Introduction

The roots of the State Bank of India lie in the first decade of the
19th century when the Bank of Calcutta (later renamed the Bank
of Bengal) was established on 2 June 1806. The Bank of Bengal
was one of three Presidency banks, the other two being the Bank
of Bombay (incorporated on 15 April 1840) and the Bank of
Madras (incorporated on 1 July 1843). All three Presidency banks
were incorporated as joint stock companies and were the result
of royal charters. These three banks received the exclusive right to
issue paper currency till 1861 when, with the Paper Currency Act,
the right was taken over by the Government of India. The
Presidency banks amalgamated on 27 January 1921, and the re-
organized banking entity took as its name Imperial Bank of India.
The Imperial Bank of India remained a joint-stock company but
without Government participation Under the provisions of the
State Bank of India Act of 1955, the Reserve Bank of India, which
is India's central bank, acquired a controlling interest in the
Imperial Bank of India. On 1 July 1955, the Imperial Bank of India
became the State Bank of India. In 2008, the Government of
India acquired the Reserve banking regulatory authority.
In 1959, the government passed the State Bank of India
(Subsidiary Banks) Act. This made eight banks that had belonged
to princely states into subsidiaries of SBI. This was at the time of
the First Five-Year Plan, which prioritized the development of rural
India. The government integrated these banks into the State Bank
of India system to expand its rural outreach. In 1963 SBI merged
the State Bank of Jaipur (est. 1943) and State Bank of Bikaner
(est.1944)

SBI has acquired local banks in rescues. The first was the Bank of
Bihar (est. 1911), which SBI acquired in 1969, together with its 28
branches. The next year SBI acquired the National Bank of Lahore
(est. 1942), which had 24 branches. Five years later, in 1975, SBI
acquired Krishna ram Balder Bank, which had been established in
1916 in Gwalior State, under the patronage of Maharaja Macho
Rao e Bank of India's stake in SBI to remove any conflict of
interest because the RBI is the country's Scandia. The bank had
been the Duran Kichadi, a small moneylender, owned by the
Maharaja. The new bank's first manager was Jell N. Broach. In
1985, SBI acquired the Bank of Cochin in Kerala, which had 120
branches. SBI was the acquirer as its affiliate, the State Bank of
Travancore, already had an extensive network in Kerala.
About credit management: -
Credit management is the process of granting credit, setting the
terms it's granted on,
recovering this credit when it's due, and ensuring compliance with
company credit policy,
among other credit related functions. The goal within a bank or
company in controlling
credit is to improve revenues and profit by facilitating sales and
reducing financial risks.
Some companies do their utmost to bring in new business, but may
falter at the last hurdle of
ensuring that deals turn in to ‘paid deals’. Over half of all bankruptcies
are attributed to poor
credit management – signifying its importance. Credit management
involves much more
than reminding customers to pay. Rather, it involves gaining a
thorough examination and
process of detecting possible reasons of non-payment, perhaps even
whether a solution or
product was not delivered and even as far as the invoicing
containing discrepancies.
Effective credit management is a comprehensive process consisting
of: -Determining the
customer’s credit rating in advance
 Frequently scanning and monitoring customers for
credit risks -Maintaining customer relations
 Detecting late payments in advance
 Detecting complaints in due time
 Improving the DSO
 Preventing any bad debt from arising
Credit Management is not all about finding the best way to minimize
debt, the most efficient
way possible. It’s about developing trusting relationships with
clients so that business
outcomes are achieved and profits are increased.
Safeguarding customer risk, settling outstanding balances and
improving cash flow are three
key objectives of credit management that are imperative to founding
profitable success.

Objectives of credit management: -

the main objective:
The main objective of the study is to have knowledge about the
loan and advance
management in the National Credit and Commerce Bank ltd. In order
to study the credit
management I have decided to study about the following facts:
specific objective:
 To know about the NCC Bank Ltd.
 To know about the products & characteristics of NCCBL
 To understand the loan approval process
 To analysis the loan monitoring process
 To know the loan recovery process
 To evaluate the performance of credit management
 To identify the problems associated with loan operations of the bank.
 To give suggestions and recommendations

Limitation of the credit management: -

From the beginning to end, the study has been conducted with the
intention of making it as a
complete and truthful one. However, many problems appeared in the
way of conducting the
study. The study considers following limitations:
>The Bank was a busy one having heavy rush of people, whom
officers need to deal with.
So allocation of time for an internet is very much tough for the officers
of the bank. >Lack
of Collecting Elaborate Data due to Banks privacy.
 Lack of in-depth knowledge and analytical ability for writing such
report.
 The time period for this study was short
 Another limitation of this report is Banks policy of not disclosing
some data and
information.

Overview of credit management: -

National Credit and Commerce Bank Limited bears a distinctive
history of its own. This
institution came into existence as an investment company in the
name and style of National
Credit Ltd (NCL) on 25.11.1985 with its Head Office at 7-8, Motijheel
C/A, Dhaka-1000.
The endeavor of the company was to mobilize resources from within
and invest them in such
ways so as to develop country’s industrial and trade sector and
playing a catalyst role in the
formation of capital market as well. The company also obtained
membership of Dhaka Stock
Exchange Ltd, which helped it to fulfill its mission. Initial paid up
capital of the company (i.e.
NCL) was TK. 5 core at that time. Its membership with the glance
through helped the company
to a great extent in this regard.
The company operated up to 1992 with 16 branches and thereafter with
the active inactive by the members of the Board of Directors and
Management and with the permission of the
Central Bank, it was converted into a full-fledged private
Commercial Bank in the name and
style of National Credit and Commerce Bank Ltd (NCCBL) on
17.05.1993 with paid up capital
of Tk. 19.50 corer and Authorized capital of Taka 75.00 corer which
opened the way to serve
nation from a broader platform. All operations of the bank are
performed under three major
heads- General Banking, Advance and Foreign Exchange, General
Banking has a major
contribution in building banker- customer relationship. Advances are
the major source of bank’s
income. This department plays a vital role in augmenting the bank’s
growth and earnings.
Foreign Exchange plays a vital role in facilitating export and import
Since its inception NCC Bank Ltd. has acquired commendable
reputation by providing sincere
personalized service to its customers in a technology based
environment.
The Bank has set up a new standard in financing in the Industrial,
Trade and Foreign exchange
business. Its various deposit & credit products have also attracted the
clients-both corporate and
individuals who feel comfort in doing business with the Bank.

mission of credit management: -

To mobilize financial resources from within and abroad to contribute to
Agricultures, Industry &
Socio-economic development of the country and to pay a catalytic
role in the formation of
capital market

shall be at the SBI Bank forefront of national economic development

by: -  Anticipating business solution required by all NCC Bank’s
customers everywhere and
innovatively supplying them beyond the expectation.
 Setting industry benchmark of world class standard in delivering
customer value through
the comprehensive product range, customer service and all the
activities.
 Building an exciting team based working environment that will
attract, develop and retain
employees of exceptional ability who help celebrate the success of
bank’s business, of
bank’s customers and of national development.
 Maintaining the highest ethical standards and a community
responsibility worthy of a
leading corporate citizen.
 Continuously improving productivity and profitability and thereby
enhancing shareholder
value.

Vision of credit management: -

The vision of the bank is to become the bank of choice in the

communities they serve. The bank
accomplishes this by offering to their customers the financial services
which are expected by
their customers while providing a return to their owners. In
accomplishing this mission, the bank
has now been free from all the natures of a problem bank though full
filling all the conditions set
by the central bank. They proudly say SBI is profit making and
problem free”.
customers. The bank has financed in textile and apparels sectors.
The bank has a tread of
choosing customer from diversified groups. The bank has first
class customers in the
construction sectors involved in high-rise building, heavy construction
and roads and high way
construct.

Target customer: -

due to the predecessor Company’s involvement investment financing

sector of the country the
bank inherited its top corporate customers. Moreover, the bank is
involved in import trade
financing. Bulk importers of consumer durable, food gains industrial
raw materials are its
customers. The bank has financed in textile and apparels sectors.
The bank has a tread of
choosing customer from diversified groups. The bank has first
class customers in the
construction sectors involved in high-rise building, heavy construction
and roads and high way
construct

Goal of SBI Bank: -

General goal: To Share a significant portion of the banking sector by

utilizing available
manpower and state of the art technology for maximizing the
shareholders
wealth.
Long term goal: To maximize the wealth of shareholders
Short term goal: To earn satisfactory rate of return on investment by
providing wide range
of banking services.
Performance of SBI Bank at a Glance
Five Years performance of SBI
Credit Approval process :-

Any types of lending procedure start with building up relationship

with customer through
account opening. Control of credit operations is done at branch and
Corporate Office Level.
Step-One: Loan Application Most bank loans to individuals arise
from a direct request from a
customer who approaches a member of the bank’s staff and asks to
fill out a loan application.
Business can request, on the other hand, often arise from contacts the
bank’s loan officers and
sales representatives make as they solicit new accounts from firms
operating in the banks market
area. Sometimes loan officers will call on the same company for
months before the customer
finally agrees to give the bank a try by filling out a loan application.
A loan procedure starts with a loan application from a client who must
have an account with the
Bank. At first it starts form the branch. Branch receives application
from client for a loan
facility. In the application client mention what type of credit facility
he/she wants form the Bank
including his personal information and business information. Branch
Manager or regarding
Officer- in charge of credit department conducts the initial interview
with the customer.
Once a customer decides to request a loan, an interview with a loan
officer usually follows right
away, giving the customer the opportunity to explain his or her credit
needs. That interview is
particularly important because it provides an opportunity for the bank’s
loan officer to assess the
customer’s character and sincerity of purpose.
Step-Two: Credit Investigation
After receiving the loan application form, sends a letter to
Bangladesh Bank for obtaining a
credit report of the customer from there. This report is called CIB
(Credit information Bureau)
report. This report is usually collected if the loan amount exceeds
Tk. 50 thousands. The
purpose of this report is to be informed that whether the borrower has
taken loan from any other
Bank or not; if ‘yes’ then whether these loans are classified or not.
Step-Three: Document Collection
If Bangladesh Bank sends positive CIB report on that particular
borrower and if the Bank
thinks that the prospective borrower will be a good one, then the
Bank will scrutinize the
documents. Required documents are;
In case of Corporate Client Financial documents of the company of last
three to five years. If the
company is new then projected financial data are required.
Personal net worth of the
borrower/Borrowers.
In this stage, the Bank will look whether the documents are properly
filled up and signed. Credit
in charge of the relevant branch is responsible to know about the ins
and outs of the client’s
business through discussing with him.
Step-Four: Inspection
If a business or mortgage loan is applied for, a site visit is usually made
by an officer of the bank
to assess the customer’s location and the condition of the property
and to ask clarifying
questions. The loan officer may contact other creditors who have
previously loaned money to
this customer to see what their experience has been. Project for
which the loan is applied is
inspected by Bank officials. Project’s existence, distance from Bank
office, viability, monitoring
cost and other possibilities are also examined.
Step-Five: Evaluation of Credit
If all is favorable to this point, the customer is asked to submit several
crucial documents the
bank needs in order to fully evaluate the loan request, including
complete financial statements
and, in the case of a corporation, board of directors’ resolutions
authorizing the negotiation of a
loan with the bank. Once all documents are on file, the credit
analysis division of the bank
conducts a thorough financial analysis of them aimed at determining
whether the customer has
sufficient cash flows and backup assets to repay the loan. The credit
analysis division then
prepares a brief summary and recommendation, which goes to the loan
committee for approval.
Any loan proposal needs to be evaluated on the Basis of financial
information provided by the
applicant. Credit Risk Grading (CRG) is a technique by which the risk
of the loan is calculated.
Banker must analyze CRG when loan application is above 1crore.
Experienced people of Credit
department in the branch do this analysis. It is a ranking whose total
score is 140. Among this
score, 120 is for Total Business Risk and 20 for Total Security Risk. In
CRG, following aspects
are analyzed:
 Financial Risk
 Business/Industry Risk
 Management Risk
 Security Risk
 Relationship Risk
Step-Six: Collateral Collection
If the loan committee approves the customer’s request, the loan officer
or the credit committee
will usually check on the property or other assets to be pledged as
collateral in order to ensure
that the bank has immediate access to the collateral or can acquire title
to the property involved
if the loan agreement is defaulted. This is often referred to as
perfecting the bank’s claim to
collateral. Once the loan officer and the bank’s loan committee are
satisfied that both the loan
and the proposed collateral are sound, the note and other documents
that make up a loan
agreement is prepared and are signed by all parties to the
Agreement, whether those are
properly submitted – regular and up to date or else those documents
will be asked to regularize
by the client.
Step-Seven: Issuance of Sanction Letter to Client
If the proposal meets NCCBL's lending criteria and is within the
manager’s discretionary
powers, the credit line disapproved. The manager and the sponsoring
officer sign the credit line
proposal and issue a sanction letter to client.
If the value of the credit line is above the branch managers’ limit then
it is send to head office
for final sanction with detailed information regarding clients, business
or purpose of the loan,
security papers.
Step-Eight: Review of Credit Proposal by Credit Committee
Head office processes the credit proposal and afterwards puts up a
memorandum to credit
committee. The credit committee reviews the credit proposal and
accepts or rejects the
proposal.
Step- Nine: Loan Approval
After approval by the Credit Committee head office gives an approval
letter to the branch and
branch gives a sanction letter. The client should accept sanction advice
with seal which will
prove his agreement with the terms and condition offered by the Bank.
Step-Ten: Collection of Charge Document
After the sanction advice, bank will collect necessary charge
document. Charge documents vary
on the basis of types of facility, types of collateral. Generally, the
following charge documents
are required as per the nature of the loan.
 D.P. Note (Demand Promissory Note)
 GLCA (General Loan & Collateral Agreement)
 Letter of Continuity
 Letter of Lien
 Continuing Guarantee
 Letter of Hypothecation
 Hypothecation of Debts & Assets
 Counter Indemnity
 Trust Receipt
 Authority for Borrowing Limited Liability Company

Step-Eleven: Loan Disbursement

Finally, loan is disbursed and monitoring of loan starts as well
Credit Monitoring: -
In this article we will discuss about: -
1. Need for Monitoring
2. Objectives of Monitoring
3. Goals
4. Tools
5. Monitoring Function Stage
6. Early Warning Signals.

5.1 Need for Monitoring:

Monitoring of the credit portfolio and individual accounts is essential in order to
maintain the
quality of the credit portfolio of the bank in a sound condition. In line with the
international
practices, it is imperative for the banks to implement prudential norms of income
recognition and
asset classification of the individual borrowing accounts in the credit portfolio.
On the basis of the record of recovery of interest and other payables in the borrow al
account, the
banks classify the accounts as Standard, Sub-standard, Doubtful and Loss Assets. In
the event of
the borrower not servicing the interest/installment and other payables for a period
of maximum
90 days in a term loan account or an overdraft/cash credit and other borrow al
accounts
remaining out of order for a period of more than 90 days, the account is
classified as Sub-
standard.
Thereafter, depending on the period of default by the borrower and availability of
realizable
security the relative account is downgraded to doubtful or loss assets. The borrow al
accounts in
this situation is termed as Non-Performing Assets (NPA).
Thus, it is the challenging task for the bank to keep the borrow al accounts in
standard category
and, for this purpose, continuous monitoring of the accounts is called for. In bigger
banks, the
function of monitoring of accounts is separated from the credit appraisal and
sanctioning
department and the credit monitoring section functions as an independent
department.
The credit monitoring department deals with only standard assets and the sub-
standard assets
which are not marked for recovery action. Special attention is given to the
accounts which are
standard assets but showing signs of occasional delinquency or aberration from
the standard
norms. These accounts are classified as ‘Watch List’ accounts and need constant
monitoring by
the Monitoring Officer of the bank.
5.2Objectives of Monitoring:
The objectives of credit monitoring are to:
1) Ensure initial delivery or disbursement of credit after complying with the laid
down
procedures and conditions with due precautions
2) Ensure that the credit assets remain in standard category
3) Endeavour up-gradation of identified weak accounts/watch list accounts and
4) Take necessary steps to prevent slippage of the accounts to sub-standard and
NPA
category
5.3 Goals of Monitoring:
With the financing of the borrowing units, the banks have a stake in the business of
the borrower
and, in its own interest, the banker would like to ensure smooth running of the
business of the
borrower with reasonable growth.
This is achieved by ascertaining various monitoring goals for individual assets and
these goals
are:
1) Periodical monitoring of the actual performance of the business of the borrower
vis-a-vis
projections accepted at the time of appraisal of credit facilities. Periodical
performance as
against the projected level of sales, operating profits, inventory and debt levels,
cash
flow, etc., have to be obtained and monitored.
2) Identifying and evaluating the temporary/critical aberrations coming in the
way of
smooth functioning of the borrowing unit for timely and suitable action.
3) Interacting regularly with the borrowers through timely inspection in order to:
4) Ascertain the level of sincerity and interest of the promoters in the day-to-day
business
operations, and to obtain the information regarding production level, inventory
level,
trend of manufacturing/sales, labor problems, maintenance of production units and
other
related issues
5) Ascertain whether the funds invested in the business are adequately protected
and
whether the day-to-day problems facing the business are being addressed in time
6) Get a feel of the financial problems of the borrowing unit without delay and
to take
remedial action on regular or ad hoc basis, after evaluating the same on merit
7) Ascertain whether there are any impediments in timely service of interest and
repayment
of installments due to the bank
8) Ensuring the end use of funds and prevention of diversion of funds and
9) Ascertain as to whether there is any threat to the recovery of bank’s funds
invested in the
business and to initiate timely and appropriate recovery measures to protect the
interest of
the bank
5.4 Tools for Monitoring:
Safety of the bank’s exposure in credit asset is of paramount importance. The
safety is
dependent upon risk factors, which are identified and accepted while taking credit
exposure.
Any event that could result in materializing of these risks into default or even delay
in repayment
must be diagnosed and identified early.
The normal sanction covenants such as maintenance of margin, payment of
interest in time,
submission of stock statement, submission of other statements by the borrowers,
review of
accounts at appropriate times, etc., together with the loan-specific stipulations such
as raising of
the promoter’s contribution, creation of mortgage of a property after completion
of the legal
formalities, etc., will provide the basic framework to obtain and use various
monitoring tools.
An exhaustive list of monitoring tools is difficult to be drawn up, as loan- specific
issues
and factors vary.
The following is an inclusive list of various monitoring tools:
1) Certified statement of the actual cost of the project (upon completion) vis-a-vis
the
original envisaged cost of the project
2) Stock and book-debts statements
3) Monthly Cash Budget, wherever applicable
4) Returns of Quarterly Information System
5) Statements of Monthly Select Operational Data
6) Inspection Reports
7) Stock Inspection Reports of outside agencies.
8) Concurrent/Internal/Revenue/Audit Reports
9) Factory Visit Reports
10) Technical Officer’s Reports
11) Audited/Provisional Financial Statements
12) Status enquiries from other banks regarding the account, promoters or guarantors
13) Account operations scrutiny (Poor turnover, over-dues, frequent returns of
cheese/bills,
issuing cheese favoring someone unconnected to main business, withdrawals of
large
cash, etc.)
14) Statutory Audit Reports
15) Internal Inspection Reports/Special Audit Reports
16) Comments of the Regulatory Authorities
17) Annual review of the account
18) Visits by officials from Controlling Offices to the branches
19) Monthly/quarterly Monitoring Reports and
20) Minutes of Consortium Meetings
The focus of the monitoring process is always to ensure the safety of funds lent and
see that the
account is conducted as per the terms and conditions of the sanction. It is
necessary to
understand that recovery of overdue amounts or critical amounts in Standard
Assets causing
concern is essentially a short-term strategy. An in-depth analysis of the problems
facing the
borrowing unit has to be made and necessary remedial measures need to be initiated
for ensuring
long-term viability of the unit.
5.5 Monitoring function:
In a bank should cover all the three stages, viz.,
I. Pre- disbursement,
II. During disbursement and
III. Post-disbursement phases of an advance account.
I. The pre-disbursement stage covers obtaining satisfactory credit reports from existing
lenders, post-sanction but pre-disbursement inspection report, execution of the
stipulated
security documents, including creation of collateral security/mortgage as per terms of
the
sanction, obtaining letters of guarantee from the guarantors, if any. The other formalities
such
as vetting of documents by legal experts and ensuring disbursement by the other
participating
banks and financial institutions are also required as the responsibility of the monitoring
department.
II. During the disbursement, monitoring work should ensure the end-use of the funds
by
disbursing the amount in the right manner. Credit delivery in loan accounts is distinct
from
overdraft and cash credit accounts. All disbursements should be related to
actual/acceptable
levels of performance of the business unit and in line with the basic objective of safety of
the
banks’ exposure in the credit assets.
The disbursement should be commensurate with the progress of the project/business
activity,
as well as shall take into account the extent of margin brought in by the promoters up to
the
given point of time.
III. Post-disbursement monitoring forms a substantial part of the monitoring function in a
bank.
Actual performance of the borrowers should be monitored by inviting select operational
data
at a particular frequency. The particulars furnished by the borrower need to be compared
with
the projected performance given to the bank before granting the loans.
IV. Periodical inspections and stock audit by the appropriate officials should be ensured.
Timely
abstention and analysis of the audited financials and review of the account, at least once
in a
year, is the most integral part of post disbursement monitoring. Timely identification of
accounts showing symptoms of strain, and putting them under Watch Category for
constant
monitoring is absolutely imperative.
5.6 Early Warning Signals:
Some of the early warning signals that can be noticed in the course of continuous
monitoring of borrow al
accounts are as under:
I. Non-compliance with the terms of sanction regarding documentation/security
II. Unplanned borrowing for margin contribution
III. Delay in payment of interest beyond 30 days
IV. More than one installment overdue and beyond 30 days
V. Return of cheese for financial reason
VI. Reduction in credit summations – not routing entire (or pro rata) transactions through
the bank
(opening of collection accounts with another bank without prior approval of the financing
bank)
VII. Longer outstanding in the bill purchased accounts
VIII. Longer period of credit allowed on sale and frequent returns of goods by buyers of
the same. Late
or non-realization of receivables
IX. Constant utilization of working capital limits to the hilt
X. Unexplained delay or failure to submit periodic statements such as stock/book-debt
statements
XI. Frequent requests for over-limit/additional limit or for extension of time for
repayment of
interest/installments
XII. Lack of transparency in borrower’s dealings with the bank/avoiding to meet bank
officials
XIII. Frequent breakdown of plant and machinery and downward trend in sales turnover
XIV. Frequent labor problem and stoppage of work
XV. Delay or failure to pay the statutory dues and diversion of working capital funds
for capital
expenditure
XVI. Abnormal increase in debtors and creditors and rapid turnover of key personnel

Credit Recovery: -
Recovery procedure is a lengthy one that requires efforts of the bank, society
and legal
institutions. It also takes time and money. Like other banks, NCC Bank follows
four steps to
recover the outstanding amount. These are-
I. Reminders to the clients
II. Creating social pressure
III. Sending legal notice and
IV. Legal action
These four steps are described in detail below-
1. Reminder to the client is given through a formal communication channel. A letter
is
written and properly signed on the bank’s papers. This letter is issued several times
to remind the honorable loaner to repay his/her outstanding portion.
If the loan amount is not yet repaid after sending a series of letters, then social
pressure is created on the client by persons referred while opening account in the
bank.
Legal notice is prepared and sent by NCC Bank when above two steps fails to
recover the amount. It is a threat to the borrower.
The last and final step of the recovery procedure is the help from the court. NCC
Bank sincerely tries to avoid this kind of situation for its honorable clients but
cannot help doing for its own sustainability.
Strategies for Recovery
Recovery of loan can be made in the following 3 methods
 Persuasive
 Voluntarily
 Legally
2. Persuasive recovery
If the borrower didn’t pay the due amount of loan in time, then the first step of bank
is private communication with him. It creates a mental pressure on borrower to
repay the loan amount. In this case bank can provide some advice to the borrower
for repaying the loan.
3. Voluntarily recovery:
In this method, some steps are followed for recovering loan. This are-
 Building Task Force
 Arranging seminar
 Loan rescheduling policy
 Waiver of interest rat
4. Legal recovery:
When all steps fail to keep an account regular and the borrower does not pay the installments
and
interests then bank take necessary legal steps against the borrower for realization of its dues. In
this
case “Aretha Rim Adulate Ain-2003” plays an important role for collecting the loan.
Recovery
procedure of NCC Bank is the ultimate combination of time, effort of money
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