Meaning of Margin Margin is the difference between the actual amount that can be advanced to the customers (i.e. their drawing power) and the value of security offered by them to the Bank.  

 

Margin dependent on security The fixation of margin depends on the nature and type of security, and the financial stability of the customers, subject to the restrictions imposed by the Bangladesh Bank. In case of goods and produce, sufficient margin should be retained for any possible shortage due to shrinkage, damage by rate, fall in prices and Bank’s interest charges.    

 

Margin on insurance polices Deduct the margin, if any, fixed by the Sanctioning Authority from the surrender value of the Life Insurance Policies before allowing advances (advances against Life Insurance Policies are allowed up to its surrender value only).  

 

Margin against advance on imported goods In case of advance allowed against merchandise imported through bank, deduct the amount of margin fixed by the Head Office from the landed cost of the goods. The particulars should be recorded in stock & D. P. Register.  

 

Margin on locally produced/ purchased to goods For allowing advances against goods in trade, locally purchased, deduct the amount of margin fixed by the Head Office from the invoice value or ex-factory prices. The particulars should be recorded in stock & D. P. Register.  

 

Margin on agricultural produce Valuation of commodities to be pledged/ Hypothecated shall be made as per instruction from Head Office. The particulars should be recorded in stock & D. P. Register.  

 

Margin on immovable property Margin on advance against immovable property (being primary security) shall be determined in terms of Head Office instruction.  

 

DRAWING POWER  

Meaning with example The Drawing power of a borrower in the context of an advance allowed to him against securities pledged of hypothecated by him to the Bank indicates the ceiling, up to which he can overdraw his accounts. Drawing power is always calculated and would represent an amount arrived at after deduct the margin from the value of the securities.  

 

No excess drawing Under no circumstances, advance shall be allowed in excess of the Drawing Power of the customer, calculated in the manner described above.   In case where the Drawing Power of the customers exceeds the limit sanctioned in their favor, advances shall be allowed up to the extent of their sanctioned limit only.  

 

INSURANCE  

Hypothecated/ pledged goods to be insured: Have all the goods hypothecated or pledged to the bank, insured against all risks unless otherwise specified by Head Office. In case where borrower has filed Cover Notes pending submission of Insurance Polices, the Cover Notes must accompany stamped receipts for premiums paid.  

 

Assignment of policy

• Ensure that the policy is taken out either in the name of the bank or it is assigned to the bank. If an Insurance Policy has already been taken out by the borrower, endorsement of the policy in favor of the Bank and insertion of Bank Mortgage Clause must be ensured.
• Where assignment is not taken. Insurance Policies should be taken out in the following manner.
• XYZ BANK LIMITED

Account Messer

 

ii) XYZ BANK LIMITED.— ————— ———Mortgage

Mortgagors (In both the cases Bank Mortgage Clause should be inserted).

• At no stage the goods should be allowed to remain uncovered against insurance risks.

 

 

Renewal of policy:

• If any insurance policy has expired, take immediate steps to get it renewed either through the customer or directly by the Bank.
• In case of direct renewal by the Bank debit the amount of insurance premium to the account of the customer.

 

Risk policy: Risk policies shall be obtained from Insurance Companies, approved by the Bank up to ceiling fixed for each risk.  

 

Insurance of fall value: Goods stored in godowns must always be insured for their full value plus 10% irrespective of the amount of advance.  

 

GODWNS SELECTION AND MAINTENACE  

Selection of godowns

 

Observe great care in the selection of godowns. Structure/ Construction of the godown should be insurable and will protect the interest of the bank.Avoid to have a godown:

• In low-lying areas.
• In the vicinity of a chemical laboratory, firework store or any explosive material.
• In congested localities, narrow lanes and streets.
• The godown should not be damp.
•  
• Godowns should not have too many opening doors, windows and ventilators.

1. Excepting the main gate, make access to the godown impossible by fixing iron grills on other openings.
2. Ensure that the electric fittings of the godown are not defective, which may cause fire or loss to human life.
3. It is essential that the godowns should have a good approach, so that the loading and unloading of the stock is conveniently carried out. It is necessary that the access to the godown should be direct and not through a dwelling house or other godown.
4. Get the godowns regularly fumigated to avoid any possible damaged by white ants or vcrmis etc

 

Record of godowns

1. Keep a record of all godowns, which are place under lien of the Bank in a godown Register. They should be listed in order of localities, allocating a distinctive number to each godown, in the Register.2The poster address of the godown and the name of the owner should also be recorded.

 

Locking devices

1. While storing the goods, thoroughly cheek the bolts of the doors and windows.

1. Keep the main door and other doors and windows closed and locked. The main door may be secured with pad-locks with the name of the Bank engraved on them.

1. Replace the old locks of the godown with the Bank locks.

1. Change the locks of the godown every six-month.

1. The keys of the godown shall be kept in the personal custody of the Branch Manager or the Officcr- in-charge of the Advance Department. The records of movement of key should be recorded in godown key register.

1. Pass on the keys to the godown-keeper when the godown is required to be opened for inward and outward deliveries of the stocks.

1. Never hand over the keys to the borrower for taking deliveries of the stock or otherwise.

1. Do not allow the borrower to enter into the godown unless accompanied by an officer or godown keeper of the Bank.

1. Keep the godown key in the safe overnight duly language sealed in a packet.

 

Storage

1. Before storing the goods, check and examine them thoroughly, as to the quantity, quality, condition, packing and value. As far as possible all godown should be filled in the presence of the godown- keeper who will certify their contents.

1. Store the goods in such a manner that deterioration or pilferage may not occur.

1. Arrange goods in such an orderly way that no hindrance is caused when goods are requested to be checked or delivered.

1. Avoid haphazard piling of stocks. Arrange each and every item in liens and files, one behind the other and in a manner that its checking and counting may not become difficult.

1. In the general godown, managed by the Bank, stack the goods party wise. Place separate stack-card at prominent places for items stored in the godown, showing the name of the borrower, the godown number, date of storage position of receipts and deliveries and the balance in hand.
2. As and when any stocks are received in the godown and/ or taken out of the godown, make necessary entries in the cards, mentioning the date on which operation had taken place. The godown keeper or the officer in charge. Advance Department, shall initiate the entries.

1. Keep stack cards up to date to facilitate checking and counting of goods.

1. Display on a board the name of the Bank inside and outside of every godown.

 

  Stock reports

1. After the goods stored in the godown, obtain stock report in duplicate from the customers, duly signed by them and countersigned by the Godown Keeper, appointed by the Bank.

1. Branch Manager must ensure that the stock reports are prepared correctly with regard to the description of goods, balance in hand, weights and rates of units, there value and the Drawing Power of the parties.

1. The Branch Manager shall ensure that all the stock reports are received regularly from their customer and are filled properly.

 

Delivery of goods

1. Goods shall be delivered to the parties against delivery orders, signed by two officers of the branch, one of who must be Officer in charge. Advance Department.

1. Before signing the delivery orders, the signatures of the customer should invariably be verified on the application form.

1. Similarly after having delivered the stocks, obtained die signature of the persons taking delivery of the goods on the back of the delivery order.

1. While signing the delivery orders, ensure that the customer has made adequate payment to the Bank for the goods delivered to him. Goods are delivered against cash or party cheques duly passed

1. Branches shall not allow:

• Replacement of goods with identical goods.
• Substitution of goods in custody other goods of different nature.

 

Inspection of godown

1. Godowns shall be checked periodically by the Manager or Officer In-charge, Advance Department at the least once a month.

1. The Manager/ Officer checking the godown should sign the stock cards and the godown inspection Report Register on the date of checking, in token of having satisfied that the stocks were physically checked and found in order as regards their quantity and quality.

 

 

RECOVERY OF ADVANCES   

Advances granted in any form arc repayable either on demand or on the expiry of the validity period, or through agreed installments. When repayment is not forth coming in accordance with the repayment terms, recovery efforts should be launched.  

 

When the repayment pattern of the advance is such that continuance of the facility is not worthwhile or while the advance allowed on installments has been defaulted or the advance allowed confronts with the following circumstance advance should be recalled :

• Borrower or the Guarantor dies.
• Borrower or the guarantor has become insolvent.
• Borrowing Company has been Liquidated.
• Partnership has been dissolved.
• Borrower does not come forward to renew the documents much before the expiry of the period of Limitation.
• Turn over in the account has not hopefully improved.
• Value of the security has been deteriorated.
• The borrower docs not comply with the legitimate request of die bank to complete all observable formalities.
• Financial position of the borrower has deteriorated alarmingly which is beyond restoration.
• The party resorts to heavy over trading/ speculation.
• The party commits fraud of any sort.
• Policy of the bank has under gone change in relation to certain types of advances.
• Bangladesh Bank has imposed restriction on certain type of advance and desires its adjustment.

 

For the recovery of the advances, branch should take the under mentioned steps:

• Make formal demand for repayment in writing.
• Put pressure on the borrower by utilizing the most effective and meaningful media, which can exert adequate influence on the borrower.
• Intimate the borrower about bank’s ultimate resorting to file suit in the event of non-repayment.
• Advise the guarantor if any to adjust the advance or have it adjusted by the principal debtor.
• If the borrower and his guarantor (if any) comes forward and proposes repayment arrangement and the same is considered to be an acceptable proposal, the branch should seek controlling / H- 0. decision in this regard and act in accordance with the instruction.

 

When the borrower does not adjust the account, legal notice, under the approval of the controlling Office/ H.O., should be served upon the borrower and the guarantor, through bank’s legal adviser. It should be mentioned in the Notice that if the outstanding is not adjusted within the reasonable specific time (Which shall be mentioned) suit shall be filed for the recovery of the advance.  

 

When advance to be recovered was allowed against pledge of goods, after giving notice in the aforesaid manner, arrangement shall be made to sell the goods through auction subject to the approval of the Competent Authority.  

 

When the charge is by way of hypothecation, the branch may, on the strength of the relative documents, take the stock under own possession and thereafter dispose off the same in the manner described here in above.  

 

While the stocks are to be sold through auction the following should be kept in view:

• Written offers should be invited form al least more than two parties after they have inspected the goods.
• When the goods are divisible only that much of the same should be sold as would be sufficient to adjust the outstanding.
• Proper record of sale transaction should be maintained.

 

When advance allowed against mortgage, either registered or equitable, has to be recovered, in the event of non-repayment by the borrower, legal recourse shall have to be taken to sell the property through court decree.  

 

When the security obtained against the advance, does not cover the outstanding, attempts must be made to secure the advance. If it is not possible and the borrower does not repay, change of recovery must be ascertained and legal action, subject of the approval of the competent authority shall be taken.  

 

If an advance account of the deceased borrower (individual or proprietary concern) remains unadjusted, for the regularization/ recovery the following actions shall be taken:

• No further withdrawal shall be allowed.
• If the borrower’s legal heirs’ approaches for the continuance of the facility, the proposal together with legal opinion shall be referred to the competent authority. In case the authority approves the proposal, the debit balance of the deceased account shall be transferred to a new account in the name of his heirs or successors along with securities held in the account.
• If the desired facility is refused or no application is made by the successors, the securities if any, may have to be sold and guarantee if any be invoked. For the short fall if any, a suit may have to be filed and a decree obtained in order to recover the balance form the inherited assets of the deceased and from their personal assets.

 

 

When a partner of any account dies, leaving outstanding in the account and a claim is desired to be retained against the estate of the deceased or if securities belonging to the deceased partner are held for the firm’s account, in that case-

• The account should be closed and a new account opened (otherwise all sums paid to Credit will release the deceased’s / estate to the extent of the amount of such credits and all debits will form a fresh debt against the new partnership for which the estate of the deceased will not be liable).
• In case where a guarantee is held from a third party the operation in the account should be stopped on the death of a partner and fresh arrangements be made with the firm and with the guarantor.

 

Similar recovery efforts as explained above shall be launched.  

 

In modem Banking constant supervision, follow up, meaningful Liaison etc. with the borrower and guarantor is much efficacious in respect or recovery of advance. When persuasion, request, Notice, goes in vain, legal action as last resort, shall be taken, subject the approval of the competent authority.  

 

LIMITATION  

Limitations refer to a period within which existing rights can be enforced in the court of Law. In other words, limitation prescribes the time Limit within which the creditor shall file suit against the defaulting debtor for the realization of advance made to the latter.  

 

Limitation period cannot be extended through any agreement made by the debtor and Creditor. But the period can be extended by performance of some acts by the parties.  

 

If the borrower executes fresh promissory note or a new bond etc. even after the expiry of the limitation period, the same is extended from the date of execution of fresh documents as per section 25/3 of the contract act 1872. The documents shall however be taken much before the limitation expires because the may not be available to execute the documents immediately after the limitation period expired.  

 

Limitation period can be extended by obtaining acknowledgement of debt by the borrower, subject to the following:

• Acknowledgement shall be in writing.
• It shall be signed by the borrower or by his authorized agent across the requisite revenue stamp.
• It shall be dated and executed before the expiry of the prescribed period of Limitation.
• When the advance has been allowed against guarantee of third person, acknowledgement must also be signed by the guarantor. Acknowledgement of debt by the principal debtor alone does not automatically extend Limitation against the surety. In case the guarantor does not acknowledge debt of the principal debtor, a suit for the recovery of the advance must be instituted within three years from the date for execution of the guarantee.

 

Part payment of debt or interest can also extend the period of Limitation provided:

• Such payment has been authenticated by the borrower or his duly authorized agent under his signature.
• Part payment has been made before the expiry of the prescribed period of limitation.
• Such payment, while made through a remittance is signed by the party.
• Limitation period for filling suit for the recovery of advances are as under.

 

 

Limitation period for filling suit for the recovery of advances are as under.  

 

i.        For recovery of money lent under A.D.P note.	3 years from the date of execution of documentation.
ii.        When D.P notes is / is not accompanied by security by way of pledge or hypothecation.	3 years in either case.
iii.        When a temporary over draft is created in the account of Customer and he does not adjust it.	3 years from the date of overdraft.
iv.        If the amount is recoverable on the basis of a bill of exchange or a promissory note payable at a fixed for payment.	3 years from the date when the bill or promissory note falls due.
v.        In the case of an advance on a bond where no date is fixed for payment.	3 years from the date of execution of bond.
vi.        In case of bill of exchange payable at or after sight but not at a fixed time.	3 years from the date when the bill is presented.
vii.        On a promissory note or bond payable by installments.	3 years from the date of default as to the part then payable and for the other parts, the dates of default of the respective parts of payment.
viii.        In case of an advance under a D.P Note either accompanied or unaccompanied by any security or an  …………..or Bond Payable at fixed time by installments …………….tion of the whole amount falling due at a time in of event of default in the payment of one or installments.	3 years commencing from the date of 1st default in payment of the installments.
ix.        (a) In case of an advance against mortgage of immovable property or otherwise secured by a charge upon immovable property & the money is payable by the mortgagor on demand and no installments provided. (b)     If the mortgage money is payable by installment and the mortgage deed provides that if default is made in payment of one or more installments, the whole amount shall fall due. (c)     In case of an advance against mortgage of property, but where the mortgage wants a personal decree against the mortgagor.	Twelve years from the date of the mortgage deed.         Twelve years from the date of 1st default unless payee or the oblige waives the benefit of the provision.     3 years of the execution of the mortgage deed or the date of default (as the case may be)

 

 

The period of limitation for making various types of application to courts varies from 10 to 90 days except in a few specified cases, e.g., execution of money decree, where application can be filed within 12 years from the date when the decree becomes enforceable. An appeal against an order or decree of a lower court, which will be heard by a High Court, must be preferred within 90 days of order or decree. If any appeal has to be made to any other appellate authority, lower than the High Court, period of limitation is only 30 days. It is always advisable to consult the Bank’s Legal Adviser on such matters.