it is called
fully secured loan.
B) Classification based on term:
According to the classification by term or periodicity, loans
can be of three types:
(1) Short-term loans: This loan is sanctioned for less than one year. Shortterm loans can be of two types; (a) Loans provided fir immediate use
and payable on demand and (b) Loans payable on short notice.
(2) Medium-term loan: Usually, loans with the maturity of 1 to 5 years are
called mid-term loans. However, commercial banks give mid-term loans
of maturity of 1-3 years.
(3) Long-term loan: Loans with the maturity of more than 5 years are
called long-term loans.
C) Classification based on user:
1. Individual loan:
a) Consumer loan: Banks provide loans for durable goods and appliances
and commodities like loans for Freeze, TV, Computer, Car, Furniture etc.
b) Housing Loan: This includes loans to the fixed or low-income people for
housing purposes. This loan is usually intermediate term and/or long term.

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c) Education and other loan: Some of the bank also provide loan to the
people of the society in order to meet their educational and other needs after
being sure about the repayment.
2. Industry loan:
a) Working capital loan: This type of loan is given to the business or
industry to provide capital required for purchasing raw materials, paying
wages and fuel expenses etc.
(b) Fixed capital loan: Huge amount of capital is required for procurement
and replacement of machinery and equipments for the industrial
organizations.
3. Loan for business person:

(a) Working capital loan: For maintaining day to day operations, business
persons need a great deal of working capital. By providing working capital
loans, banks help to solve the working capital necessity of the business
persons.
(b) Export-import loan: Banks also help in export-import firms by issuing
L/C, bill of exchange, discounting, direct loan etc.
4. Loan for farmer:

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(a) Crop loan: For buying seeds, cows and fertilizers, farmers need money.
They borrow the money from the bank in order to meet the expenses
required.
(b) Non-crop loan: Farmers also need money for poultry, fisheries, agrobusiness, agro-processing and other purposes. In this case, commercial
banks provide small and medium loans to farmers.
(c) Farming equipment loan: To purchase farming equipments, banks also
provide loans to farmers. Farming equipments may include power tiller,
tractors, machinery for irrigation etc.
D) Other forms:
a) Overdrafts: The over drafts is a kind of loan always allowed on a current
account operated upon by cheques. The customer may be sanctioned a
certain limit upon which he can overdraw his current account within a
stipulated period. Interest is calculated and charged only on the actual debit
balance on daily product basis.
b) Cash credit: Cash credit is the favorite mode of borrowing by traders,
industrialists, agriculturists etc. for meeting their working capital
requirement because it is an elastic form of borrowing. This type of facility
is always provided against pledge of goods, produces and merchandise
which remain under the possession of bank with effective control but
ownership remains with the borrower
4.5 Principals of sound lending

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The principal function of a bank is to lend. Lending is a

dynamic activity. It is through the medium of lending the banking industry
promotes economic industry; instills and encourages, at the individual level,
the principle of self-reliance and yields earnings for the bank. It is lending
alone that brings banking into a more meaningful and purposeful contract
with public and, therefore, has the greatest impact upon them.
It is a fundamental precept of banking everywhere that advances are made to
customers in reliance on his promise to repay, rather than the security held
by the banker. Security is required by the banker as a protection against
unexpected default in repayment by the customer. Thus, the object of both
external and internal controls is to ensure the employment of bank funds in a
profitable manner without undue risk of loss to the capital.
Although all lending involves some degree of risk, it is necessary for any
bank to develop sound and safe lending policies and new lending techniques
in order to keep the risk to a minimum. The principles of sound lending may,
therefore, be summarized on safety, liquidity, purpose, profitability, security,
disposal/spread and national interest.
a) Safety:
Safety, first, is the guiding principles of a prudent banker. A bank is
in business to make money. It mainly uses depositors fund as a means of its
earnings. The money of the depositors being repayable on demand or after a
short notice determines the capacity of a bank as to the period for which he
can safely lend it out without an uncalculated risk. Safety should never be
sacrificed for profitability. Once the confidence of the depositors is shaken,
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the banker cannot carry on the banking business. On principle he, therefore,
cannot indulge in unsecured or long term advances. Advances should be
expected to come back in the normal course, i.e. the bank may not have to
resort to legal action or to sell the securities to liquidate the advance.
The repayment of loan depends upon the borrowers (i) capacity to pay, and
(ii) willingness to pay.
The capacity depends upon his tangible assets and the success of his
business; if he is successful in his efforts, he earns profit and can repay the
loan promptly. The banker should take utmost care in ensuring that the
enterprise or business for which loan is sought is sound and the borrower is
capable of carrying it out successfully.
The willingness to pay depends upon the honesty and character of the
borrower. He should be a person of integrity, good character and reputation.
If, for example, the borrower invests the money in an unproductive or
speculative venture, or if the borrower himself is dishonest, the advance
should be in jeopardy. Similarly, if the borrower suffers loss in his business
due to his incompetence, the recovery of the money may become difficult.
The borrower should, therefore, be chosen carefully for the safety of the
advance.
b)Liquidity:
Liquidity is the availability of the bank funds on short notice. It is
not enough that the money will come back, but it is also necessary that it
must come back on demand or in accordance with agreed terms of
repayment. The borrower must be in a position to repay within a reasonable
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time after a demand for repayment is made; otherwise, the liquidity position
of the bank is endangered.
Liquidity also signifies that the assets should be saleable without any loss.
Thus, the concept of liquidity has twin aspects, namely, quick saleable or
convertibility of the assets and the absence of risk of loss in such conversion.
Even in the case of fully secured advances, if it is feared from the very
beginning that the advances would only be recovered by selling the
securities, it is not considered a good advance. It must, therefore, always be
ensured that the advance will e repaid from the resources other than the
securities pledged.
A sizable portion of bank advances are, therefore, granted to meet the
working capital requirement of the borrower rather than to meet fixed capital
requirement, i.e. construction of building or purchase of fixed assets. A
banker would be failing in his duty to safeguard the interest of his depositors
and shareholders if his credit policy does not provide a method of gradual
repayment and final recovery of the money advanced. Thus, the banker
regards liquidity as important as safety of the fund.
c) Profitability:
Commercial bank has to distribute its resources in a manner that
they meet the twin requirements of liquidity and profitability. A banker has,
therefore, to see that major portion of the assets owned by it are not liquid
but also aim at earning a good profit.
The working funds of a bank are collected mainly by means of deposits from
the public and interest has to be paid on these deposits. They have also to
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meet their establishment charge and other expenses. They have to make
provision for depreciation of the fixed assets and also for any possible bad or
doubtful debts. Interest earned by a bank on its advances is the main source
of its income. The difference between the interests received on advances and
the interests paid on deposits constitutes a major portion of the bankers
income. It is sometimes possible that a particular transaction may not be
profitable in itself, but there may be some ancillary business and deposits
available from borrower are other concerns which should also be taken into
consideration. Besides, foreign exchange business
is also highly
remunerative. In this way, the transaction may on the whole be profitable for
the bank. The bank will not, however, enter into a transaction unless a fair
return is assured. So, there is little point in a banker granting facilities which
do not bring directly or indirectly some returns.
d) Purpose:
A banker would not throw away money for any purpose for which
the borrower wants. The purpose should be productive so that the money not
only remains safe but also provides a definite source at repayment. The
banker should study the purpose for which loan is required and the resources
from which the borrower is expected to repay. If the funds borrowed are
employed for unproductive purposes like marriage ceremony, pleasure trip,
repayment of old debts etc., or speculative activities, the repayment in the
normal course will become uncertain. Banks also discourage advances for
hoarding of stocks.

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There may also be a case where a banker is aware of a definite source (such
as issue of share capital or debenture which is likely to be subscribed
promptly by the public) from which a long term project is going to be
ultimately financed. The borrower requires only stop-gap finance till the
money from that source is collected. Such cases are favorably considered for
good parties, because the banks money is required for short period.
e) Security:
It is the practice of banks not to lend money without any security.
The security offers for an advance is insurance or a cushion to fall back upon
in case of need. A banker would not normally like to recover the advance
from the sale of the security. They would prefer an advance to come back
from the normal source. The importance of an adequate and acceptable
security can, however, is hardly over emphasized. Security serves as a safety
value for an unexpected emergency. An element of risk is always present in
every advance, however secured, it might appear to be. If the securities are
not insisted upon, there are chances that the borrower may raise funds
elsewhere by charging them to others and thereby the bankers position is
jeopardized.
Security taken by banks can be classified into two broad categories, such as,
primary security and collateral security.
Primary security may be either personal security or impersonal security or
both. Personal security is given by a borrower by way of duly executed
promissory notes, acceptance/endorsement on a bill of exchange and
personal covenants in mortgage deeds or loan agreements. Impersonal
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security
is
given
when
charge
is
created
by
way
of
pledge/hypothecation/mortgage over the borrowers intangible assets, such

as goods and commodity, fixed assets, bills receivables, book debts etc.
Collateral security may be direct or indirect. Collateral security obtained
from the borrower himself to secure his own account is known as direct
collateral security. For example, advance against hypothecation of stock-intrade is strengthened by equitable mortgage of the title deeds of house
property of the borrower. Indirect collateral security means any form of
security given by third person to secure a customers account. A guarantee
given by a third party is an indirect collateral security.
It is not correct that an advance proposal is considered only from the point of
view of security alone. An advance is granted by a good banker on its own
merits, that is say, with due regards to its safety, likely purpose etc. and after
looking into the character capacity and capital of the borrower and not only
because the security is good.
f)Disposal/Spread:
The advance should be as much broad-based as possible and must
be in keeping with the deposit structure. The advances must not be one
particular direction or to one particular industry, because any adversity faced
by that particular industry will have serious repercussions on the bank.
Again, advances must not be granted in one area alone. There should be
spread of advances against different securities, industries as well as areas.

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Thus, by a diversification of the advance a banker will be able to spread his

risks and considerably improve the safety of advances.
g)National Interest:
Banking industry has a significant role to play in the economic
development of a country. The banker would lend if the purpose of the
advance is for overall national development plans necessitating flow of
credit to priority sector in the larger national interest. Some times, the need
of the borrower may be considered so essential for the benefit of the national
economy that despite heavy risks involved the advances may be granted. In
the changing concept of banking, national interest for financing in some
areas, specially in advances to agriculture, small industries, small borrowers
and export-oriented industries, are assuming great importance.
4.6 Sources of loanable fund

Banking is a business which is run on the confidence and
trust of people. This confidence enjoyed by banks enables them to mobilize
funds from the various categories of sources of fund comprising of;
1. Paid up share capital

2. Reserve fund and undistributed profits
3. Deposit from the public in various accounts
4. Borrowings from Bangladesh bank and other banks.
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4.7Security against loan

Security is obtained as a line of last defense to fall back upon. It
is meant to be an insurance against emergency. By taking security, bank
acquires a claim upon the assets of the borrower if repayment is not made as
planned. Securities taken against a loan are stated below;
1. Personal surety
2. Immovable property
3. Pledge
4. Marketable securities
5. Document of title of goods
6. Certificate of fixed deposits
7. Insurance policies
8. Others like gold and valuable documents.
4.8 Valuation of security

Valuation of security is very important for the lending banker.
Therefore, valuation of security must be done with careful verification in
respect of nature of procurement, quality, quantity and considering possible
risk. In the case of assets, RAKUB, Godagari branch evaluates the property
in the following ways;
a)Location of the assets: At first, the bank identifies the location of the
assets. If the asset is located at town or within city corporation area, the
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value of the assets will be higher and if it is located at rural area their values
will be lower.
b) Field investigation: In some case loan officer s go to the actual area to
investigate physically and make report on this.
c)Ways and communication: The bank looks for the ways to reach the
assets. If there is good communication system, the value will be higher and
if there is no well communication system i.e. if it is not possible to reach the
assets easily, the value of the assts will be lower. To identify the ways, it
requires deep concentration. Because, the bank considers that if it needs to
reach asset by using others land, the bank will not consider the asset as
valuable security. In this case, the bank use map of the respective area.
d) Idea from sub-registry office: Sometimes the bank goes to land subregistry office to get information about the price of the assets. It facilitates
the bank to evaluate the property.
e) Interviewing the people: Sometimes the bank interviews the people the
respective area to judge the market price of the assets.
4.9 Eligibility of applicant

To be eligible for loans from the bank, applicants
meet the following basic requirement;
a) Be a citizen of Bangladesh
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b) An adult
c) Should have repayment capacity and good reputation about financial
dealings
d) Not defaulter of bank loan
e) In case of corporate body equipped with manpower to carry out the
scheme efficiently for which loan is required.
f) Not insolvent person
g) Not lunatic.
4.10 Sources of credit information

Loans are sanctioned on the basis of loan application. Loan
cases are not processed merely observing the loan amount or the purposes
mentioned in the loan application form. Rather, bank examines whether the
purposes of loan are acceptable to banks. In examining the feasibility
information is collected from the following sources;
a) Internal source:
1. Filled in application
2. Interview
3. Financial statement
4. Banks own record
b) External source:
1. Income tax office
2. Government gazette
3. Record from other govt. office
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4. Inspection
5. Market report
6. Credit information bureau
7. News paper
8. Other banks record
4.11 Method of loan pricing

The price of a loan is the interest rate the borrowers must pay to
the bank, in addition to the amount borrowed (principal). The price / interest
rate of a loan is determined by the true cost of the loan to the bank (base
rate) plus profit/risk premium for the banks services and acceptance of risk.
The components of true cost of a loan are:
a) Interest expense
b) Administrative cost
c) Cost of capital
These three components add-up to the banks base rate. Risk is the
measurable possibility of losing or not gaining the value. The primary risk of
making loan is repayment risk, which is the measurable possibility that a
borrower will not repay the obligation as agreed.
A good lending decision is one that minimizes repayment risk. The price a
borrower must pay to the bank for assessing and accepting this risk is called
the risk premium.
Since past performance of a sector, industry or company is the strong
indicator of future performance, risk premium are generally based on the
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historical, quantifiable amount of losses in that category. Price of a loan

(Interest Rate Charge) = Base Rate + risk premium. Loan pricing is not an
exact science- get adjusted by various quantitative as well as qualitative
variables affecting demand for and supply of funds. There are several
methods of calculating loan prices.
Method of Loan Pricing
Interest based pricing
VariableRate
Interest free pricing
Fixed Rate
Caps and Floors
Prime rate
Prime times
Quantity Based
General rates
Compensating Balance of Deposit

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65
4.12 Main Credit Portfolio of RAKUB, Puthia Branch

a) Food crops
Paddy, wheat, potato, sugarcane, master seed,

sunflower seed, ginger, onion, water motor, winter/
summer vegetables, banana, mango etc.

b) Cash crops
Jute, cotton, tobacco, betel leaf etc.
c) Processing and Small and cottage industries, marketing capital etc.
marketing
d)
Agro-based Rice/has king mills, flour mills, dall (pulses) mills,
industries project fruit processing industries, light earning work
e)
shops, ice plants etc.

Commercial Loan against fertilizer and pesticide, cash credit
loan
f) Live stock
loan for agro- products and small enterprise etc.

Draft animals, dairy, poultry, goat rearing, cow
g) Transport
fattening etc.
Rickshaw-van, rickshaw, bullock cart, country boat
h)
etc.
Farm Power tiller, tractor and other machineries.
machineries
i) Micro credit
RSCP, SECP.
j)
Special Fishery, orchard, nursery etc.
agricultural
activities
k) Others
Loan against fixed deposits.

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Chapter- Five
Loan disbursement
LOAN DISBURSEMENT
5.1 Introduction
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The strong base of RAKUB, Godagari branch is totally

dependent on sound investment because interest on loan is the main source
of income. That is why qualitative loan disbursement is much emphasized
here as well as it leads to increase in total income of the bank. The bank
authority sanction loan in compliance with the rules and regulations
determined by the highest decision making authority of the bank.
5.2 Loan sanction procedure

Based on information available in the appraisal report, credit
report, legitimate credit needs of the farmer/client, the loan proposal should
be carefully analyzed by the sanctioning authority. Before sanctioning loan,
it is essential to make pragmatic analysis of status of applicant, credit
worthiness, liabilities, project viability from technical, financial, economic,
marketing and management point of view. As soon as the security is
finalized and the sanctioning authority is satisfied, then the authority should
proceed for sanction of loan.

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5.3 Feature of borrower

Borrower selection is an important factor in disbursement of loan.
The mentioned factors are required to be considered in selecting a borrower:
1. Borrower must be Bangladeshi.
2. Borrower must be matured.
3. Borrower must have the ability to use loan in productive way and the
ability to repay the loan and should have sound transaction record.
4. Borrower must not be loan defaulter.
5. Borrower must be registered with Joint Stock Company, if it is limited
company.
6. For co-operative society, it must be registered.
7. Borrower must not have any mental disorder.
5.4 Loan handling diagram

The steps which are followed in handling loan
disbursement and loan recovery are presented through diagram to the next
page;

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Getting Loan
Proposal from
the client
Collecting
information
Evaluating
proposal
Evaluating
by agent
Branch level
evaluation
Sanctioning and
documentation
of loan
Disbursing
loan
Decision
Head office
level
Branch
level
Supervision of
the loan
Recovery of
the loan
Usual
recovery
Legal
recovery
Source: Manager, Godagari branch, RAKUB.

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5.5 Securities accepted by the bank

RAKUB maintain the security listed below in recovering the
loans without risk.
1.
Lien: Its a right to retain the property / goods of the borrower as

security until the debit are adjusted. In this case the banker can only
hold the possession of the goods he cannot sell them. He can sell the
securities under lien after giving reasonable notice to the borrower.
2.
Pledge: Pledge is created only for movable property like goods

document etc. In case of pledge the ownership of the goods remains
with pledge but the possession of the goods vests with pledge until the
loan is recovered. Pledge does not occur until the goods are
transferred. The pledged goods are returned to the owner after the loan
is adjusted. If the borrower fails to repay the loan the banker can sell
the pledged goods after giving reasonable notice to him.
3.
Mortgage: Only the immovable properties are kept under mortgage.

It is a method of creating charge on immovable properties.
4.
Hypothecation: Hypothecation is nothing but the mortgage of

movable property. It is an extended idea of pledge. In this case both
possession and ownership remains with the borrower but by the
hypothecation agreement he undertaken to transfer possession
whenever required. Here the lender possesses the right of a pledge.
Hypothecation is very much risky and RAKUB does not want utilize
this method for creating charges.

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5.6 Documentation of loan

Credit activity is a risky function for a bank. For a
successful credit activity a bank should collect necessary documents from
the borrowers. With these documents a bank can take legal action against the
borrower in case of default. Both borrower and lender must sign every
document. Thus the proper documentation gives the bank a right to save its
interest.
The following documents are commonly used for approving a loan
or other types of businesses with the same nature;
1. Original loan agreement.

2. Filled up the loan application form.
3. Financial statements of the borrower.
4. Credit analysis report.
5. Proofs of certificates and documents of the collateral.
6. The name and signature of the authorized person/attorney of
the borrower.
7. A copy of the resolution of the board of directors of the
borrowing company.
8. The copy of partnership deed and the statement of the assets in
case of partnership business.
9. The surety from the authorized person of the company.
10.Financial statements of the person or the company providing
surety in favor of the potential borrower.
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11.The copies of the written communication and exchanges of

information between the bank and the borrower.
12.Mortgage and trust agreement.
13.Certificate of earnest money given on assets.
14.Copy of national identity card.
15.Legal document of land in case of crop credit.
5.7 Various lending program of RAKUB
Agriculture and agriculturists are the facts of activities of RAKUB. The

economic condition of the farmers is very dependent on the performance of
agriculture. Considering these facts, RAKUB has given to priority to all the
subsection and associated sectors of agriculture for achievement of desired
business goal. However, a brief description of lending programs of RAKUB
is given below:
A) Cash credit:
A cash credit is an arrangement by which a banker allows his
customer to borrow money up to a certain limit. This is a permanent
arrangement and need not to draw the full amount sanctioned at once but
draw the amount as when that is required. Thus, cash credit is an active and
running account to which deposit and withdrawal may be exercised
frequently. Interest is charged only for the amount withdrawn. Cash credit
arrangement is usually made against security of commodity hypothecated or
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pledged with the bank. Sometimes the bank provides the cash credit facility
against personal security too. Normally, cash credit is allowed for one year.
B) Over draft:
Overdraft is an arrangement between a banker and his customer by
which the letter is allowed to withdraw over and above his credit balance in
the current account up to an agreed limit. This is only a temporary
accommodation usually granted against securities. The borrower is permitted
to draw and repay any number of times. The total amount overdrawn does
not exceed the agreed limit. The interest is charged only for the amount over
drawn and not the whole amount sanctioned.
Overdraft facilities are generally granted to business against securities
of stock in trade, debenture etc. Generally, overdraft is three types:
a) Temporary overdraft
b) Clean overdraft
c) Secured overdraft
C) Crop loan:
The bank finance all the summer crop, winter crops and nursery etc.
High yielding and high value crops and seeds production is particularly
encouraged. Crop sub sector alone occupies about 60% of the lending
budget the bank.
D) Fishery:
The Bank attaches importance to use scientific method and modern
technology in fish cultivation. It extends adequate credit support for
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excavation and re-excavation of ponds, round the year cultivation of species,

which have rapid growth, cultivation of sweet water prawn and other fishes.
The Bank makes use of expertise of the concerned government agencies for
bringing more ponds/water bodies under cultivation and increasing
productivity.
E) Live stock:
The bank extends credit facilities or systematic and commercial live
stock farming, which includes dairy, beef, fattening poultry raising and
setting up of hatcheries, which in turn is expected to increase production of
milk, meat and eggs, the main sources of portion. As the marginal and small
farmers access to mechanize farming is restrained by want of cash and
collateral the bank has big lending window of draft animals for cultivation of
land has big lending window of draft animals for cultivation of land
transportation of agriculture produces and other farming activities.
F) Irrigation equipment and firm machinery:
Today technology based farming for high yielding and high volume of
crops, mechanization of cultivation, irrigation and pest control is
indispensable, to cope with the situation and pest control is indispensable. To
cope with the situation RAKUB financing for power tillers, tractors, tube
wells, power machineries are being treated as an important associated sector
of lending.
G) Agro- based industries:
The operational jurisdiction of the bank is noted for its agricultural
potentials. This is noted for its agricultural potentials. The bank pay due
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importance to setup agro industries for preservation, processing and

marketing of agricultural products having backward linkage with basic sub
sectors of crop, fishery, live stock and forestation, manufacturing and
marketing of agricultural implements are also encouraged. Agro industries
for import substitution are specially encouraged by offering moderate terms
of financing.
H) Poverty Alleviation:
The poverty strikes North West Bangladesh is characterized by
comparatively lower rate of saving, inadequate capital accumulation and
poor employment opportunities. The existing collateral based banking
system is also of little use in respect of extending support to the millions of
landless people. To address the problem the bank has been financing
collateral free micro-credit for income and employment generation through
its poverty alleviation credit program.
RAKUB also gives some loan on cottage industry. We know, the
industry, which is built-up in a cottage or house, is a cottage industry.
The role of cottage industries is very importance to improve the
economic of Bangladesh. Usually, the main promoters of cottage industries
in our country are small farmer, landless and poor people. They can build a
cottage industry with own capital and some lending capital of RAKUB.

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5.8 Disbursement of loan

Before releasing the sanctioned loan, all terms and conditions as
laid down in the sanction letter are to be fully complied with. To that effect,
the following basic requirements need to consider;
a) Terms and conditions that affect loan, whether all are complied with
need to examine.
b) Specific documents as specified in the sanction letter must be
completed.
c) Verification of encumbrances of security properties.
i.
Non-encumbrances certificate.
ii.
Execution of halapnama.
b) Creation of charge on the collateral security: In case of limited

company, the charges on the company assets should be limited
c) With in 21 days from the date of creation of charge, by registered
post to the register, Joint Stock Company.
d) Insurance for:
i.
Security properties, as applicable.
ii.
Assets creates or to be created out of a loan fund or with two

equity.
iii.
Stock of goods pledged with the bank as collateral shall be

taken with appropriate risk cover.
e) Any other stipulations as per sanction letter.

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5.9 Loan supervision and monitoring

Under its charter, the bank is required, as far as possible, to ensure
that a loan is spent on the purpose for which it is made and if this
requirement is not complied with by the borrower, the bank may require
taking necessary measures;
1. Primary responsibility of the manager is to supervise and monitor the
cash loan/working capital loan project and term loan stage by stage,
ensure project constriction work, acquiring kind items and project
goods as per approved arrangement specified in the sanction letter.
2. Bank finance project should be inspected by the regional manager and
manager periodically, to assess physical conditions of the projects
facilities and the level of the projects capacity utilization.
3. Cash loans can be misused for unproductive process. Therefore
special attention must be given on borrowers past antecedents. In case
of releasing cash loans and when the borrower drawing a substantial
amount at that time the authority must supervise with special
attention.
4. The manager should employ a project supervision officer (PSO) after
documentation and releasing the first loan installment with the
assignment of over all project supervision the duties. The PSO should
inspect the project site and observe the project development work and
inform the progress to the manager through progress report
periodically.

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5. After inspection, the manager/authorized officer should countersign the

borrowers acknowledgement receipt under his signature and seal. Only
after such counter-signature in the borrowers acknowledgment receipt,
suppliers bill can be processed for payment. The branch should complete
the verification of goods supplied by the supplier within week and
process payment of suppliers bill promptly when the same is in order.
5.10 Loan disbursement scenario of Godagari branch, RAKUB

The last five years loan disbursement positions of Godagari
branch, RAKUB are shown below through table;
(Amount in lakh Taka)
Financial
year
Loan
disbursement
Total
loan
achievement
Achievement
Rate
2005-06
target
215.00
189.15
87.98%
2006-07
300.00
229.95
76.65%
2007-08
362.00
305.66
84.43%
2008-09
350.00
298.20
85.2%
2009-10
300.00
280.14
93.38%
Source: Godagari branch, RAKUB.

* Achievement rate = 100

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Comment: From the above table it is evident that the loan disbursement
target is reduced in the year 2005-06. After that the target is gradually
increased up to the year 2008-09 but 2009-10 this target is reduced from
2008-09. The highest achievement rate is found in the financial year 200910 (93.38%) and the lowest rate at 2006-07 (76.65%).
The last five years loan disbursement positions of Godagari branch,
RAKUB are shown below through bar chart;
Figure: Bar chart presentation of last five years disbursement

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A) Loan disbursement of 2005-2006

RAKUB, Godagari branch projected a lending target of
Tk.21500000 for the financial year 2005-2006. During the year loan
disbursement was Tk.18915000 which was 87.98% of the target. During the
year the following seven sectors were given preference in disbursing loan;
1. Crops
2. Fishery
3. Live stock
4. Irrigation equipment and farm machinery
5. Agro-based industries
6. Continuous
7. Others

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The loan disbursement position for the financial year of 20042005 is shown in next table;
2005-2006
Items
Loan
Total loan
Achievement
disbursement
achievement
rate
Crops
Fishery
Live stock
Irrigation equipment and
target
80.00
4.00
40.00
10.00
89.83
4.62
53.47
7.00
112.29%
115.50%
133.68%
70%
farm machinery
Agro-based industries
Continuous loan
Others
5.00
10.00
66.00
2.15
32.08
0%
21.50%
48.61%
215.00
189.15
Source: Godagari branch, RAKUB
87.98%
Total

Comment: From the above table it is evident that the highest loan
disbursement target was in crops sector (Tk8000000).No target is set for
poverty alleviation. The highest disbursement is made in crops sector
(Tk8983000). The highest achievement rate is found in the live stock sector
(133.68%) and the lowest achievement rare is found at agro-based industries
(0%).

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The loan disbursement position of Godagari branch, RAKUB

during the year 2005-2006 is shown below through bar chart;
Figure: Sector wise loan disbursement of 2005-2006

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B) Loan disbursement of 2006-2007

1. Crops
2. Fishery
3. Live stock
6. Continuous
7. Cattle
8. Poverty Alleviation
9. Others
The loan disbursement position for the financial year of 2005-2006
is shown in next table;

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2006-2007
Items
Loan
Total loan
Achievement
disbursement
achievement
rate
175.89
3.5
79.95%
70.00%
0.00%
0.00%
2.74
1.82
7.86
38.14
91.13%
18.2%
60.46%
63.56%
300.00
229.95
76.65%
Crops
Fishery
Live stock
target
220.00
5.00
4.00
5.00
farm machinery
Cattle
Continuous loan
Poverty Alleviation
Others
3.00
10.00
13.00
6.00
Total

agro-based industries. The highest disbursement is made in crops sector
(Tk17589000). The highest achievement rate is found in the cattle sector
(91.13%) and the lowest achievement rare is found at live stock Irrigation
equipment and farm machinery (0%).
The loan disbursement position of Godagari branch, RAKUB
during the year 2006-2007 is shown below through bar chart;

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C) Loan disbursement of 2007-2008

1. Crops
2. Fishery
3. Live stock
6. Cattle
8. Others
The loan disbursement position for the financial year of 2007-2008

is shown in next table;

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2007-2008
Items
Loan
Total loan
Achievement
disbursement
achievement
rate
154.55
15.00
-
81.34%
75%
0%
0%
22.70
1.22
30.50
81.69
90.8%
30.50%
98.37%
90.76%
Crops
Fishery
Live stock
farm machinery
Cattle
Continuous loan
Poverty alleviation
Others
Total
target
190.00
20.00
2.00
25.00
4.00
31.00
90.00
362.00
305.66
84.43%

Irrigation equipment and farm machinery. The highest disbursement is made
in crops sector (Tk.15455000). The highest achievement rate is found in the
Poverty alleviation (98.38%) and the lowest achievement rare is found at
Live stock and irrigation equipment and farm machinery (0%).
The loan disbursement position of Godagari branch, RAKUB during
the year 2007-2008 is shown below through bar chart;
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D) Loan disbursement of 2008-2009

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year the following eight sectors were given preference in disbursing loan;
1. Crops
2. Fishery
3. Live stock
6. Continuous
7. Cattle
9. Others

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2008-2009
Items
Loan
Total loan
Achievement
disbursement
achievement
rate
Crops
Fishery
Live stock
target
202.00
40.00
02.00
-
175.89
35.00
-
87.07%
87.5%
0%
-
farm machinery
Cattle
Continuous loan
Poverty alleviation
14.00
2.00
10.00
13.05
7.86
93.21%
0%
78.6%
Others
Total
80.00
350.00
66.40
298.20
83%
85.2%

disbursement target was in crops sector (Tk.20200000).No target is set for
Irrigation equipment. The highest achievement rate is found in the Cattle
sector (93.21%) and the lowest achievement rare is found at continuous loan
(0%).

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E) Loan disbursement of 2009-2010

year the following eight sectors were given preference in disbursing loan;
1. Crops
2. Fishery
3. Live stock
6. Continuous
7. Cattle
9. Others

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2009-2010
Items
Loan
Total loan
Achievement
disbursement
achievement
rate
Crops
Fishery
Live stock
target
150.00
50.00
10.00
10.00
142.50
40.65
17.00
9.00
95%
80%
170%
90%
farm machinery
Cattle
Continuous loan
Poverty alleviation
8.00
12.00
1.00
14.80
12.5%
123.33%
Others
Total
60.00
300.00
55.84
280.14
93.06%
93.38%

disbursement target was in crops sector (Tk.15000000).No target is set for
Cattle. The highest disbursement is made in crops sector (Tk.14250000).
The highest achievement rate is found in the live stock sector (170.00%) and
the lowest achievement rare is found at continuous loan (12.5%).

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Chapter- Six
Loan recovery

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LOAN RECOVERY
6.1 Introduction
Loan disbursement and recovery are the main functions of a bank or
any financial institution. Through these activities bank earns its profit by
charging interest on credit. Banks or any other financial institution disburse
loan among its loanee and recover it from the loanee after its maturity, the
process of regaining loaned amount is termed as loan recovery. Like others
Godagari branch, RAKUB also provides loan and recover it.
Godagari branch, RAKUB identify loan into two categories
which are;
a) Unclassified loan
b) Classified loan
a) Unclassified loan: When half or more than half of the total loan is repaid
within the due dates by the borrower then that is called unclassified loan.
b) Classified loan: When more than half of the total loan or total is unpaid /
due over the due date then that loan is called classified loan. Classified loans
are differentiated into sub standard, doubtful and bad loans.

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The criteria of these classifications of classified loans are as follows:

1. For Short Term Loan
Short term loan are classified by RAKUB, Godagari branch in
three categoriesi) Crop Loan and Micro Credit
Age over 12 months from due date is irregular.
Age over 13-36 months from due date is substandard
Age over 36-60 months from due date is doubtful
Age over 60 months from due date is bad.
ii) Cash Credit and Working Capital
Above 6 months but less than 9 months is substandard
Above 9 mouths but less than 12 months is doubtful
Above 12 mouths is bad
iii) Demand Loan
Above 6 months but less than 9 months is substandard
Above 9 months but less than 12 months- doubtful
Above 12 months is bad.
2. Medium Loan (Up to 5 years):
From 0 months but less than 6 months is substandard
From 6 months but less than 12 months is doubtful
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From 12 months but less than 18 months is bad
3. Long Term Loan (Above 5 years)

From 0 months but less than 12 months is substandard
From 12 months but less than 18 mounts is doubtful
From 18 months but less than 24 months is bad
6.2 Procedure of loan recovery

The main responsibility of bank manager and loan officer is to recover
the outstanding loan. Godagari branch, RAKUB uses the following two
procedures with a view to recovering loan;
a) Usual procedure.
b) Legal procedure.
a)
Usual Procedure: The usual loan recovery procedure is divided into

several steps. They are as follows:
1.
Issue of Demand Notice: Demand notice is issued to the borrower

before one month being due of outstanding loan or installment.
2.
Legal Notice: If the borrower does not repay their respective loan and
interest after maturity, being received the demand notice registered
with acknowledgement by post to the borrower, then the bank should
send legal notice to him.

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3.
Special Notice: Beside the above two notice a special notice with the
signature of DC, UNO is sent to the respective borrower to keep
mental pressure on him for repaying the loan.
4.
Field Recovery: Loan officer recover the loan through I.O. receipt by
visiting the spot and source of the borrower.
5.
Personal Communication: If the borrower fails to repay his loan

installment, the loan officer communicates with the respected persons
of that area to give mental pressure to the borrower so that he repays
his respective loan.
6.
Loan Recovery Camp: RAKUB, Godagari branch made camp in

various areas for the recovery of loan. In this case, the manager and
other officers were present in the camp and communicate with
borrowers. They pursue them morally and tried to encourage them to
repay their loan.
7.
Loan recovery with the help of interest exemption: The loan amount
which becomes more than double of principle amount and which is
not possible to recover with the help of legal action, then those loan
can be recovered by exempting interest. By this way bad loan can be
recovered.
b) Legal Procedure: When usual procedure for recovering loan becomes

failed, then a case is filed against the borrower. The case is generally
filed for the following causes;
i.
Unwilling to repay loan although he is financially solvent.
ii.
Every effort of loan recovery becomes failure.

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6.3 Causes of defaulter

When a loanee fails to pay loan within the maturity time, he will be a
defaulter. He may fail to pay loan in due time for various reasons. The
causes are given below:
i)
Natural calamity destroy the crops, for this reason the loanee
unable to pay loan in due time.
ii)
RAKUB, Godagari branch cannot take proper step against the

loanee for influential persons.
iii)
The loanee does not use the loan in proper way.
iv)
Lack of proper supervision.
6.4 Causes of low recovery

RAKUB is the largest partner of agricultural development in
Rajshahi division. But the bank incurred losses every year because of low
recovery of loan. The causes of low recovery are given below:
i)
Negative attitudes of the local elites to repay Loan: In most of the

cases, the influential persons due to their political and social power
are not interested to repay the loan. Because of their political
influence, credit officers cannot take any effective measure for loan
recovery from them. Sometimes, loan received by them for a specific
purpose is also diverted to other purposes.
ii)
Damage of crops due to flood: Sometimes, the farmers have some

valid reasons for non-repayment of loan in spites of their willingness
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of repayment of loan. In the case of crops, they failed due to natural

disaster like flood, drought etc. It makes really difficult for the farmers
to repay loan in time.
iii)
Unproductive use of loan: The time involved in processing loan is

such that the farmers usually receive credit at the end of the specific
crop season even after harvesting of the crop. For that matter, credit
does not help in increasing production rather it is actually spend for
non-farm activities.
iv)
Shortage of credit personnel: The branch has shortage of manpower

to evaluate credit worthiness of the borrowers, identification of real
borrowers, and supervision and recovery of loan.
v)
Lack of legal action by the banks against defaulters: Neither the

bank manager nor the supervisor has any authority and power to take
effective measures or administrative action against defaulters. For that
reason, the defaulters do not care the requests of loan repayment.
Moreover, legal action against defaulters has rarely been taken.
vi)
Corruption of the bank employees: In some cases, the bank officers

take bribe from the defaulters and avoid responsibilities of realization
of loan from the borrowers.
vii)
Inability of the farmers to repay loan: Farmers need credit not only
for agricultural production but also for consumption for their survival,
particularly for the marginal farmers. This sometimes compels them to
divert agricultural credit to consumption and other unproductive
purposes which ultimately lead to the low repayment.

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viii) Benami loan received particularly by U.P. Chairman/Member:

Sometimes the rural influential, particularly Union Parishad Chairman
and Members receive Benami loan. It happens particularly due to
shortage of credit personnel who have to disburse credit in a short
notice and do not have enough time to identify genuine borrowers.
ix)
Accessibility to alternative credit institutions: There are a number

of credit institutions which are working independently. So nonrepayment of loan to one institution does not affect in receiving loan
from another institution.
x)
Evaluation of bankers efficiency: Performance of bank personnel is

judged on the basis of the amount of deposit, not on the amount of
loan recovered. Further, there is practically no incentive for them to
increase recovery.
xi)
Inadequate training facilities for credit officers and their

qualifications: The persons involved in agricultural credit operations
in rural bank branches have poor educational background with
inadequate training. Banking training program has no such activities
which lead to high recovery of loan.

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6.5 Loan recovery scenario of Godagari branch, RAKUB

The last five years loan recovery position of Godagari branch,
RAKUB is shown below through table;
Financial year
Loan recovery
Total loan recovery
Achievement
target
achievement
rate
2005-06
538.17
240.30
44.65%
2006-07
620.00
294.46
47.49%
2007-08
1100.00
689.25
62.65%
2008-09
800.00
467.97
58.49%
2009-10
920.00
562.23
61.11%

Comment: It is evident from the above table that loan recovery target is
increased gradually from 2005-2006 to 2008-2009 and loan recovery
achievement is increased up to 2007-2008 but it fall in 2008-2009 later on it
increased in 2009-2010. The achievement rate is increased up to 2007-2008
later on in decreasing trend up to 2008-2009 and at last increased once
again. The highest recovery rate is found in 2007-2008 (62.65%) and the
lowest recovery is found in 2005-2006 (44.65%).
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The loan recovery position of Godagari branch,

RAKUB from2005-2006 to 2009-2010 is shown below with bar chart;
Figure: Bar chart presentation of last five years loan recovery

A) Loan recovery of 2005-2006
RAKUB, Godagari branch projected a recovery target of
Tk.53817000 for the financial year 2005-2006. During the year actual loan
recovery was Tk.24030000 which was 44.65% of target.
The sector wise recovery is shown below through table;
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Items
Achievement
Percentage of total
achievement
Crops
115.96
48.26%
Fishery
48.00
20%
Live stock
65.57
27.29%
Irrigation
3.21
1.34%
Continuous loan
1.03
0.43%
Others
54.05
22.49%
Total
240.30
100%
Cattle

Comment: From the evident from the above table that the highest
achievement is in crops sector (Tk.11596000) which is 48.25% of total
achievement and the lowest achievement is in continuous loan (Tk103000)
which is .42% of total achievement. Others include irrigation equipment and
farm machinery, agro-based industries etc. whose exact amount was not
available.

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The pie diagram presentation of loan recovery of 2005-2006 is

shown below;
Figure: Pie diagram presentation of recovery achievement

B) Loan recovery of 2006-2007
recovery was Tk.29446000 which was 47.49%% of target.

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Items
Achievement
Percentage of total
achievement
Crops
175.66
59.65%
2.59
.88%
1.69%
Irrigation
equipment
and farm machinery
Continuous loan
.70
.24%
1.69%
Cattle
5.40
1.84%
Poverty alleviation
.97
.33%
Others
99.14
33.68%
Total
294.46
100%
Fishery
Live stock

achievement and the lowest achievement is in Irrigation equipment and farm
machinery (Tk.183000) which is .24% of total achievement.

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shown below;
C) Loan recovery of 2007-2008

recovery was Tk.68925000 which was 62.65%% of target.

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Items
Achievement
Percentage of total
achievement
Crops
278.79
40.45%
Fishery
16.02
2.32%
Live stock
75.86
11%
Irrigation
equipment
and farm machinery
Continuous loan
1.27
.18%
2.00
.29%
Poverty alleviation
11.06
1.60
Cattle
31.06
4.50
Others
255.19
37.02%
Total
689.25
100%

machinery (Tk.127000) which is 19% of total achievement. There was no
achievement in agro-based industries.
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shown below;

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D) Loan recovery of 2008-2009

recovery was Tk46797000 which was 58.49%% of target.
Items
Achievement
Percentage of total
achievement
Crops
230.12
49.17%
Fishery
4.82
1.02%
Live stock
65.57
14%
Irrigation
equipment
and farm machinery
Cattle
5.00
1.04%
4.30
.92%
Continuous loan
1.00
.21%
Poverty alleviation
4.57
.98%
Others
152.59
32.60%
Total
467.97
100%

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achievement and the lowest achievement is in Continuous loan (Tk.100000)
which is .21% of total achievement.
shown below;

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E) Loan recovery of 2009-2010

RAKUB, Godagari branch projected a recovery
target of Tk.92000000 for the financial year 2009-2010. During the year
actual loan recovery was Tk.56223000 which was 61.11%% of target.
Items
Achiev
ement
Percentage of total
achievement
Crops
168.30
29.93%
Fishery
6.83
1.21%
Live stock
85.00
15.12%
Irrigation
equipment
and farm machinery
Cattle
.65
.12%
9.61
1.71%
Poverty alleviation
4.61
.82%
Continuous loan
25.00
4.45
Others
262.23
46.84%
Total
562.23
100%

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machinery (Tk.65000) which is .12% of total achievement.
shown below;

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6.6 Classified loan recovery of Godagari branch, RAKUB

The last five years classified loan recovery position of Godagari
branch, RAKUB is shown below through table;
Financial year
Classified loan
recovery target
Total recovery
achievement
Achievement rate
2005-06
340.00
.98
28.82%
2006-07
385.00
103.11
26.78%
2007-08
514.00
236.89
46.08%
2008-09
278.00
101.50
36.51%
2009-10
300.00
126.66
42.22%

Comment: The classified loan recovery target is increased gradually from
2005-2006 to 2007-2008. The highest achievement rate is found in the
financial year 2007-2008 (46.08%) and the lowest achievement rate is found
in the financial year 2005-2006 (28.82%)

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The last five years classified loan achievement is shown below

through bar chart;
Figure: Bar chart presentation of classified loan recovery achievement

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6.7 Unclassified loan recovery of Puthia branch, RAKUB

The last five years unclassified loan recovery position of
Godagari branch, RAKUB is shown below through table;
Financial year
Unclassified loan
recovery target
Total recovery
achievement
Achievement rate
2005-06
302.00
185.00
61.25%
2006-07
300.00
191.35
63.78%
2007-08
900.00
452.36
49.70%
2008-09
620.00
366.47
59.10%
2009-10
800.00
435.57
54.44%

Comment: The highest achievement rate is found in the financial year 20062007 63.78%) and the lowest achievement rate is found in the financial year
2007-2008 (49.70%)

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6.8 Conditions of bad debt of Godagari branch, RAKUB

The last five years position of bad debt of Godagari branch,
RAKUB is shown below through table;
Financial year
Bad debt
2005-06
1715.85
2006-07
1705.20
2007-08
1614.00
2008-09
1689.69
2009-10
1623.72

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Chapter- Seven
Problems
&
Solutions

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PROBLEMS AND SOLUTIONS
7.1 Problems
Rajshahi Krishi Unnayan Bank has been established for
agricultural development as well as to serve the farmer of north-west region
of the country. The bank reached record high loan disbursement and played a
positive role in the financial development of the country. During my
internship program at RAKUB Godagari branch I closely observed all
banking activities of this branch and my study is concentrated on loan
management.
RAKUB, Godagari branch playing a vital role in agricultural
development to the surrounding area of Godagari of Rajshahi. In my days of
internship I have observed some drawbacks which are creating trouble in
achieving its objectives, those are mentioned below;
1. Shortage of efficient credit personnel.

2. Inadequate training facilities for credit personnel.
3. The lengthy loan disbursement process creates drawback in
getting loan in time.
4. Lack of proper planning and efficient fund management.
5. Loan is not paid through proper assessment.
6. Insufficient fund of the bank creates problem in loan
disbursement.
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7. Lack of proper security against loan.

8. Sector wise loan disbursement scenario is much fluctuated.
9. The loan recovery position is hindered due to natural
calamities.
10. Lack of proper supervision and monitoring.
11.The political and frequent government interference in the
operation of agricultural credit policy is one of the main
causes of poor recovery of agricultural loans.
12.In the institutional credit delivery system credit is provided
for crop production but do not meet the credit requirement for
other purposes for which the farmers have to go to the money
lenders to borrow at exorbitant rate of interest. Since, the
money lenders rate is high so they repay the debt of money
lenders first and delay the repayment of institutional credit.
13. The farmers do not get a fair and reasonable price for their
production. The term of trade between agricultural and
manufactured goods always goes against the agriculturist,
particularly the price of the agricultural commodities remain
very low during harvest season. So its difficult for farmers to
repay loan from incremental income.
14. The agricultural credit institutions disburse credit to the
farmer mainly against the security of their land. But in the
real sense of the term land can not be used as appropriate
security as it is not possible to realize the loans and interest
from land which is not easily saleable.
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15. Major share of the institutional credit is taken by the wealthy

influential rural elites by exercising their social and political
power and influences.
16. Sometimes the dishonesty of officer leads to inappropriate
lending.
17.The notice is not issued to the borrower in just time, for that
reason, recovery is hampered.
18.All the truncations are recorded manually, so information is
not organized which creates problem in decision making.
19.Fund diversion i.e. taking loan for one purpose and using it in
another purpose.
7.2 Solutions
Based on the findings of the study, the following
recommendations are feasible;
1. The rural financing activity of RAKUB by increasing credit
deployment needs to be increased.
2. Diversified sectors are to be identified and financed.
3. Where the short term loans constituted most of the loan
portfolio, the medium and long term loans should be
provided more and more for true rural development.
4. Since crop and draft animal sectors both constituted twothirds of the total loan portfolio, emphasis should be given
to other sectors equally in financing.
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5. In disbursing loan, the economic position of the borrower

should be kept in view.
6. Proper supervision of end use verification should be
properly adopted to protect and reduce diversion of loans
resulting in improved recovery position.
7. Borrower should be provided with small sized loans for
better results.
8. Educated borrower should be preferred in loan sanctioning.
9. In providing loan, land mortgaged security should be
preferred for best results.
10.Timely and direct delivery of loan to the borrower must be
ensured for better result.
11.Adequate amount of loan to the borrower should be
provided to minimize diversion although it does not
necessarily effect good repayment.
12.Small sized loans should be disbursed to the small
landholders obviously in time and directly for best result.
13.Short-term credit should be provided to the borrowers
having small sized land holdings.
14.The loan should be secured with proper security. The
recovery was better when the loans were provided through
mortgaging of land. So, it may be implemented legitimately.
15.Larger sized loans were good performer in respect of less
diversion and good repayment. So they should be preferred
in loan disbursement.
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16.Smaller sized loans are not being provided adequately for

which these should be considered accordingly.
17.Monitoring and supervision of agricultural loans means the
mechanism or process through which RAKUB can ensure
the disbursement of credit to the genuine borrowers,
productive utilization of credit and thus raising the
economic condition of the borrowers so as to enable the
borrowers for timely repayment of the loans.
18.The bank branch must take responsibility for its loans. It
needs to develop systematic and continuing relationship
with its loanees.
19.Instead of making interest remission by the govt. frequently
it is more advisable to fix up realistic interest rate for
agricultural lending making provision for differential lower
interest rate structure for small, marginal and share-croppers
for improving the loan recovery position.
20. It is a common phenomenon that the losses from natural
calamities are a problem. It is, therefore, suggested that
compulsory crop insurance program may be introduced to
cover risk.
21.The procedures for using the legal system to collect overdue
loans are not working in an acceptable way. In order to
expedite disposal of certificate cases for loan recovery the
number of certificate officers should be increased at the
upazila level and should be provided with logistic support.
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22.In addition to legal steps taken against defaulter, recovery of

agricultural loan can be enhanced by staff incentives for
better loan recovery.
23.Training program for credit personnel is required to arrange
which will lead to better result.
24. In this competitive market banks need to computerize for
better information processing.
7.3 Conclusion
Rajshahi Krishi Unnayan Bank should look forward. They
have to change and reform in keeping with the current and emerging
requirement. They will do well to take lesson from the best practices of
micro credit operation, and customize these for their credit operation in line
with international best practices. They should make good loans and explore
new avenues for investment. Small loans have vast potential in this regard.
Lessons from micro credit institutions strongly indicate that RAKUB need to
reform their lending strategy, increase small loan portfolio, utilize the
potential of credit officers, establish accountability for loan recovery and
enforce compliance.
This branch has yet produces any better performance in recovering
those loans given to borrowers. The major cause behind this low recovery is
poor implementation of credit policy of the bank. RAKUB as well as the
Puthia branch should take effective measures as recommended in disbursing
and recovering loans which will lead to earn profit and help in smooth
survival in the coming days.
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Appendix

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REFERENCES
1. Chowdhury, L R. A Text book on bankers advances, (2nd ed.-2002),

Dhaka: Fair corporation.
2. Chowdhury, Omar, (2003) Banks non performing loans- some lessions
for bank lending. Journal of institute of bankers, Bangladesh Vol- 50, No-2
Dec-2003, Pp- 183-193.
3. Khan, Dr. A R, Bank Management; A fund emphasis, (1st ed.-2008),
Dhaka: Ruby Publications.
4. Khan, Dr Majibur Rahman, (1989) Agricultural credit in Bangladesh:
some issues and considerations in policy planning. Krishi Bank
Paraikrama, Vol.-9 & 10, June- Dec.-1989, pp-70-84.
5. Raquib, Abdur, Agricultural loan recovery problem in Bangladesh.
Krishi Bank Paraikrama, Vol-11, Jan-June-1990, pp-2-26.
6. Roy, Provash Chandra, (2004)A study of credit need and credit allocation
to farmers: Role of RAKUB. Journal of institute of bankers, Bangladesh,
Vol-51, No-1, June-2004, pp-29-57
7. Rajshahi Krishi Unnayan Bank, Annual report (2004-2006)

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8. Rajshahi Krishi Unnayan Bank, Godagari branch, Statement of affairs

(2005-2009).
9. Saha, J C, (1985) Recovery rate of agricultural loans: some thoughts.
Krishi Bank Praikarma Vol-1, Dec-1985, pp-52-58.
10. RAKUBs web site: http:// www.rakub.org.bd

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Questionnaire
Questions about the bank
1. What are the historical backgrounds of RAKUB?
2. What is the vision of the bank?
3. What is the mission of the bank?
4. What are the main objectives of the bank?
5. How many branches are under RAKUB?
6. What the amount is of authorized, paid up and reserve capital of
RAKUB?
7. What is the organizational hierarchy of the bank?
8. What is the main function of the bank?
9. How many employees are involved with RAKUB?
10.How many zonal and regional offices are there in RAKUB?
11.What is the accounting period of the bank?
Questions about the branch and its functions

12. When has the branch been established?
13. What is the organizational structure of this branch?
14. How many employees are of your branch?
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15.How many unions and villages are under your branch?

16.What are the different accounts do your bank offer?
17.What are the different rates of interest of different account?
18.What is the minimum deposit of different accounts?
19.What is the procedure to open an account?
20.Who can open account?
21.Who can be nominee?
22.Under what circumstances will you close the account of customers?
23.How will you deal with those accounts when they do not make any
transactions for a long time?
24.What is your web and contact address?
Questions about loan management
25.What is the loan management system of the bank?

26.Is there any section to manage loan?
27.How many people are working under the section?
28.How do you collect credit information?
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Questions about loan disbursement

29.What is your credit policy?
30.What are the main purposes to provide loan?
31.What type credit do you offer?
32.What are the different rates of interest?
33.What are the different terms and conditions of loan?
34.What are the sources of loan able fund?
35.What process do you follow to sanction loan?
36.Do you follow 5c criteria?
37.How do you deal with liquidity and profitability problem?
38.What documents do you judge in sanctioning loan?
39.What are the precautionary measures taken by the bank?
40.How do you monitor the activities of borrowers?
41.What types of securities are accepted by the bank?
42.How do you judge them?

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43.What type of person can be grantor?

44.How do you deal with liquidity crisis?
45.What are the major heads of loan disbursement?
46.What are the subheads of loan disbursement?
47.What micro credit program do you have?
48.What are the programs under poverty alleviation?
49.How do you evaluate feasibility before sanctioning loan?
50.Is loan disbursement higher or lower than target, why?
51.How do you fix up installment?
52.State last five years different sectors disbursement.
Questions about loan recovery

53. What is your recovery system?
54. What are the major problems of loan recovery?

55. How do you classify loan?
56. How do you deal with classified loan?
57. What steps do you take when loan is not paid in time?
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58. When do you go for legal action?

59. Do you take any step towards moral persuasion?
60. What are the main causes of default of loan?
61 Why loan recovery position is low?
62 Which sectors have the highest recovery?
63. What incentives do you provide for early payment of loan?
64. When do you sell security to recover loan?
65. State last five years different sectors recovery position.

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Chapter- One

Department of Accounting and

January and continue up to

March 2010. After

joining the branch, I was first introduced with

Later on, he introduces me with other

experiences of bank activities enrich my knowledge through getting real

1.2 Objectives of the study

period 2005-06 to 2009-10.

4. To assess the loan recovery position of RAKUB Godagari branch

Department of Accounting and

6. To know the security evaluation system before providing loan to the

1.3 Scope of the study

1.4 Methodology of the study

quantitative information are collected through different media. Basically

Godagari branch of RAKUB and observed the different activities

2. Secondary sources: When an investigator uses the data which has

already been collected by others, such sources or data are called

f. Rules and regulations provided by agricultural credit department of

1.5 The significance of the study

Department of Accounting and

1.6 Limitations of data collection

8. To prepare report minimum four to five years information is

Department of Accounting and

Department of Accounting and

2.2 Historical Background of RAKUB

money lenders at high interest which is totally unreasonable. To save the

2.3 Objectives of RAKUB

2.4 Functions of RAKUB

The board is vested with the responsibility of formulation

2.6 Capital and its sources

: Tk. 7500 million

: Tk. 5700 million

: Tk. 208.49 million

2.7 Organizational structure

for conducting regular audit in branches as well as in regional and zonal

Department of Accounting and

General Service Dept.

Loan Recovery Dept-1.

Budget& Cost Control

Loan & Advance

Loan & Advance

Department of Accounting and

2.8 Organizational set up

Human resource Department

2.9 Branch Network

Department of Accounting and

Table-1: Region wise total branches (Up to 30 June, 2009)

Department of Accounting and

Source: Personnel department of RAKUB

2.10 Employee Summery

1.Managing Director (MD)

2.Deputy Managing Director (DMD) 01

3.General Manager (GM)

4. Deputy General Manager(DGM)

5.Assistant General Manager(AGM) 66

6.Senior Principal officer(SPO)

Source: Personnel department of RAKUB

2.11 Training Institute

annual training program designed on such subjects of professional interest as

2.12 0ffice automation

2.13 Audit and Inspection

2.14 Special credit programs