Credit Sanctioning Procedures/Investigation and Disbursement ?
Credit Sanctioning Procedures/ Investigation and Disbursement ?
Loan Sanction Activities:
ASSESSMENT OF CREDIT NEEDS OF A LOAN APPLICANT :
The requirement of the funds shall be assessed keeping in view loan/limit applied by the borrower-applicant and actual business need computed on the basis of prevalent policy of the Bank for assessing credit requirement subject however to the prevalent Loan Policy document of the Bank. Select potential enterprise: For loan, in this step the CRO conduct a survey and identify potential enterprise. Then they communicate with entrepreneurs and discuss the loan program.
Loan Presentation: The function of CRO is to prepare loan presentation based on the information collected and provided by the entrepreneur about their business, land property (Where mortgage is necessary).
Collect confidential information: Another important function of a CRO is to collect confidential information about the client from various sources. The sources of information are suppliers regarding the client’s payment, customers regarding the delivery of goods of services according to order, various banks where the client has account which shows the banks transactions nature of the client.
Open client’s accounts in the respective bank: When the CRO decided to provide loan to the client then he/she help the client to open a bank account with any Branch of XYZ Bank a CD/ STD.A/c. On the other hand the client will repay by this account. Although there is some exception occur by the special permission of the authority to repay by a different bank account.
COLLECTION CIB REPORT:
Fill up CIB form: CRO gives a CIB form to the client and the client fill and sign in it. In some case if the client is illiterate then the CRO fill the form on behalf of the client. Then CRO send the filled and signed form to the SME, head office.
Sending CIB to Bangladesh Bank: The SME, head office collects all information and sends the CIB form to Bangladesh Bank for clearance. Bangladesh Bank return this CIB form within 10-12 days with reference no.
CIB report from Bangladesh Bank: In the CIB report Bangladesh Bank uses any of the following reference no:
- NIL: if the client has no loan facility in any bank or any financial institution then BB (Bangladesh Bank) use ‘NIL’ in the report
- UC (Unclassified): if the client has any loan facility in any bank or financial institution and if the installment due 0 to 1.99 (months) then BB use UC in the report.
SMA (Special Mentioned A/C): if the client has any loan facility in any bank or financial institution and if the installment due 2 to 2.99 (months) then BB use SMA in the report.
- SS (Substandard): if the client has any loan facility in any bank or financial institution and if the installment due 3 to 5.99 then BB use SS in the report
- DF (Doubtful): if the client has any loan facility in any bank or financial institution and if the installment due 6 to 8.99 then BB use DF in the report
- BL (Bad lose): if the client has any loan facility in any bank or financial institution and if the installments due for more than 9 or above months then BB use BL in the report. This report indicates that the client is defaulter and the bank should not provide loan the client.
CIB Obtaining Process:
CIB is a regulatory requirement for Loan Documentation. Credit Information Bureau (CIB) of Bangladesh bank has a central database for all the lenders of Bangladesh. It contains the total credit history of a client and act as the most dependable source to analyze the credit worthiness of a prospective client. Obtaining the CIB clearance is a precondition of fund disbursement and all type of Retail, SME and corporate loan require CIB report before disbursement. For some retail unsecured assets, BBL obtains post-facto CIB clearance. However, in most cases AOD obtains the CIB for a client before disbursement of fund.
To obtain a CIB report, AOD fills up the following Bangladesh bank prescribed forms for each loan application:
Inquiry Form: CIB – 1A: For each individual/ institution
Inquiry Form: CIB – 2A: Owner information if borrower is institution
Inquiry Form: CIB – 3A: Group/ related business information of borrower
CIB Undertaking form “KA”: For each individual/proprietor/director/partner
These forms are filled up by the Branch/ business units and sent to the CIB UNIT, Head Office. CIB Unit maintains a central database for all the CIB inquiry forms. Each form is registered under a Head Office serial number and a Branch/ Unit office serial number.
After receiving the reports from getting CIB report from BB through On-Line CIB Unit sent hard/soft copy to the Branch. Branch keeps in the Loan File. For any mistakes made in the forms, writing wrong spelling, incomplete name of individuals or institutions, CIB report may show error as mismatch exists there. Those CIB inquiry forms require to be sent again correcting the facts. CIB reports are usually updated Monthly.
Therefore most updated CIB reports are required to be obtained and CIB report is also require for the same client for repeat loan. All forms need to be supported by the Applicant’s Undertaking and all the forms are signed by designated officers of the business Branch/ division:
- Relationship manager for Corporate Application
• Sales Manager for Retail Application.
Loan Applications in the prescribed format shall be received at Credit Approval unit and recommended that covers comprehensive LPF information detailed in the Prudential Guideline advised by Bangladesh Bank.
Branches/ SME Units send proposal to Credit Approval Unit. They should be familiar with the bank’s Credit Policy and PPG and should conduct due diligence on new borrowers, purpose of the loans and guarantors. During recommending for a client it is expected that the respective Officer has adhered to Know Your Customer (KYC) and Money Laundering guidelines.
Credit Approval Sheet should have, as a minimum, the following details:
- Amount and type of loan(s) proposed.
- Purpose of loan(s)
- Loan Structure (Tenor, Covenants, Repayment Schedule, Interest)
- Security (if any)
The following diagram shows the flow chart of the loan disbursement procedure.
Client Loan Application > Risk Assessment Unit Recommendation > Credit Approval > Asset Operation, Docs checking, loan disbursement & Custodian of securities
Approvals must be evidenced in writing, or by electronic signature. Approval records must be kept on file with the Credit Applications. Loans and advances on becoming inoperative / stuck up should not be renewed and / or re-scheduled without getting prior approval from the Credit Committee.
In case of loan take over from any bank/financial institution, then any correspondence should be made with the bank/financial institution directly, such as security takeover.
Lending Authority is delegated to officers related with approval individually by the Board of Director in writing. Records of such authority are retained with Head of Credit. Copies of all Delegation of Lending Authorities are also retained by Loan Administrations Department. Any breaches from Lending Authority should be reported to the Managing Director, Head of Credit and Head of Risk Management.
The executives charged with approving loans shall have relevant training and experience to carry out their responsibilities effectively. As a minimum, approving executives should have 5 years experience working in Branch / Sales team as a relationship manager or account executive. However experience can be compromised to some extent if it is sufficiently compensated by the following
• Training and experience in financial statement, cash flow and risk analysis.
- A good working knowledge of Accounting.
- A good understanding of the local market.
All letters addressed to the borrowers sanctioning credit facilities should be prepared in duplicate and signed by two authorized officers of the Bank. Among the two authorized Officer one must be a Manager of the Credit Team. If the terms and conditions of loan sanction letter are acceptable to him the borrower should return the duplicate copy duly signed.
Client’s information & Loan details is matched with the Credit approval then loan is sanctioned & a Loan Sanction Number is auto generated.
Loan Account Opening and Activation:
Branches open Account with Limit and put DP after getting all documents from the borrower and found correct as per sanction Advice.
Pre Disbursement Activities:
Prepare loan file: Receiving all documents, Loan Branch prepares a loan file with all documents received from the borrower.
Charge documents checking: Branch checks all charge documents as per check list supplied by CRMD.
Following charge documents are checked:
-Money receipt (Risk fund)
-Sanction letter accepted by the borrower.
-Demand promising note (With stamp of Tk 50/=)
-Letter of arrangement (No stamp required)
-General loan agreement (With stamp of Tk 300/=)
-Letter of undertaken (With stamp of Tk 300/=
-Letter of stocks and goods (With stamp of Tk 300/=)
-Letter of hypothecation book debt and receivable (With stamp of Tk 300/=)
-Letter of disbursement
-Photocopy of trade license (attested by CRO)
-Insurance (Original copy)
-Blank cheque with signature (one cheque for full amount and others same as no of installment on Favor of
Jamuna Bank, no date, no amount)
-Two guarantors (one must be Spouse/parents)
-If the loan provide for purchase of fixed assets or machineries and if the loan amount is over Tk 50,000/=
Then the stamp of a certain amount is require)
Mortgage formalities should be completed if the Loan sanctioned against any Real Estate property.
After checking all documents as per sanction Advice, Brach submits the checklist duly filled and confirmed the obtainment of documents with signatures of the Authorized officer and Manager. Disbursement Unit of CAD re-checks and if found okay after getting Checklist from the branch, authorizes A/C and DP accordingly.
Documents deficiency and problem resolving:
If there is any error found in the sanction Letter then it informed to the respective CRMD. If any exception(s) of sanction terms in respect of documents, security/covenants /conditions, branch seeks deferral for certain period. Accordingly CAD may take approval from the Management to allow DP or issue DA.
In case of the loan files where registered mortgage is a requirement, Branch checks the following land documentation confirms the same to CAD through Check List provided by CRMD:
- Original Title deed for the entire mortgaged property.
- Bia Deeds/ Duplicate of Bia Deeds to support the Title Deed.
- Mutation of the Mortgaged Property by the concerned AC Land
- Original Khatians
- Revisional Survey (R.S) – most important one
- Bangladesh Survey (B.S) –if done and issued
- State Acquisition (S.A) & Catetal Survey (C.S) – If there
- Up to Date Duplicate Carbon Receipt for the property after mutation.
- Non Encumbrance Certificate issued by the Sub-Registrar’s Office for the past 12 years.
- Up to date Rental Receipt for the property.
- Mortgage deed between AB Bank Limited and the enterprise.
- Notarized Memorandum of Deposit of Title Deeds.
- Legal Opinion
- Power of Attorney in Favour of Dhaka Bank Ltd
- If the business is situated in land owned by Parents/ Siblings/ Spouse –
- Mortgage given by third party (For Registered Mortgage)
- MDTD sign by all land owner (For Equitable Mortgage)
- PG or NOC (Non objection certificate by third party)
- Ward commissioner’s (warission) certificate in case of clients parent’s death
If any documentation deficiency is found, the concerned CRO, ZO is informed for resolving the deficiency. After checking the required fees submission for Loan Documentation, the application is sent for Insurance Premium Checking.
Checking Risk issues while checking Loan Documentation:
- No Fluid or overwriting should be there
- Missing of seal and sign (Check all Pages)
- Missing of Signature verification by CRO
- Lack of witness CRO and Guarantor
- Missing of any clause of charge documents
- Missing Guarantors sign in Guarantee page
- Mismatch in Client’s Name, Business Name, Addresses and business type
- Incomplete documentation for registered mortgaged property
- Validity of licenses and deeds
- Bank’s name, client’s name, seal, signature and number of undated cheques
Besides, some particular licenses are required for categorized enterprises, like:
- Drug license (Medicine Business)
- BSTI (Food Business)
- Diesel / LP gas / Petrol (Fire license from Directorate of explosives)
- Saw Mill (Permission from District Forest Department).