PREFACE

This Retail Banking Credit Policy Manual of the Bank is prepared in line
with the Prudential Guidelines for consumer financing of Bangladesh Bank
on

Credit

Risk

Management

and

for

the

guidance

of

the

Officers/Executives in handling affairs relating to credit in a disciplined

way. This policy will apply to all Branches of Prime Bank Limited in
Bangladesh and replace the existing Policy guidelines that have been
issued from time to time though circulars.
It is very likely that this policy may have limitations, which will be
rectified/removed in due course. Moreover, it will be revised and updated
from time to time. As such, suggestions from Banks Executives and
Officers for making further improvement are welcome.
The main purpose of this policy is to make the executives and officers of
the bank conversant with the policy and strategy of the Bank regarding
credit operation and enable them to discharge duties and responsibilities
with confidence and constructive initiative.
The concerned Executives and Officers must keep themselves fully
conversant with its contents, which are strictly Private and Confidential
and must not in any way be divulged to any person not in the service of
the Bank.
In addition to the instructions contained in this policy, the Branch Incharge/Manager and Officers will also be guided by circulars issued by
Head Office from time to time.
This Policy is printed in loose-leaf form to facilitate the replacement of any
page or section due to subsequent changes and amendments made at
any stage. Such amendments on printed sheets will be supplied to the
Branches as and when done and should be substituted accordingly.
PRIME BANK LIMITED
BHUIYAN
HEAD OFFICE, DHAKA
DIRECTOR

M.

SHAHJAHAN
MANAGING
1

1.0 Context
Retail lending is one of the core businesses for Prime Bank Limited and
has been targeted for significant further growth. This reflects the potential
of retail lending to produce high levels of economic profit and perceived
demographic trends toward an expanded middle class and higher income
levels.
Asset quality is generally expected to be higher in personal lending than
corporate lending due to a variety of factors including:

Diversification of risk

Security

Cultural values

The increasing need for individuals to have access to bank

credit for the conduct of normal daily activities.

Prime Bank is a conservative lender in retail credit as part of its corporate

philosophy. However, conservatism does not mean simply minimizing bad
debts, but incorporates the concept of lending against acceptable risks.
The Banks overriding goal is not only to increase total shareholder return
but also to contribute to the socio economy by improving the life style of
the limited income segment of the country and that can be best achieved
optimizing profits, rather than just minimizing losses. Profit optimization
will follow from:

Good-planning and control of approval process

Well

designed

products

with

appropriately

focused

marketing

The use of statistical techniques and decision support

systems that permit risks to be managed predictably

Gathering high quality management information, this is

then read and used.
2

Taking the foregoing into account, this manual (to be referred as Retail
Banking Credit Policy Manual) sets out the general policy parameters for
personal lending. Retail lending in the context of this manual is lending to
individuals in their own right and excludes sole proprietor and small
business lending.
1.2 Credit Risk Management Policy:
Credit risk management needs to be a robust process that enables a Bank
to proactively manage its loan portfolio in order to minimize losses and
also to earn an acceptable level of return for stakeholders. Given the fast
changing dynamic global economy and the increasing pressure of
globalization, liberalization, consolidation and disinter mediation, it is
essential that Prime Bank has a robust credit risk management policy and
procedures that are sensitive and responsive to these changes.
To provide a board guideline for the Retail Credit Operation towards
efficient management of the Retail Credit portfolio of the Bank, a clearly
defined,

well-planned,

comprehensive

and

appropriate

Credit

Risk

Management Policy is a pre-requisite.

In the above backdrop, this policy document has been prepared. And, it is
hereby named as Retail Banking Credit Policy Manual.
1.3 Purpose:
The sole purpose of this policy document is to set out yardsticks for and
spell out standard operating procedures for management of retail credit
risk of the Bank. As such, it specifically addresses the following areas:

Establishing an appropriate credit risk environment

Setting up a sound credit approval process
Maintaining

an

appropriate

credit

administration

and

monitoring
3

Process, and

Ensuring adequate controls over credit risk.

1.4 Scope:
This policy document will be applicable for issues related to retail lending
operation and also to be read in conjunction with the Credit Risk
Management Policy with respect to both direct and indirect credit
products of traditional and Islamic banking products.
1.5 Amendment of the Policy:
This Retail Banking Credit Policy Manual will be amended, revised, refined,
readjusted as and when warranted to accommodate the changes in the
market condition, cyclic aspect of the economy, government policy,
industry demand, central bank regulation and experience of the Bank in
managing credit risk. For this purpose, the Board of Directors of the Bank
will review the Retail Banking Credit Policy Manual at least annually and
make necessary amendment.
1.6 Access to the Policy:
This policy document is categorized as a confidential one and will be
officially distributed to all executives of the Bank and all officers working
in the Corporate Banking and Credit Division (comprising of Credit Risk
Management Unit, Credit Administration Unit and Recovery Unit), Retail
Credit & Credit Card Division of both Branch and Head Office, Foreign
Exchange Department of Branches and International Division of Head
Office. Anybody other than the above will have to apply to collect this
document to Credit Risk Management Unit of Credit Division, Head Office
through proper channel.
1.7 Mandatory Reading of the Manual
4

Executives and staff officers involved the retail lending and cards business
must read the sections relevant to their direct responsibilities before take
over of a new job, annually thereafter or whatever shorter periods is
determined by their managers.
1.8 The Risk Management Cycle
The risk management cycle for retail lending consists of six steps:

Planning products and Risk Management Controls

Acquiring Accounts

Maintaining Account and Managing Credit Quality

Collecting Delinquencies

Writing off bad debts

Evaluating performance and refining plans and control

Management oversees every step of the process, aided by MIS, which is

indispensable.

2.0

New Product Approval Procedure:

A product is defined as any form of packaged lending or service offering

which is designed to meet the requirement of a particular market segment
without being tailored to individual needs.
This section articulates fundamental policy guidelines for Consumer
Financing. Before launching, for every type of retail lending product, bank
shall develop fully documented product program guidelines. These
guidelines shall include objective / quantitative parameters for the
eligibility of the borrowers and determining the maximum permissible limit
per borrower.
These fundamental guidelines will be the key elements that would support
the banks retail credit culture and they will dictate banks behavior when
dealing with customers and managing lending portfolio of such loans. Any
deviations from these guidelines must in all cases, will require approval
from Board of Directors / appropriate competent authority.
While developing Product Program Guidelines (PPG) for any product - the
following guidelines must be included in the PPG documents to ensure
that the PPG is covering all the aspects of risk and return for the particular
product.
PPG Guideline No. 1: Customer Segment
PPG Guideline No. 2: Purpose
PPG Guideline No. 3: Nationality
PPG Guideline No. 4: Age Limit - Minimum age (years) / Maximum age
(years)
PPG Guideline No. 5: Minimum Income
6

 PPG Guideline No. 6: Loan Size

PPG Guideline No. 7: Loan to Price Ratio
PPG Guideline No. 8: Security/ Collateral
PPG Guideline No. 9: Legal Documents
PPG Guideline No. 10: Interest Rate
PPG Guideline No. 11: Maximum Term of Loan
PPG Guideline No. 12: Repayment Method
PPG Guideline No. 13: Disbursement Mode
PPG Guideline No. 14: Disbursement pre-condition
PPG Guideline No. 15: Debt Burden Ratio (DBR %)
PPG Guideline No. 16: Verification of Personal Details and Quotation
PPG Guideline No. 17: Substantiation of Income
A basic Product Program Guideline (PPG) has been developed for eleven
retail-lending products and added in the Appendix 1 for ready references.
The products are:

Car Loan

Doctors Loan

Household Durable Loans

Marriage Loan

Any Purpose Loan

Education Loan

Hospitalization Loan

Swapna Neer

Advance Against Salary

Travel Loan

CNG Conversion Loan

2.1 Credit Principles:

Fundamentally, credit policies and procedures can never sufficiently
capture all the complexities of the product. Therefore, the following credit
principles are the ultimate reference points for all concerned executives &
staff-making consumer-financing decisions:

Assess the customers character for integrity and willingness to

repay

Only lend when the customer has capacity and ability to repay

Only extend credit if bank can sufficiently understand and

manage the risk

Use common sense and past experience in conjunction with

thorough evaluation and credit analysis.

Do not base decisions solely on customers reputation, accepted

practice, other lenders risk assessment or the recommendations
of other officers

Be proactive in identifying, managing and communicating credit

risk

Be diligent in ensuring that credit exposures and activities

comply with the requirement set out in Product Program
Guidelines.

3.0

Introduction

This section provides high level policies and guidance for the delivery of
an effective and consistent methodology for the assessment and approval
of retail credit. The primary factor determining the quality of the Banks
credit portfolio is the ability of each borrower to honor, on timely basis, all
credit commitments made to the Bank i.e. repayment of loan installments
on time. The authorized Credit Officers/ Executives must accurately
determine this prior to approval. Therefore a thorough credit risk
assessment shall be conducted prior to the sanction of any credit
facilities. While assessing a credit proposal more emphasis shall be given
on repayment potential of loans out of funds generated from borrowers
business (cash flow) instead of realization potential of underlying
securities.
3.1 Principles:
Each credit assessment must:
1. Be based on the sound ethical practices, which are consistent
with all banking rules and legislation; and
2. Be consistent, at a product level, with Product Program Guideline
(section
3.2 Applications:
The first stage of credit assessment and approval process is a customer
application. The application must provide adequate information to enable
the Bank to assess the credit. As a minimum, the application must request
for sufficient information to verify the existence of the individual and to
facilitate the collection effort, including skip tracing and security checks.

The information in the application must also establish Know Your

Customer (KYC). Specific information should include:

Telephone and address contact details

Employment/business details

Income details

Income & Expenditure Statement

Personal Net worth Statement

Residence details

Credit references and guarantors details

All application must be checked for complete information so that initial

review of the application enables the selection of better proposal for
accelerated processing and quick reflection of those that do not meet
minimum criteria of the product. However, application should not be
rejected purely on the basis of incomplete information, if the proposal
merits consideration appropriate follow up should be initiated. A format of
loan application is attached in Appendix 2.
3.3 Contact Point Verification:
Verification is a key part of application process. The level and verification
details must be documented in PPG. Contact Point Verification shall be
done for all applicants except for the High Net Worth individuals or the
customers having good account relationship with the bank. The objective
is to confirm the declared/undeclared information of the applicants. CPV
includes:

Applicants Residence, Business/Office address, phone, status.

Guarantors Information Verification
Bank Statement & other Income Documents Verification

3.4 Contact Point Verification through Third party(s):

10

As the verification is a critical function of loan application process, it is to

be managed professionally by independent third party agency(s). This will
enable the selection of better accounts for accelerated processing and
quick rejection of those having negative or inadequate information.
Format of CPV report attached in Annexure 3.
Regular examination and testing of the third party must be in place and
the integrity of the verification report must be in place. The officers
involved in Retail lending process must verify the data by telephone or
personal visit as appropriate. The percentage of accounts verified will be
determined by the risk dynamics of a product but must not less than 20%
in any case.
Data must be structured to facilitate monitoring at individual agent level.
Quarterly review meeting with third party agents must be held to assess
the performance and to discuss forthcoming activities.
3.5 Guarantee:
One of the fundamental perquisites for securing retail lending is to obtain
guarantee acceptable to the bank by way of social status and perceived
creditworthiness. The following must be adhered to while obtaining
guarantee for securing the loans:
1. No loans shall be allowed against the guarantee of an existing
guarantor of any other loan.
2. Existing borrowers of the bank shall not be eligible to become
Guarantors for any retail loans.
3. No guarantee shall be obtained from the Chairman, Managing
Director and Directors of Corporate facility clients and obtaining
such guarantee must be referred to the Head Office for approval.
11

4. All guarantors must be cross-referenced through available MIS to

ascertain whether the guarantor is an existing bank customer, or if
the guarantor had the past relationship with the bank. If the
guarantor has a negative credit history and social status or if his
financial standing does not appear to be acceptable, the guarantee
should be rejected or referred to the appropriate level of authority.
3.6 De duplication check
All approved applications must be checked against Banks database to
identify whether the applicant is enjoying any other loan in other account
apart from the declared loans. It must also be checked that the applicant
has a credit card and any payment default is made. This cross- checking is
mandatory for Credit Card Retail Credit approval. In such cases the
application must be rejected.
3.7 Maintenance of Negative Files
Two negative files one listing the individuals and the other listing the
employers - are to be maintained to ensure that individual with bad
history and dubious integrity and employers of the applicants with high
delinquency rate do not get loan from the Bank.
3.8 Assessment Methods:
This section outlines the process that will be used to assess the lending
requests. It is the policy of the Bank to use the method of assessment that
provides the highest level of control and risk prediction for a particular
group of customers. There are two major assessment methods will be
used for consumer financing and the order of preference will be:

Credit Scoring Matrix

Judgmental Decision

12

3.8.1 Credit Scoring:

Credit scoring is a method used for predicting the creditworthiness of
applications. This scoring is based on the concept that applicants will
perform in a similar way to existing customers with a similar demographic
profile. Key items of application information such as occupation, residence
status, income details etc are assigned point values. The total of these
point values i.e. final score represents the repayment probability,
generally expressed as an odd or risk quote between good or bad
accounts. Generally the higher the score, the more likely the applicant will
not experience delinquency and, conversely, the lower the score the more
likely the applicant will experience delinquency. A format of Credit Scoring
Matrix is attached in Appendix 4
3.8.2 Judgmental Decisions:
Applications meeting the minimum cut-off score and meeting any other
credit criteria should be further reviewed for judgmental decision.
Judgmental approval involves the assessment of an applicants character,
capacity and collateral, which are defined as:

Character- an applicants willingness to meet past obligations

Capacity-

an applicants willingness to meet current and future

obligation

Collateral the value of the items being financed or collateral being

offered.

The judgmental assessment approach must be established through the

development of credit criteria in line with Product program Guideline.
Criteria will vary from the risk dynamics of a product but should be
documented and capable of audit. The following factors must be taken
into account while assessing the credit on judgmental approach:

Employment
13

The accuracy and stability of an applicants stated employment/self

employment and income is critical to all credit decisions. Cautions
should be exercised and verification must be conducted on the
occupational details.

Residence

An applicant is required to be living at his/her present address for a

minimum of one year unless the applicant is an established bank
customer holding an account for longer than 6 months. The applicant
must provide utility bills for verification.

Debt Burden
Consumer

credit

products

traditionally

have

incorporated

an

assessment of the applicants debt burden based upon the minimum

income level or maximum credit limit established for the product.
The calculation should be:
Total monthly Expenses (TME)/Net Total Monthly income (NTMI)
TME = Living Expenses + Credit Card Repayments (including
payments to other banks) + Loan Repayments (including payments
to other banks and payment of current loan applications)
NTMI = Total monthly income (i.e. Salary/business + other monthly
income e.g. house rent, dividend etc)- deductions.
3.9

Credit Approval Process:

Applications are received at Credit Assessment & Approval unit from sales
team / branches. Applications are evaluated / assessed by Credit
Analysts / Managers. The evaluation process is carried out based on the
agreed and standard guidelines for different loans product and the
documents checklist as per the product program guideline (PPG). The
14

detailed credit and risk assessment should be conducted prior to the

approving

of

any

loans.

Sales

Team/Branches

must

complete

documentation checklist (refer Annexure 5 & Annexure 6) to ensure all

documents have been properly obtained.
The sales team / branch staff responsible for loan sales as well as the
customer relationship, and must be held responsible to ensure the
accuracy of the loan application submitted for approval.

They must be

familiar with the banks Retail Credit Policy Manual & Guidelines and
should conduct due diligence on new borrowers, purpose of the loans and
guarantors.
The credit approval function is completely separated from the marketing /
sales function. Approvals must be evidenced in writing. Approval records
must be kept on file with the Credit Applications.
Credit approval should be centralized within the Credit function. Regional
credit centers shall be established as appropriate; however, all large loans
(as defined in the PPG) must be approved by the Head of Credit or
delegated Head Office credit executives. Any credit proposal that does not
comply with this policy, regardless of amount, should be referred to Head
Office for Approval.
To illustrate the process of marketing a loan at the front end till
disbursement at the Credit Administration Department, a sample process
workflow chart (Appendix 7) is attached.

15

4.0 Delegation of Approval Authority:

Credit approval authority to the proper body and/or executive is a precondition
for ensuring smooth and transparent credit operation in the Bank. Since
inception, credit approval authority has been delegated to different tiers of both
the Board of Directors and the Management. Authorities who enjoy delegation of
business power i.e. credit approval authority are as follows:
1. The Board of Directors
2. The Executive Committee of the Board
3. The Managing Director
4. The Deputy Managing Director
5. Retail Credit Committee.
4.1 Process of delegating approval authority:
All credit approval authority will be delegated with the proper approval of the
Board of Directors. Henceforth, the Board of Directors will review and
amend/revise delegation of credit approval authority of different tiers of both the
Board of Directors and the Management which will be treated as the maximum
indicative limit. However, specific credit approval authority will be delegated in
writing by the Board of Directors and the Managing Director, as the case may be,
as per the indicative maximum limit to different body/executives. In this process,
the Board of Directors will first delegate authority to the Executive Committee of

16

the Board and the Managing Director. Furthermore, it will fix the maximum
indicative limits for different tiers of the Management based on which the
Managing Director will delegate authority in writing to the Deputy Managing
Director looking after retail credit portfolio, Executives working at Retail Banking
division, Head Office and Head of Branches considering knowledge, experience
and credit judgment of the concerned executive.

An Executive shall not be

delegated credit approval authority only on the basis of his/her position. In other
words an executive will not automatically get lending authority by virtue of
his/her functional title/designation. And, credit approval authority delegated to
an executive will not automatically be transferred to his/her replacement.
4.2 Revision of Credit Approval Authority:
The Board of Directors will review enforcement of the delegated authority by the
Executive Committee of the Board and the Managing Director at least annually
and revise the same as and when required. On the other hand, the Managing
Director will review the enforcement of the delegated credit approval authority
by the Executives at least annually and revise the same within the indicative
maximum limit approved by the Board, if necessary. However, the Managing
Director may cease or curtail delegated authority of any Executive at any point
of time without assigning any reason. And, the Managing Director will place a
report before the Board of Directors at least annually regarding enforcement
performance of all executives enjoying credit approval authority.
4.3 Criteria for Approval Authority:
It is essential that executives enjoying credit approval authority have relevant
training and experience to carry out their responsibilities effectively. As a
minimum, approving executives should have the followings:
At least 5 years experience working in corporate/commercial banking as
a relationship manager or account executive.
Training and experience in financial statement, cash flow and risk
analysis.
A thorough working knowledge of Accounting
A good understanding of the local industry/marketing dynamics.

4.4 Credit Approval Authority:

17

Credit

approval

authority

may

be

delegated

to

the

following

body/Executive:
1. The Board of Directors
2. The Executive Committee of the Board
3. Different tier of the Management

4.5 The Board of Directors:

The Board of Directors will have the authority to sanction any loan for the
amount not exceeding the regulatory limit that the Bank can provide to a
single customer. Besides, all proposals for waiver of interest, commission,
charges etc and principal must be approved by the Board of Directors. Any
proposal for reduction of rate of interest by more than one percent from
minimum level of approved interest rate band must be approved by the
Board.
4.6 The Executive Committee of the Board:
The Executive Committee of the Board of Directors may sanction any loan
for the amount not exceeding the regulatory limit the Bank can provide to
a single customer. However, it will not have the authority to approve any
proposal for waiver of interest, commission; charges etc and principal
must be approved by the Board of Directors. Any proposal for reduction of
rate of interest by one percent or less from the minimum level of
approved interest rate band may be approved by the Executive
Committee of the Board. Any proposal beyond the delegated authority of
the Managing Director will be placed before the Executive Committee of
the Board for approval.
4.7 The Management:

18

Different tier of the Management may be delegated credit approval

authority to ensure timely disposal of the credit proposals at root level. In
the Management, the following executives may be delegated credit
approval authority:
1. The Managing Director
2. The Deputy Managing Director supervising Retail Banking
3. Executives working at Retail Banking, Head Office
4. Executives working as Head of Branches

Name of the

Loan

Head

Deputy

Head Office

Products

limit

Office

Managing

Credit

Retail

Director

Committee

Up to 10.00

Up to 15.00 lac

lac
Up to 8.00 lac

Up to 15.00 lac

Credit
Car Loan (new)

20.00 lac

Committee
--

Car Loan

20.00 lac

--

(reconditioned)
Household durables

5.00 Lac

Up to 2.00
lac

Up to 3.00 lac

5.00 lac

10.00 lac

Up to 3.00

Up to 5.00 lac

10.00 lac

(Other items)
Doctors Loan
(Specialist)

lac

Doctors Loan (General

5.00 lac

Practitioner)
Advance

Up to 2.00

Up to 3.00 lac

5.00 lac

Up to 1.50 lac

3.00 lac

lac
Against

3.00 lac

Salary

Up to 1.00
lac

Any Purpose Loan

1.50 lac

Up to 1.00

Full limit

--

Education Loan

3.00 lac

lac
Up to 1.00

Up to 1.50 lac

3.00 lac

19

Name of the

Loan

Head

Deputy

Head Office

Products

limit

Office

Managing

Credit

Retail

Director

Committee

Credit

Travel Loan

2.00 lac

Committee
lac
Up to 1.00

Marriage Loan

3.00 lac

lac
Up to 1.00

Hospitalization Loan

3.00 lac

Up to 1.50 lac

2.00 lac

Up to 1.50 lac

3.00 lac

Up to 1.50 lac

3.00 lac

--

--

lac

CNG Conversion Loan

-Up to 1.00

60
thousand

lac

for
individual
and
lac

1.00
for

corporate
bodies

The Board of Directors in its 237th meeting held on November 21, 2005
approved the delegation of business power to the different tiers as follows:

5.0

Introduction

After approval, Credit Team will send / forward the approved applications
along with the security and other documents to the Credit Administration
Unit for processing. The Credit Administration function is critical in
ensuring that proper documentation and approvals are in place prior to
the disbursement of loan facilities.
Under Credit Administration there shall be two-sub units, Documentation
& Quality Control and Loan Administration Dept who will process the
document and disburse the loan.
20

5.1Credit Documentation
Credit Documentation dept is responsible:

To ensure that all security documentation complies with the terms of

approval.

To control loan disbursements only after all terms and conditions of

approval have been met, and all security documentation as per the
checklist of approved PPG is in place.

To maintain control over all security documentation.

To monitor borrowers compliance with agreed terms and conditions,

and general monitoring of account conduct/performance.

Upon performing the above, Documentation dept will forward the

Limit Insertion Instruction to the Loan Administration unit for limit
and other information to input into the banks main system.

format of Limit Insertion form is attached in Appendix 8.

5.2Disbursement
Loan Administration dept in head office/ regional office/ branches will
disburse the loan amounts under loan facilities only when all security
documentation is in place. CIB report is obtained, as appropriate, and
clean. A sample documentation and disbursement checklist is attached as
Appendix 9.
5.3

Custodial Duties:

Loan disbursements and the preparation and storage of security

documents shall be centralized in the head office and regional credit
21

centers. Security documentation is held under strict dual control in locked

fireproof storage.
5.4

Compliance Requirements
All required Bangladesh Bank returns must be submitted in the
correct format in a timely manner.

Bangladesh Bank circulars/regulations shall be maintained centrally,

and advised to all relevant departments and braches to ensure
compliance.

Appointment of all third party service providers (valuers, lawyers,

insurers, CPV, Recovery Agents etc.) must be approved by the Board
of directors/ Executive Committee or appropriate competent level of
authority. The performance of the third party services must be
reviewed on an annual basis.

6.0Credit Risk
The credit risk is managed by the Credit Approval & Assessment unit,
which is completely segregated from sales. The following elements
contribute to the management of credit risks:
The credit risk associated with the products is managed by the following:
22

1. Loans will be given only after proper verification of customers static

data and after proper assessment & confirmation of income related
documents, which will objectively ascertain customers repayment
capacity.
2. Proposals will be assessed by independent Credit Unit completely
separated from sales.
3. Every loan will be secured by hypothecation over the asset financed,
and customers authority taken for re-possession of the asset in
case of loan loss. For Car Loan, the vehicle will be registered in
banks name, which will give the bank the legal right of repossession when required.
4. The

loan

approval

system

is

parameter

driven

which

will

substantially eliminate the subjective part of the assessment

procedure.
5. There will be dedicated collection force who will ensure timely
monitoring of loan repayment and its follow up.
6. The Credit & Collection activities will be managed centrally and loan
approval authorities will be controlled centrally where the branch
managers or sales people will have no involvement

23

6.1Operational Risk
For consumer loans, the activities of front line sales and behind-the-scene
maintenance and support are clearly segregated. Consumer Credit
Administration Unit will be formed.
Credit Administration Unit will manage the following aspects of the
product:
a) Inputs, approvals, customer file maintenance.
b) The Operation jobs like disbursal in the system including raising debit
standing orders and the lodgment and maintenance of securities.
Type a jobs and type b jobs will be handled by separate teams within
Credit Administration Unit therefore the risk of compromise with loan /
security documentation will be minimal.
It will ensure uncompromising checks, quick service delivery, and
uncompromising management of credit risks.
6.2. Maintenance of Documents & Securities
The applications and other documents related to Consumer loans will be
held in safe custody by Loan Administration Unit. The physical securities
and the security documents will be held elsewhere inside fire-proof
cabinets under Credit Administrations custody. The dual-key system for
security placement and retrieval will have to be implemented.

24

6.3

Internal Audit

The Banks Internal Audit & Board Audit Cell will be responsible with
performing audits of all departments. Audits should be carried out on a
regular or periodically as agreed by the Management to assess various
risks and possible weaknesses and to ensure compliance with regulatory
guidelines, internal procedures, and Retail Lending Guidelines and
Bangladesh Bank requirements.

25

7.0 Introduction:
This section lays down the procedures with regard to collections and
remedial management retail credit to ensure the effective control and
monitoring in the recovery of funds lent to customers.
7.1 Objective:
To minimize the combined collection expenses, write off costs, and reduce
the overall provisions held to minimize the bad debt charge on the profit
and loss account.
7.2 Monitoring
A banks loan portfolio is subject to a continuous process of monitoring.
This will be achieved by regular generation of over limit and overdue
reports, showing where facilities are being exceeded and where payments
of interest and repayment of principle are late.
7.3

Review:

In order to ascertain the effectiveness of this procedure, the section must

be reviewed every after six months by the Head of Retail Banking or
appropriate level of authority. Any modifications must be approved by EC/
Board of Directors.
7.4Recovery:
The collection process for personal loans starts when the account holder
has failed to meet one or more contractual payment (Installment). It
therefore becomes the duty of the Collection Department to minimize the
outstanding delinquent receivable and credit losses.
26

This procedure has been designed to enable the collection staff to

systematically recover the dues and identify / prevent potential losses,
while maintaining a high standard of service and retaining good relations
with the customers. It is therefore essential and critical, that collection
people are familiar with the computerized system, procedures and
maintain effective liaison with other departments within the bank.
7.5Collection objectives

The collectors responsibility will commence from the time an

account becomes delinquent until it is regularized by means of
payment or closed with full payment amount collected.

The goal of the collection process is to obtain payments promptly

while minimizing collection expense and write-off costs as well as
maintaining the customers goodwill by a high standard of service.
For this reason it is important that the collector should endeavor to
resolve the account at the first time worked.

Collection also protects the assets of the bank. This can be achieved
by identifying early signals of delinquency and thus minimizing
losses.

The customers who do not respond to collection efforts - represent a

financial risk to the institution. The Collectors role is to collect so
that the institution can keep the loan on its books and does not have
to write-off / charge off.

7.6

Identification and allocation of accounts

When a customer fails to pay the minimum amount due or installment by

the payment due date, the account is considered in arrears or delinquent.
When accounts are delinquent, collection procedures are instituted to
27

regularize the accounts without losing the customers goodwill whilst

ensuring that the banks interests are protected.
7.7 Collection Steps
To identify and manage arrears, the following aging classification is
adopted:
For all products other than credit cards:
Days

Past

(DPD)
1-14

Due Collection Action

Letter,

Follow

up

&

Persuasion

over

phone

(Appendix 10)
15-29

1st Reminder letter & Sl. No. 1 follows

30-44

2nd reminder letter + Single visit

45-59

3rd reminder letter (Appendix 11)

Group visit by team member

Follow up over phone

Letters to Guarantor, Employer, Reference

all above effort follows

60-89

90 and above

Warning on legal action by next 15 days

Call up loan (Appendix 12)

Final Reminder & Serve legal notice

legal proceedings begin

Repossession starts
Telephone calls/Legal proceedings continue

Collection effort continues by officer &

agent

Letter to different banks/Association

28

As and when an account become delinquent collection system works

together to achieve business objectives i.e. recovery of the past due
installments. At the beginning of the month collection unit has taken the
total asset portfolio from the system. Then all 30 to 149 DPD account has
to be identified and allocate those accounts to the individual collectors in
Call Center to collect the over dues on a set target basis. The respective
collector has got one month time to recover the overdue on a target
based matrix.
7.8 Risk Grading of Customers
Customers are classified according to creditworthiness to enable focused
attention on those requiring increased supervision on remedial action.

Risk Grading also provides the Board and Management to obtain an

overview of the quality of the credit portfolio as follows:

Loan evaluation and ongoing review

To measure the credit quality in a portfolio / business unit

Early detection of loans showing deteriorating features

Effective problem loan management

The

Banks

regulatory

reporting

and

portfolio

management

strategies are driven by risk grade.

In principles, Risk Grading shall be assigned to all customers with
facilities. The following Risk Grading will be assigned based on the degree
of delinquency
Delinquency Cycle
1. New Account
2. Front End
3. Mid Range
4. Hard Core

Risk Grading
Grade 1
Grade 2
Grade 3
Grade 4

29

Front-End X Dpd (1-29 Dpd)

Front-end is the first collection bucket in which delinquent accounts are

identified and at this stage, the customers are normally contacted by
phone and letter, which serves as a reminder of his/her obligation to pay
the overdue amount to the bank.
Any account, which is past due by one day from his payment date, will be
assigned to respective collectors at the beginning of the month and given
one month time to recover the dues. Telephone call should be conducted
in a soft and tactful manner in consistency with the customer service
level. Collector must always do an inquiry through the system to confirm if
payment has been received before commencing with telephone calling to
avoid causing misunderstanding with the customer.
Initial telephone contact should be directed at the office. If the customer
cannot be contacted, telephone call should then be made to the residence
telephone number. Upon successful contact with a customer, the collector
will tactfully inquire about the reason for not paying the minimum
payment due. The collector will then proceed to obtain a promise to pay
for the overdue installment along with the penal interest.
If collection letter or statement returned from the customer due to change
of address, it is the responsibility of the respective collectors to collect the
new address and telephone number and on some extent they could use
the external agency for update the same. The collectors should ask the
customer to provide written instruction of address change to the customer
services department and at the same time record the new address and
telephone no into the banks system
Selective letters can be issued to customers who are difficult to contact
through telephone.

Mid-Range 30 & 60 Dpd (30 - 89dpd)

Mid-range is the bucket in which the account is considered to be seriously

delinquent thus collection efforts must be more intensive, as the account
30

has threatened our asset. When the front-end delinquent collection effort
fails to obtain installment, the account will automatically age into the 30
DPD and subsequently 60 DPD delinquent categories.
These are accounts, which flow down from Front-end. Collectors must
exercise a more aggressive approach at this stage as the customer has
failed to submit a payment even after Front-end efforts. Collection letters
also send to the customers reminding the customers to pay the overdue
within due date.
The Collector must review and analyze the reason(s) for delay in payment.
Upon successful contact with the customer, the collector must secure a
payment date. Constant telephone calls should be made to those
customers who have given numerous broken promises.
Seeking assistance letter to the guarantor or on some extent to the
employer may be an effective instrument at this stage.

Hard-Core - 90 & 120 Dpd ( 90-149 Dpd)

90+ DPD accounts are considered hard-core delinquency and collection

efforts are to be more intensified than 30 DPD and 60 DPD accounts.
Interest to be suspended at this stage of delinquency (90 DPD).
Extra telephone calls and letters are mandatory. Final reminder letter &
Guarantee call up letter must be sent to the customers and guarantors
informing the consequences and demanding the payments. Intensive
visits are also conducted on accounts for immediate settlements.
Requests for waiver are entertained in case of settlement at one go
payment. Re-write can also be offered in some cases as an exception.
When recovery opportunities are considered good through legal notice,
collectors should make recommendations for legal notices if necessary but
not as mandatory.
31

32

Recovery management 150+ DPD :

The account in150+ DPD is provided monitored and tracked separately

other than the above delinquent accounts. A recovery management team
is dedicated for dealing those accounts till settlement. Facility call up
letter must be served to the customer and demanding the total
outstanding is the first initiative for this stage. Then legal notice and other
legal consequence will be the next course of action for the recovery.
External recovery agencies and legal agency are involved at this stage.
Best possible effort and pressure will be given to the customer as well as
to the guarantor for the settlement through using internal collectors as
well as external recovery agencies.
7.9Productivity tracking:
For productivity tracking, analysis from the collectors call sheet is
required. The variables for productivity tracking are, no of calls made per
day, valid contact, promise to pay, kept promise, broken promise etc
needs to be analyzed.
A process should be established to share the lessons learned
from the experience of credit losses in order to update the
lending guidelines.
7.10 Agency management:
All problems accounts must be placed into a dedicated recovery
management team. The recovery portfolio has sub divided into various
collectible and non-collectible pools of accounts. Depending upon the size
of the account balance, internal recovery efforts may continue while rest
of the portfolio that would be assigned to external agencies including legal
agencies to ensure expected recovery. In order to reinforce the recovery
effort a separate Call Center must be formed under Recovery and
33

Collection unit. The center will be managed by the contractual staff with
competitive incentive scheme
The Head of Retail Banking would be empowered to offer interest waivers
for one-time settlement, and installment plans (not re-writes) and
amnesty offers to maximize recovery collections.
On every month the Recovery and collections ensure the allocation of the
provided accounts to the individual collectors as well as to the external
agencies depending on the prospect of recovery to maximize the
collection.

34

8.0 Prudential Regulation 4

Banks shall observe the prudential guidelines of Bangladesh Bank given at
Appendix 15 in the matter of classification of Retail Credit portfolio
(irrespective of all consumer banking products) and provisioning thereagainst.
In addition to the time-based criteria prescribed in Appendix XXI,
subjective evaluation of performing and non-performing credit portfolio
shall be made for risk assessment and, where considered necessary, any
account including the performing account will be classified. Such
evaluation shall be carried out on the basis of credit worthiness of the
borrower, its cash flow, operation of the account, adequacy of the
security, inclusive of its realizable value and documentation covering the
advances.
Apart from specific provisioning requirement as prescribed above, banks
shall maintain a general reserve at least equivalent to 5% of unclassified
consumer finance portfolio as the Bangladesh Bank BPRD circular no 17
dated December 06, 2005.
8.1

SUBMISSION OF RETURNS:

Bank shall submit the borrower-wise annual statements regarding

classified loans/ advances to the Banking Inspection Department.
8.2

TIMING OF CREATING PROVISIONS:

Banks shall review, at least on a quarterly basis, the recovery of the

loans / advances portfolio and shall properly document the evaluations so
35

made. Shortfall in provisioning, if any, determined, as a result of quarterly

assessment shall be provided for immediately in their books of accounts
by the banks on quarterly basis.

8.3 Prudential Regulation - 5

RESCHEDULING OF LOAN
Rescheduling of loan will be governed by rules & regulations as prescribed
by Bangladesh Bank from time to time.

8.4 Prudential Regulation - 6

TRANSFER FACILITIES FROM ONE CATEGORY TO ANOTHER TO
AVOID CLASSIFICATION
The bank shall not transfer any loan or facility to be classified from one
category of consumer finance to another to avoid classification.

8.5 Prudential Regulation - 7

CREDIT INFORMATION BUREAU (CIB) CLEARANCE
While considering proposals for any exposure, banks shall give due weight
age to the credit report relating to the borrower and his group obtained
from a Credit Information Bureau (CIB) of Bangladesh Bank. The condition
of obtaining CIB report will be governed by rules & regulations as
prescribed by Bangladesh Bank from time to time.

CHARGE OFF/WRITE OFF POLICY

36

Accounts are considered charged off when they are no longer considered
collectible or an asset of the Bank. An account to be charged off at 2
years past due. When recovery from the charge off accounts is received
from the debtors, they are treated as recoveries.

9.0

Introduction:

Management Information System( MIS) is one of the most important

elements of the credit cycle as it provides a feedback mechanism on the
effect of decisions made earlier in the credit cycle and also provides input
to product profitable models.
Bank shall put in place an efficient computer based MIS for the purpose of
consumer finance, which will to effectively cater to the needs of consumer
financing portfolio and will be flexible enough to generate necessary
information reports used by the management for effective monitoring the
quality of the portfolio against the established operating standards and
budgets. The MIS is expected to generate the following periodical reports
during the three stages of credit cycle.
9.1 Approval and initial credit Assessment
Information related to the booking and acquisition of new accounts.
9.2

Account Maintenance:

Information related to the on-going performance of the portfolio

of active accounts. Quarterly product wise profit and loss account
duly adjusted with the provision on account of classified
accounts. These profit and loss statements must be placed
before the Board of Director in the immediate next Board
Meeting.
37

9. 3 Collection & Recoveries:

Information related to the problem account which includes:

o Delinquency reports (for 30, 60, 90 180 & 360 days and
above) on monthly basis.
o Reports interrelating delinquencies with various type of
customers of various attributes of the customers to enable
the management to take important policy decisions and
make appropriate modifications in the lending program.

38

Compliance is the act of complying all external laws, regulations,

guidelines,

markets

and

internal

codes

of

conduct,

policies

and

procedures. The Officers working in Retail banking must be fully

conversant, and comply, with the laws, codes, rules & regulations
covering their retail banking business; that any potential problem that
arises are promptly resolved in a manner which minimizes any potential
damage to the good name and reputation of Prime Bank Ltd.
A Compliance Culture must be fostered by regular instruction of staff on
regulatory requirements, and the establishment of, and enforcement of,
related operating procedures and controls.
In order to promotion of good compliance the following Key Business
values must be followed for Retail Banking:
Highest personal standard of integrity;
Commitment to truth and fair dealing;
Putting the Banks interest ahead of the individuals;
Openly esteemed commitment to Quality and Competence;
Commitment to complying with the spirit and letter of all
laws;

39

9.0 The Aim of Retail Credit Training

To establish and maintaining competitive advantage, the Bank shall invest
in training, development and education, which contribute directly to the
achievement of business objectives and good lending practices.
9.1 Retail Credit Courses:
The Retail Credit training program will be comprised of core courses
ranging from fundamental to advanced level, supplemented by short
skill courses.
Core Executive/Officers Training Courses

Fundamental of Personal Credit

Consumer Credit Management

Advanced Retail Lending Management

Skill Workshop Program

Regulatory and Law Relating to Lending

Retail Lending Workshops

Managing Debt Collection

Collection and Negotiation Workshop

Sales and Service Management

Workshop on Marketing & Negotiation Skill

40

10.0 Segregation of Duties

Adequate segregation of duties is a prerequisite of an effective system of
internal control. To be adequate, segregation must ensure that the
following functions are performed by persons independent of each other:

Sales and Marketing Sales and Branch

Credit Assessment and Approval by Credit unit

Credit Documentation and Administrations Loans processing and

disbursement unit

Credit Recovery by Recovery & Collection unit

The credit approval team will be independent from the sales and branch
team who will evaluate and approve the loan. The credit administration
under Retail operations team will check and ensure the documentation
and disburse the loans. This will ensure the better control of the bank
asset and mitigate the risk of compromise of the duties.
The following chart represents the Retail Banking management structure :

41

Head of Retail Banking

Head of
Assessment

Credit Analysis
Team

Head of Sales &

Marketing

Sales Team

Head of Recovery

MIS & Planning

Collection Team

Credit
Administration
Team

Key Responsibilities:
Separate job Descriptions for key positions have been provided with the
Annexure.

42