Chapter- 1

Introduction

1.1 Background of the Report:

Banking is a business, which runs on the confidence and trust of people. The main function of
a bank may broadly be divided into two categories:
1. Borrowing money from the public by accepting deposit
2. Lending the money to public for development of trade, commerce, industry & Agriculture.
So, we may treat the banker as a dealer in money and investment.
As a financial intermediary the major portion of income comes from deposit in (Mudaraba
accounts) that are invested into business ventures by the bank directly or through some other
third party. Any profit earned from these investments is distributed among the Mudaraba
depositors at a predetermined percentage and the bank retains the residual amount as its
profit. Profitability of a bank depends in proper application and allocation of its fund. A lot of
windows are opened to invest its fund. As the sector to be invested its fund bear huge risk and
uncertainty which demand a potential management and guidance of the fund.
If banks have not a sound efficient and strong investment management the bank cannot be
done a good profit and it is going to fall loss of principal then it affects both long- and short-
term goal of a bank.
So considering the gravity of Financing and Risk Management of FSIBL, Bohaddarhat
Branch are discourse this report.

1.2 Objectives of the Report

To know about the investment modes of the First Security Islami Bank Limited with
particular reference to Bohaddarhat Branch, Chittagong.
Following specific objectives are set to attain the main objectives –
i. To examine the major investment modes of First Security Islami Bank Limited.
ii. To evaluate the financing and recovery performance of First Security Islami Bank
Limited.
iii. To find out some problem.
1.3 Scope of the Report
The study is only related in First Security Islami Bank Limited Bohaddarhat Branch,
Chattogram. This report focuses on the overview of management, organizational structure
and Investment Performance Analysis of the bank. I tried to discuss various aspect of
investment department, mainly the various offer of investment department, objective of each
offer, procedure of investment performance analysis etc are discusses. The study tried to give
a detail scenario about investment management of First Security Islami Bank Ltd,
Bohaddarhat Branch. By using recent data.

1.4 Methodology and data Sources of the Report

1.4.a Data Sources
The data needed for conducting the study has been collected from the primary sources as well
as secondary sources. In collecting the necessary data, care has been taken so that all the
variables that in some way can't effect the objectives of the study. The information that I
study is collected by the following way:
Primary data sources:
1. Direct working in sample branch
2. Face to face conversation with the client.
Secondary data sources:
a) Bulletin published by the bank.
b) Course material for 36 foundation training courses
c) Annual report of the bank.
d) Previous research books and journals
e) Different books about banking
f) Teacher’s sheet

The data and information collected were processed and tabulated manually, statistical tools
namely average and percentage and financial tools for analysis, the financial statement e.g.,
ratios were used in the study.
1.5 Rationale of the Report
a. The study carries much importance in view of the fact that profit earning of a bank
depends upon the sound lending policy.
b. The gap has induced me much to undertake the study so I hope that the findings of the
study will be useful for the sample bank, other banker, and young learner to set
knowledge about the topic.

1.6 Limitations of the Report

Although I am working in the sample branch and have got co-operation from relevant
employee of sample branch & they also gave me much time to make this report properly in
the way of my study, I have faced many problems that may be terms as the
limitation/shortcoming of the study.
1. Time limits:
It should be certainly mentioned that the time constraints is that first limitation of the study.
Only three months is not sufficient for gather prefect knowledge on the vast area of the
"Investment Performance Analysis". Because Investment is the main source of income of a
bank.
2. Data Collection:
1. In some cases relevant officer could not be able to supply my topic related data for
preparing a more in depth presentation.
2. Vast area of investment management
3. Due to confidentiality of management, some shortcoming may be available in the
Paper. Because in some cases I could not properly disclosed.
4. Recently not all information available in FSIBL.
5. Don’t give the source information details from that folder. Each bank has its privacy
of data that is not shared with others.

3. Personal Limitations:
My personal limitations also contributed greatly in making the study.
 Chapter- 2
Overview of the FSIBL
2.1 Profile of FSIBL
In the history of Islami Sharia’h based banking system in our country with modern and
progressive guidelines “First Security Islami Bank Limited (FSIBL)”is one of the
pioneers. It is a full-fledged sharia’s compliant bank which follows all the Islamic rules
&regulations. First Security Islami Bank Ltd. Was inaugurated on 25th October,1999.By
considering public demand and justification of the prudent decision of the board &
management of our bank, it was converted to a full-fledged islami bank on 1 st January
2009.“First Security Islami Bank Limited (FSIBL)”is relentlessly working for developing
long-term strategic plan to maintain dynamic growth by realizing the changing habit of all
types of clients and to become the symbol progressiveness of banking arena of our country. It
provides easy access to its broad base of customers thought the country via multi delivery
channels which include branches, Sub-branches, Agent Banking, ATM booths located
nationwide as well as app. FSIBL Cloud based internet banking and mobile financial
services.
With over two decades of glorious history in contributing to the financial community in
Bangladesh with its innovative and entrepreneurial business spirit, “First Security Islami
Bank Limited (FSIBL)”is committed to delivering the best customer experience and
creating long-term shareholders value.
Corporate Vision:
To be the premier financial institution in the country based on “Islamic Shariah” by
providing high quality products and excellence in services backed by latest technology and a
team of highly motivated personnel to deliver excellence in banking service.

Corporate Mission:
a. To contribute to the socio-economic development of the country.
b. dedicated and motivated professionals.
c. To maintain continuous growth of market share by ensuring quality.
d. To ensure ethics and transparency in all levels.
Above all, to contribute effectively to the national economy.

2.2 General Overview of FSIBL

In Bangladesh there are three types of banking service are available. Commercial bank is one
of them. Commercial banks are organized on a joint stock company or private company or
limited company system. Primarily for the purpose of earning of profit. They can be either of
the branches banking types, as we see in most of the countries, with a large network of
branches, or the unit banking type, as we see in the United States, where a bank's operation
are confined to a single office or to a few branches with in a strictly limited area. Although
the commercial banks attract deposit of all kinds- current, savings and fixed their resources
are chiefly drawn from current deposits, which are repayable on demand. So, they attach
much importance to the liquidity of their investments and as such they specialize in satisfying
the short-term credit needs of business other than the long-term.

The two essential functions of commercial banks may best be summarized as the borrowing
and lending of money. Commercial Bank borrows the money as current deposit, saving and
fixed deposit, i.e. they mobilizes the saving of the society. Then they provide this money to
those who are in need of it by granting overdrafts of fixed loans or by discounting bills of
exchange or promissory notes.

2.3 Background of FSIBL

First Security Islami Bank Limited (FSIBL) was incorporated in Bangladesh on 29th August
1999 as a banking company under Companies Act 1994 to carry on banking business. It
obtained permission from Bangladesh Bank on 22th September 1999 to commence its
business. The commercial banking activities of the bank encompass a wide range of services
including accepting deposits, making loans, discounting bills, conducting money transfer and
foreign exchange transactions, and performing other related services such as safe keeping,
collections and issuing guarantees, acceptances and letter of credit. The company philosophy
“A step ahead in time” has been precisely the essence of the legend of Asian success, the
bank has been operating with talented and brilliant personnel, equipment with modern
technology so as to make it most efficient to meet the challenges of 21 stcentury.At first in
1999 the bank incorporated as First Security Islami Bank Ltd. And then in January 01, 2009
the bank changes its name and mode of business and incorporated as First Security Islami
Bank Limited. There are total 202 branches, situated in 52 districts in Bangladesh.
2.4 Management Hierarchy of FSIBL

Managing Director (MD)

Deputy Managing Director (DMD)

Senior Executive Vice President (SEVP)

Executive Vice President (EVP)

Senior Vice President (SVP)

Vice President (VP)

Senior Assistant Vice President (SAVP)

Assistant Vice President (AVP)

Senior Principal Officer (SPO)

Principal Officer (PO)

Senior Officer (SO)

Officer (O)
2.5 Major Functions of FSIBL:

First Security Islami Bank Ltd is an Islamic Shari’ah based Financial Institution. The main
objective of FSIBL is to maximize profit,which in turn will maximize wealth.By serving
various facilities they as possible. The bank offers different types of quality services to its
clients FSIBL performs the following functions, which are given below:

1. Deposit services:
The First Security Islami for its client’s various deposit services. These services
are as follows:

a) Current Deposit (CD)

b) Mudaraba Saving Deposit (MSD)
c) Fixed Deposit Receipt (FDR)
d) Short Term Deposit (STD)
e) Special Deposit Scheme.
f) Special Saving Scheme.
 g) Premium Term Deposit.
h) Instrument Earning Deposit.
i) Projonmo
j) Mehonoti
k) Probin

2. Investment Services:
Banking business essentially involves lending. Infect deposits are accepted for lending or
investment. It profit rate ranges from 8% to 9% FSIBL provides in the following sectors:
a) Bai Murabaha against MTDR
b) Bai Murabaha against MMDS
c) Bai Murabaha against MMPS
d) Bai Murabaha against MDDS
e) Bai Murabaha against MTD
f) Bai Murabaha against MDFTS
g) Hire Purchage under Shirkatul Melk
3. Customers Services:
FSIBL is always busy in serving to the customer in the best way. One of their greatest assets
is the trust of its customers. FSIBL has the following
arrangement of remittance with in the country.
a) Information providing by the Bank in every desk.
b) Account Opening
c) Online Banking Facilities
d) Pay-Order issue
e) Telephone Transfer (TT)
f) Account Transfer Facilities
g) Solvency Certificate Issuing
h) Locker Service
i) Letter of Credit (L/C)
j) Credit Card Issue (with different limits for different types of customers).
k) Mudaraba gift check
l) Money Gram Service
 m) Balance Inquire
n) Withdrawl Cash
o) Mini Statement
Besides these, it also offers some specialized services to its customers. FSIBL has launched
following special mudaraba saving schemes:
a) Special fixed deposit scheme (FDR).
b) Niramoy
c) Mohiyoshi
d) Musafir
e) Murobbi
f) Obosor
g) Unnoti
h) Hajj
i) Utshob

2.6 SWOT Analysis of FSIBL:

Strength – weakness-opportunity—threats analysis of FSIBL is shown below:
Strength
 Strong Liquidity FSIBL have strong liquidity to meet easily it’s short-term activities.
 Based on Shariah in Bangladesh most people are Muslim. So, they turned to it.
 Quality Products and Services FSIBL have many products and services which are
qualityful.
 Strong top Management FSIBL have strong fund source so that it can meet to
investment.
 Company Reputation and Goodwill FSIBL have many reputations in our country.
 An essential customer friendly relationship has been established with its customers.
 Saving Scheme DPS for the country’s fixed or lower income class.
Weakness
 IT and E-Banking is not strong enough. IT Division is not strong because bank put due
importance to utilization of technology baesd services to the customers.
 Less efficient server is work slowly.
  Lack of Islami Security Market-FSIBL less approach toward providing capital market
services.
 Burdensome procedure in opening bank account.
 Limited Strategy of advertising.

Opportunities
 Increasing Islami instruments of investment.
 Increasing awareness about the procedure that islami bank follows.
 Asset backing against investment is widely accepting even by the conventional
banks.
 Value additional in products and services.
 Increasing purchasing power of people.
 Increasing trend in international business.
 Rising Islamic banking understanding.
 Range develops new and dedicated entrepreneurs.

Threats
 Pressure to decrease profit.
 Increase competition to collect government deposit.
 Political involvement.
 Increased competition for the market share in the industry.
 Turning off the other conventional banks to islami bank.
 Competitor banks are coming up against FSIBL bank with a new first & smart banking
system.
 Competitors banks have more branch coverage across the country than FSIBL bank
limited.
 There are no Islamic shariah call money system in the country’s money.
 Chapter- 3

Investment Modes & Procedure

3.1 Islamic Modes of Investment
“Islamic modes of investment” The word modes literally means methods,or in other words, it
refers to systematic and detailed rules, stipulations and steps to be followed for accomplish a
specific thing. The thing that need to be accomplished in this context is, however the subject
matter of each of the said modes.i.e.any of the different types of investment activities
(trade,leasing,realestate,manufacturing,agriculture,agriculture production.,or using Shariah
expressions Murabaha, Mudaraba, Musharaka, Ijarah, Istisna etc).

3.1.1: Modes of Investment:

1)Partnership Mode
i. Mudaraba
ii. Musharaka
2)Ijara Mode(Rental/Leasing)
i. Ijara/Leasing
ii. Ijara Bil Bai
 a) Hire Purchage under Shirkatul Melk/ Ijara Bil Bai Tahta Shirkatul Melk
b) Ijara Muntahia Bettamelk (Hire Purchage)

Bai Modes (Trading Mode/Mark up Basis)

i. Bai –Muazzal
ii. Bai-Murabaha
iii. Bai-Salam & Parallel Salam
iv. Bai-Istisna & Parallel Istisna
Others
i. Direct Investment
ii. Quard-e-Hassan
iii. Investment Auctioning

3.2 Mudaraba: Mudaraba is a partnership in profit whereby one party provides capital and
the other party provides skill and labor. The providers of capital is called “Rab-al-maal”
while the provider of skill and labor is called “Mudarib”.

The main features of Mudaraba:

a) There should be two parties.
b) There should be written agreement/contract between the bank and the businessman which
includes nature of business, sharing of profit etc.
c) Bank will finance and businessman will run the business by providing his labour and shill.
d) The bank will not interfere in the business.
e) Without prior permission of the bank, the Mudarib cannot take another investment for the
specific business.

3.3 Musharaka:
Musharaka is the partnership business where every partner has to provide more or less equity
fund in this partnership business.Both the bank and the investment client reserve the right to
share in the management of the business.But the bank may permit the investment client to
operate the whole business.

The Main Featuers of Musharaka:

a) Bank and client jointly supply capital equity/unequity
b) Profit is divided as per predetermined ratio
c) Actual loss is divided as per equity
d) Bank will choose to permit thr investment client, client will maintain all accounts. Bank or
its agent may verify or audit it.

3.4 Bai-Muazzal:
It is a contract between a buyer and a seller under which the seller sells certain specific goods
(permissible under Shariah and law of the country),to the at an agreed fixed price payable at a
certain fixed future date in lump sum or within a fixed period by fixed installments.

The main features of Bai Muazzal:

a) There must be three parties. Bank, client and the seller of the goods
b) Spot delivery of the goods and payment is deferred.
c) Bank may or may not declare cost of the goods and profit mark-up separately to the client.
d) The price is fixed at the time of agreement and cannot be alterd.
e) The bank may sell the goods at a higher price than the purchase price to earn profit.

3.5 Murabaha:
Bai-Murabaha means sale for an agreed upon profit. It may be defined as a contract between
a buyer and a seller under which the seller sells certain specific goods permissible under
Islamic Shariah and the law of the land to the buyer at a cost plus an agreed upon profit
payable today or on some date the future in lump-sum or by installments.
The main features of Bai Murabaha:
a) There must be three parties Bank, client and seller of commodities
b) Bank must deliver the specific goods to the client on specific date and specific place of
delivery as per agreement.
c) Bank may take guarantee/cash as security to guarantee the implementation commitment of
the client.
d) The price of goods once fixed cannot be further increased
e) For convenience, it is permissible for the bank to authorize any third party to buy and
receive the goods on banks behalf appointment of buying agent
3.6 Bai-Salam:
Bai-salam may be defined as a contract between a buyer and a seller under which the seller
sells in advance in certain goods permissible under Islamic Shariah and law of the land to
buyer at an agreed price payable and contract are delivered as per specification, size, quality
at a future in a particular place.
The main features of Bai-Salam:
a) A commodity product sold without having the same in existence of the seller. Bai-salam is
not permissible for any ready goods in Shariah.
b) Permissible to obtain collateral security from the seller to secure the investment from any
hazards (non supply, partial supply, low quality)
c) Unit price and total price of the goods must be fixed and mentioned in the contract.
d) It is not necessary to mention the cost of commodity products and profit separately in the
contract. Only purchase price of the same may be mentioned.
e) The full price of the goods is paid at the time of the agreement, failure of which the
contract become invalid.
3.7Bai-Istisna:
The term Istisna is derived from the Arabic word “Sana” which means manufacturing and
construction. It is a sell contract between the buyer and seller for the sale of an asset
according to specification and agreed upon price and transacted before it comes into
existence.
The main Features of Bai-Istisna:
a) Istisna contract is another exceptional method whereby commodities are bought and sold
without existence of it.
b) Delivery of goods is deferred and payment may also be delayed. Advance payment/spot
payment like Bai-Salam is not necessary. however, payment may be made in advance against
the goods is being paid to meet the production cost.
c) Sometimes advance payment against the good is being paid to meet the production cost.
d) Buyer gets the opportunity to make payment within the stipulated date in future or buy
installments.
e) If the products are ready for sale, Istisna not allowed in Shariah.
f) Price must be fixed with consent of all parties involved. All other necessary specifications
of the commodity must also be fully settled.
3.8 Ijara:
Ijara is the equivalent of lease finance. It is defined as when the use of the underlying asset or
services is transferred for consideration. Under this concept, the bank makes available to the
customer the use of assets or equipment such as plant or motor vehicles specification of an
Ijara contract include:
 The use of the leased asset must be specified in the contract
 The lessor (the bank) is responsible for the major maintenance of the underlying assets
(ownership cost)
 The lease is held for maintaining the asset in proper order.

3.9 Ijara Modes Hire-Purchase:

 Ijara hire purchase is an ijara contract that is accompanied with an option to transfer the
ownership of the leased asset to the lessee and the end of the lease period.
 Under this mode, the bank purchase Building, apartment vehicle, machineries and
instruments etc.
 There is no equity of the client. Bank is full financer of the asset.
 The bank rent the assets on sale and purchase contract.
 Clients pays rent (principal+profit) in installment until full and final adjustment of the
investment.
 After full adjustment of the investment the ownership of the asset will br transferred to
the client as a gift or sale on receipt of a nominal or prevailing market price.

3.10 Ijara Modes-Ijara Bil Bai:

Ijara Bil Bai means purchasing and acqurirng ownership by one party by shariah in equity
and paying rents for the rest of the equity held by the bank or other party. Under this mode,
the bank and the client on contract basis jointly purchase vehicles, building, apartment etc.
The client use the portion of assets owned by the bank on rental basis and the ownership of
the same by way of paying banks portion of the equity on the assets in installments together
with its rents as agreed upon.

The main features (Ijara Bil Bia):

a) The Islamic Shariah principle of investment under ijara bil bia is Musharaka. Musharaka
which means the rent, shall be devisable as per equity involved, and unpaid rent if any shall
not be treated as equity and the asset shall be acquired on participation ownership.
b) Bank shall retain the ownership till payment of equity portion of the bank along with
rental.
c) purchase price of the asset shall preferable be paid to the seller of the assets.
d) In case of acquiring equipment, Machinery etc.through foreign currency it shall be paid to
thr debit of respective ijara bil bia account.
e) The ownership of the asset shall gradually pass on the client upon payments of bank equity
involved and on the reserve upon increase of client equity.
f) Since it is a kind of Musharaka, cah can be paid to the credit of clients account.However
the purpose for which cash disbursed must be ensured from the point of banking.
g) Rent shall not be compounded in any case. Rent shall be charged on unpaid/outstanding
rent. Incident of rent shall be reduced proportionally with the reduction of equity of the bank
on payment of installment by the client.
3.11 Ijara Modes- Hire Purchase Under Shirkatul Melk:
In the case of Hire Purchase under Shirkatul Melk banks purchase assets to be leased out,
jointly which client under equity participation own the same and share benefit jointly till the
full ownership is transferred to the client. Shirkatul Melk means share in ownership, when
two or more-person supply equity, purchase an asset and own the same jointly and share the
benefit as per agreement and loss in proportion to their respective equity, the contact is called
Shirkatul Melk.
The main Features of Shirkatul Melk:
a) In case of Hire Purchase under Shirkatul Melk transaction the asset/property involved is
jointly purchased by the lessor (bank) and the lessee (client)with specified equity partipation
under a shirkatul melk contract in which the amount of equity and share in ownership of the
asset of each partner are clearly mentioned.
b) In Hire Purchase under Shirkatul Melk Agreement the exact ownership of both the lessor
(bank) and lessee (client) must be recognized. However, if the partners wish and agree the
asset purchased may be registered in the name of any one of them or in the name of any third
party clearly mentioning the same in the Hire Purchase under Shirkatul Melk agreement.
c) As the ownership of leased proportion of asset lies with the lessor (bank) the rent is paid by
the lessee against the specific benefit, the rent is not considered as price or part of price of the
asset.
d) Ownership risk is borned both by the lessor and lessee in proportion to their ownership
equity.
e) Hire Purchase under Shirkatul Melk transaction facilities the client to get benefit from the
lease asset in exchange of rental and also to become full owner of the asset by purchasing it.

3.12 Quard-e-Hasna (Profit Free Loan)

A loan given in accordance with the Islamic principle but without profit is called Quadra-e-
Hasna (benevolent loan). It has to granted on he grounds of compassion, remove the financial
distress caused by the absence of sufficient money in the face of dire need. Since banks are
profit driven organizations, it would seem that there is not much opportunity for the
application of the technique. However Islamic also plays a socially useful role. Hence, they
make provisions to provide Qard-e-Hasan beside engaging in income generating activities.
Most Islmic Banks provide profit free loans to their customers. However, practice differs in
this respect, some banks provide profit free loans to the holder of investment account at the
bank. Some banks provide profit free loans to needy students, and the economically weakly
sections of the society. Others provide profit free loans to small producers, farmers, and
entrepreneurs who are not qualified to receive financing from other sources.
The purpose of this profit free loan is

 To help them to become independent or to arise their incomes and stand ard of living
 Helping to increase production with due emphasis on agricultural, livestock and
industrial production.

3.13 Overall Procedure for Investment:

The following procedure need to be followed for giving advances to the customer. These are:
 Party’s application
Filling form-A
Collecting CIB report from Bangladesh Bank
Processing loan proposal
Project appraisal
Head office approval
Sanction letter
Documentation
Disbursement
Party’s application

At first borrower had to submit an application to the respective branch for loan, where he/she
has to clearly specify the reason for loan. After receiving the application from the borrower,
bank officer verifies all the information carefully. He also checks the account maintains by
the borrower with the bank. If the official becomes satisfied then he gives form-A to the
prospective borrower.

A. Filling form-A
After satisfying with party’s application the applicant need to fill Form-A. It is the prescribed
form provides by the respective branch that contains information of the borrower. It contains
name with its factory location, official address and telephone number, details of past and
present business, its achievement and failures, type of loan needed etc.

B. Collecting CIB report from Bangladesh Bank

After receiving the application for advance, FSI Bank sends a letter to Bangladesh Bank for
obtaining a report from there. This report is called CIB (Credit Information Bureau) report.
FSI Bank generally seeks this report from the head office for all kinds of investment. The
purpose of this report is to being informed that whether the borrower has taken loan from any
other Bank; if ‘yes’ then whether the party has any overdue amount or not.
C. Processing loan proposal
After receiving CIB report from Bangladesh Bank, then respective branch prepare an
Investment proposal, which contains terms and conditions of Investment for approval of
Head Office. Documents those are necessary for sending Investment Proposal are:
Necessary Documents:
While advancing money, banks create a lot of documents, which are required to be signed by
the borrowers before the disbursement of the loan. Of them some are technically called
charge documents. Necessary steps and documents:
1. Loan application form duly signed by the customer.
2. Acceptance of the term and conditions of sanction advice.
3. Trade license.
4. In case of partnership firm, copy of registered partnership deed duly certified as true copy
or a partnership deed on non-judicial stamp of taka-150 denomination duly notarized.
5. In case of Limited Company
a. Copy of memorandum and articles of association of the company including certificate of
incorporation duly certified by Registered Joint Stock Companied (RJSC) & attested by
the managing director and accompanied by an up-to-date list of directors.
b. Copy of board resolution of the company for availing credit facilities & authorizing
managing director/chairman/director for execution of documents and operation of the
accounts.
c. An undertaking not to change the management of the company & the memorandum &
article of the company without prior permission.
d. Copy of last audited financial statement up to last 3 years.
e. Personal guarantee of the directors including the chairman & managing director.
f. Certificate of registration of charges over the fixed and floating assets of the company
duly issued by RJSC.
g. Certificate of registration of amendment of charges over the fixed and floating assets of
the company duly issued by RJSC in case of repeat loan amount and securities etc.
6. Demand promissory notes.
7. Letter of hypothecation of stocks and goods.
8. Letter of hypothecation of books debts and receivable.
9. Letter of hypothecation of plant and machinery.
10. Personal letter of guarantee.
A. Project Appraisal
It is the pre-investment analysis. Project appraisal in the Banking sector is important for the
following reasons:
I. To achieve organizational goals
II. To recommend if the project is not designed properly
III. To justify the soundness of an investment
IV. To ensure repayment of Bank finance
Techniques of project appraisal
An appraisal is a systematic exercise to establish that the proposed project is a viable
preposition. Appraising officer checks the various information submitted by the promoter in
first information sheet, application for Investment & Investment proposal.
The Head Office (HO) mainly checks the technical, commercial & financial viability of the
project. For others, HO is dependent on branch’s information. But when the investment size
is big, then the HO verifies the authenticity of information physically.
B. Head Office Approval
When Head office receive appraisal from the branch then, Head Office again appraises the
project. If it seems to be a viable one, the HO sends it to the Board of Directors for the
approval of the Investment. The Board of Directors (BOD) considers the proposal & takes
decision whether to approve the Investment or not. If the BOD approves the investment, the
HO sends the approval to the concerned branch. The respective officer of Head Officer
appraises the project by preparing a summary named “Top Sheet” or “Executive Summary”
& then he sends it to the Head Office Credit Division for the approval of the Loan. The Head
Office Credit Division considers the proposal and takes decision whether to approve the
Investment or not. If the committee approves the investment; the HO sends the approval to
the concerned branch.

C. Sanction Letter
After getting the approval of the HO the branch issues sanction letter to the borrower. A
sanction letter contains:
a) Name of borrower,
b) Facility allowed,
c) Purpose,
d) Period of the Investment and mode of adjustment
e) Security and Other terms and condition.
 D. Documentation
If the borrower accepts the sanction letter, the Documentation starts. Documentation is a
written statement of fact evidencing certain transactions covering the legal aspects duly
signed by the authorized persons having the legal status. The most common documents used
by the FSI Bank for sanctioning different kinds of Investment are:
a) Joint Promissory Note,
b) Letter of Arrangement,
c) Letter of Disbursement,
d) Letter of Installment,
e) Letter of Continuity,
f) Trust Receipt,
g) Counter Guarantee,
h) Stock Report,
i) Letter of Lien,
j) Status Report,
k) Letter of Hypothecation
l) Letter of Guarantee
m) Documents Relating to Mortgage.

E. Disbursement
After sanction and completion of all formalities the respective officer disburses the loan. The
officer writes cheques and provides it to the borrower. For this borrower has to open an
account through which he/she van withdraw the money.
Strategy for Recovery: Recovery of loan can be made in following 3 methods:
i. Persuasive Recovery: The first step in recovery procedure is private communication that
creates a mental pressure on borrower to repay the loan. In this situation bank can provide
some advice to the borrower for repaying the loan.
ii. Voluntarily: In this method, some steps are followed for recovering loan. These are::
a. Building Task Force
b. Arranging Seminar
c. Loan Rescheduling Policy
d. Waiver of Interest Rate
ℹℹℹ. Legal Recovery: When all steps fail to keep an account regular and the borrower does not
pay the installments and interests then the bank take necessary legal steps against the
borrower for realization of its dues. In this case “ArthaRinAdalat Law 2003” plays an
important role for collecting the loan.

3.6 Debt Recovery:

Generally, debt collection options include:
A. Personal communication & consultation with client
Contact client by phone or email the day after the invoice is due. This lets client know that
keep close track of accounts receivable. Sometimes invoices get lost or overlooked, so
maintain positive relationships with client & be polite and friendly.
Ask if the client is experiencing a short-term problem or if there’s a valid reason for not
making the payment. Decide how valuable the client is to business. May be willing to
temporarily extend their credit terms, or might cancel the client’s credit agreement if late
payments become a persistent problem.
B. A written request to settle the debt (letter of demand)
If communication and consultation with the client does not result in payment of debt, may
decide to send a letter of demand. This gives client the opportunity to pay the debt without
spending the time and money associated with legal proceedings. Keep a copy of the letter of
demand send the client as it may be required as evidence that tried to recover the debt if
proceed with legal action. When drafting a letter of demand, we should not harass the debtor
or design it to look like a court document. The debt collection practices are illegal. The letter
of demand should:
a. State details of the debt (dates, agreements, amounts due, and days overdue)
b. Include copies of applicable quotes or invoices
c. Request that payment be made by a certain date
d. Warn that debt recovery options will be pursued if payment is not received by the
nominated date

C. Debt recovery options

a) In looking at debt recovery options consider
b) The real chances of recovery
c) The time taken away from business in pursuing the debt
d) Debt collector agency costs
e) The legal and court costs
f) Whether costs will be recoverable from the debtor
g) The need to obtain legal advice

D. A debt collection agency

A debt collector recovers payment on behalf of another person for outstanding debts that
individuals or businesses are legally obliged to pay. Demand for payment can be made in
writing, verbally over the telephone, or in person.

Chosen organizational form (corporation, partnership, etc) and the sponsor’s fractional
interest in and control over the project. In many cases (e.g., when there is only one sponsor),
project assets and liabilities appear on the sponsor’s balance sheet. Finally, there is financing
decision involving non-recourse debt. Because the project company is legally independent,
the debt can be structured without recourse to sponsors. Legal independence also ensures that
capital providers have a clear claim on the project assets and cash flows without concern for
the sponsor’s financial condition or for preexisting claims on its assets.”