Internship Report On

Credit Risk Management

Of
IPDC Finance

UNITED INTERNATIONAL UNIVERSITY

i
 Course Title: Internship

Course Code: INT 4399

Submitted to
Mosabbir Uddin Ahmad
Assistant Professor
School of Business and Economics
United International University.

Submitted by
Shejuti Islam
ID- 111 151 010
School of Business and Economics
United International University.

Submission Date
02 February, 2019

ii
 Letter of Transmittal

02 February, 2019

Mosabbir Uddin Ahmad

Assistant Professor
School of Business and Economics
United International University.

Subject: Submission of Internship Report.

Respected Sir,
It is my great pleasure to submit the internship to you for your consideration as a binding
requirement for the successful completion of my internship program at IPDC Finance Limited,
under the BBA Program of United International University. My main inducement was to prepare
this report as per your proficient guidance and directions while considering the guidelines of
BBA Program.
I made ardent efforts to study and scrutinize the related materials, documents, observe the
operations performed in IPDC Finance Limited and I hope that I have been able to relate the
fundamental aspects with practical and rational applications considering my level of competence
and experience.
Therefore, I am submitting my internship report, hoping that you will appreciate my instructive
and comprehensive approach. I earnestly hope that this report fulfills the objectives and
requirements of my internship and that it finds your acceptance. Your kind feedback will be
highly appreciated and in case of any further elaboration or clarification or any kind of queries
regarding the report, I shall be glad to assist you.

Sincerely yours,
SHEJUTI ISLAM
ID: 111 151 010
School of Business and Economics
United International University

iii
 Acknowledgement

At first I like to express my deepest gratitude to almighty Allah for my strength and patience to
prepare the report. I would also like to thank my parents who have always given me enough
support to reach at this position and tried their level best so that I achieve success at every step of
my life. Next, with warm gratitude from the deepest of my heart I would like to recall all of them
who have helped me from every side in accomplishing this report as well as my internship
program.

There are some people who helped me a lot during the three months of my internship period. It
will not possible to complete to internship fruitfully except their cordial support. They guided me
to finish my report within the timeframe. Their support assists me to prepare my internship report
successfully.

Firstly my heartiest and deepest honor to Mosabbir Uddin Ahmad, Assistant Professor, School of
Business Administration (Finance), united international university for his cordial supervision and
guideline in all stages of my internship period .He guided me to prepare my total internship
report. Thank you so much sir to guide me in-spite of your busy schedule.

I am highly indebted to IPDC Finance Ltd, for their guidance and constant supervision as well as
for providing necessary information regarding the report & also for their support in completing
the report properly and on time. Without their guidance it would be quite impossible to complete
my internship report fruitfully. They suggested to do my duties, instructed to successfully do the
job.

iv
 Executive Summery

Non-Banking Financial Institution (NBFIs) have become an important aspect for the growth of
any nation’s economy. During the world recession period NBFIs in Bangladesh acted in a
stringent way so that the financial systems as well as the economy cannot collapse. Today there
are 29 NBFIs now contributing to the growth of national economy.
IPDC Finance Ltd as the first private sector financial institution of the country has started their
journey in 1981 and still they are dominating the NBFI sector as well as contributing to the
prosper of economic development. Their success in this industry has inspired others to invest
their capital in a profitable way.
All NBFIs major product or business is to provide lease facilities to the business along with
various types of loan to individual and organizations therefore a great credit risk is associated
with each and every product they are offering. That is borrowers can be defaulter and will unable
to repay the dues. Which can lead the NBFIs to face a great loss. To minimize this risk every
institution has its own risk management policies. A number of procedures are taken to check the
risks associated with their investments.
This report is emphasizes on the overall credit risk management in NBFIs of Bangladesh. In this
regard IPDC Finance Limited has been taken as the sample organization to discuss about the
CRM process. Though very organization has its own procedure, yet all of them are bound to
follow the common instructions of Bangladesh bank.
There is a polished and elaborate procedure that are to be followed by IPDC in case of
controlling the credit risk. The whole system has been described in a detailed manner keeping in
mind the most important segments. The Credit Approval Process, needed Credit documentation,
Credit Risk Grading are added to give a clear understanding of the whole system. Along with
these the products & services, rules and regulation, corporate governance has been discussed also
to know about the overall company.

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 List of Abbreviations

NBFI Non-Banking Financial Institution

SME Small & Medium Enterprise
CRM Credit Risk Management
DFI Development Finance Institution
CSR Corporate Social Responsibilities
WO Work Orders
BOD The Board of Directors
EC The Executive Committee
MCC Management Credit Committee
RM Relationship Management
KYC Know Your Customer
CM Credit Memorandum
CRG The Credit Risk Grading
CIB Client Information Bureau
SAM Special Asset Management
CLR Classified Loan Review Report
CAD The Credit Approval Discretion

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 List of Tables

TOPICS PAGE NO.

Table: 1.1(Milestone) 12
Table: 1.2(Branches) 14
Table: 1.3 (shareholders) 14
Table: 1.4 (SOWT) 17
Table: 1.5 (Grading) 25

LIST OF FIGURES

TOPICS PAGE NO.

Figure: 1.1 (IPDC at a glance) 08
Figure: 1.2 (Core Values) 09
Figure: 1.3 (Organizational Hierarchy) 10
Figure: 1.4(shareholders) 15
Figure: 1.5 ( Lending Portfolio) 32
Figure: 1.6 ( Loan Disbursement ) 33
Figure: 1.7 (NPL Ratios) 33

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 Table of content

TOPICS PAG
E
NO.
CHAPTER 1………………………………………………………………………..... 1
INTRODUCTION…………………………………………………………………… 1
1.1 Introduction……………………………………………………………… 2
1.2 Origin of the Report……………………………………………………... 2
1.3 Objective of the report………………………………………………....... 3
 Broad Objective……………………………………………………... 3
 Specific Objectives…………………………………………………... 3
1.4 Methodology…………………………………………………………….. 4
 Primary Data………………………………………………………… 4
 Secondary Data……………………………………………………… 4
1.5 Limitations of the Report………………………………………………... 4

CHAPTER 2…………………………………………………………………………. 6
ORGANIZATION STUDY…………………………………………………………. 6
2.1 Company Overview …………………………………………………….. 7
 Historical background………………………………………………. 7
 About the company………………………………………………….. 8
 Mission………………………………………………………………. 8
 Vision………………………………………………………………… 8
 Guiding principles…………………………………………………… 8
 Core Values………………………………………………………….. 8
 Organizational Hierarchy of IPDC………………………………….. 9
 Milestone Investments………………………………………………. 12
2.2 Business Overview………………………………………………………. 13
 Corporate Information……………………………………………….. 13
 Branches………………………………………………………………. 14
 Capital structure………………………………………………………. 14
 Shareholders…………………………………………………………… 14
2.3 Products Overview……………………………………………………… 15
 Offered Products and Services of IPDC………………………………. 15
2.4 Strategic Decisions Making Tools Overview…………………………... 17
 SWOT Analysis……………………………………………………….. 17

CHAPTER 3…………………………………………………………………………... 18
CREDIT RISK MANAGEMENT (CRM) OF IPDC FINANCE……………………... 18
3.1 Credit risk & Credit Risk Management……………………………… 19

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 3.2 Non-Performing Loan (NPL) ………………………………………….. 19
3.3 Credit Risk Management at IPDC……………………………………… 19
 Credit Principles………………………………………………………. 20
 Credit Approval……………………………………………………….. 21
 The Credit Approval Process…………………………………………. 21
3.4 Credit Assessment & Risk Grading……………………………………. 22
 Credit Assessment ……………………………………………………. 23
 Risk Grading …………………………………………………………. 24
 Functions of Credit Risk Grading …………………………………….. 24
 Credit Risk Grading of IPDC for Business Entities…………………... 24
3.5 Periodic Reviews ………………………………………………………… 26
 Periodic Ratings Review …………………………………………….. 26
 Account Review………………………………………………………. 27
3.6 Early Alert Account…………………………………………………….. 27
 Early Alert Process……………………………………………………. 27
3.7 Non-Performing Loan (NPL) Management……………………………. 28
 Non-Performing Loan (NPL) Account Management ………………… 28
 Non-Performing Loan (NPL) Monitoring…………………………….. 28
3.8 Rescheduling……………………………………………………………. 28
 Objective of Rescheduling…..………………………………………. 29
 Events of Rescheduling……………………………………………….. 29
 Forms of Rescheduling……………………………………………….. 29
 Guidelines for rescheduling…………………………………………… 29

CHAPTER 4 ………………………………………………………………………….. 31
COMPARATIVE ANALYSIS AND FINDINGS ……………………………………. 31
4.1 Analysis and Findings …………..……………………………………….. 32

CHAPTER 5 ………………………………………………………………………….. 35
RECOMMENDATION & CONCLUSION …………………………………………. 35
5.1 Recommendation……………………………………………………….. 36
5.2 Conclusion……………………………………………………………… 37
5.3 References………………………………………………………………… 38

ix
Chapter 1

INTRODUCTION

1
 1.1 Introduction

The core function of any financial Institution is to provide credit to various individual or
organizational entities who seek financial collaboration to support their personal life or financial
needs of business entities to flourish their respective manufacturing or trading.
IPDC Finance Ltd, the First Non- banking financial institution in Bangladesh has attained
significant growth in all the fields of business as a multi-product financial institution. It is one of
the well-known companies on market and expanded its market into Consumer, SME, Corporate,
Retail and Capital market segments.
As the greatest share of the total revenue of any NBFI along with IPDC is generated from Credit
Operations, it should be flawless. Otherwise the NBFIs will face tremendous loss in their
business. Moreover, maximum risk of any NBFI, is centered in Credit Operation.
Forged and poor credit risk management increases the number of excessive interference in the
loan granting process as well as non-performing loan rates. All these have a negative impact on
financial condition of NBFIs. For these reason this topic is one of the important topics in the core
activities of the NBFIs. As credit risk is most vital among all the other risks, extra attention is
needed to manage this risk.
As a consequence IPDC always tries to manage its credit portfolio, both at Operations & Risk
levels. They publish different manuals based on credit risk management which is designed in line
with industry best practices, prudential norms and regulatory guidelines and directives. And
concerned employees ought to follow them in marketing, sanctioning, disbursing and monitoring
the company’s financial products.

1.2 Origin of the Report

The internship program is an integral part for completion of the BBA program. When all the
courses of BBA program are completed, every student requires a three months attachment with
an organization followed by a report assigned by the faculty supervisor. It is important for a
student to understand the functioning of an organization and understand the real world
implications of the theories and learned concepts.
I got the opportunity to do my internship in IPDC Finance Limited at Sat masjid Road Branch.
During my internship I have worked with different products, functions and departments of that
company and then I have chosen the Credit Risk Management (CRM) to work with. Credit Risk

2
Management helps an organization to manage the overall loan processing activities for instance
request of loan, approval, documentation, schedule, disbursement and lastly maturity.

1.3 Objective of the report

 Broad Objective:
The broad objective refers to the ultimate motive of any research. It shows the aim for which the
research is being conducted.
For this report the broad objective are:
 To fulfill the requirement for the completion of BBA program.
 To get an overall idea about IPDC Finance Limited
 To understand the credit risk management (CRM) procedures of them

 Specific Objectives:
The research should be split into different specific objectives for making up a proper direction to
the project.
In case of this report, the specific objectives for this study are-
 Accumulating practical knowledge about different Non-banking company operations out
of bookish knowledge. .
 Identify the relationship between practical operations and theoretical lessons about any
NBFI.
 Understanding the necessity of Credit Risk Management.
 Understanding the whole CRM procedure of IPDC Finance
 Understanding the decision making process of CRM.
 Identifying the possible alternation that can be done in the whole CRM process.

3
 1.4 Methodology

Picking an effective and efficient methodology for any report is very important in order to make
an ideal report. I used both primary and secondary data in order to accomplish the paper. The
ways of collecting information are presented below:

 Primary Data:
 Three months practical participation in internship program with IPDC Finance.
 A physical discussion with the respective manager, employees and staffs.
 Material reports and papers provided by the supervisor of mine.

 Secondary Data:
 Credit Risk Grading Manual, set out by Bangladesh Bank.
 Credit Manual of IPDC Finance Limited.
 Relevant books, Research papers, Newspapers, Journals and articles.
 Web and Internet.

1.5 Limitations of the Report

Nothing in this world can be get in ease. We always have to face problems in case of achieving
something. Though I gave my best effort there was some limitations that prevented my report to
be the best one. These limitations are as follows:
 The major limitation of this report was associated with the function of my assigned
department. I was assigned in the retail branch where the main function was sales based.
As my major concentration are on finance, I was unable to prepare the report on the
function of my assigned department that is Sales, whose duties were marketing based and
were totally different from my sector. For this reason I was unable to make in depth
research for my selected topic which was based on my major concentration.
 Every organization has its own secrecy which they don’t want to be revealed to external
world. There is no exception in IPDC Finance Limited regarding this case. My colleagues
did not give me information which I needed for the sake of confidentiality of the
organization.

4
  Another big issue was the friendliness of the employees over there. They were too busy
to give me time for discussion about my area of concentration. Most of the time I did not
get enough time and help from them which hurt my overall preparation for the report.
In spite of all of those limitations, however, I tried my level best to come up with an informative
and analytical report. I believe, for any further research regarding this topic, this report of mine
will be really helpful.

5
Chapter 2

Organization Study

6
 2.1 Company Overview

 Historical background
IPDC Finance Limited was established in November 28, in the year of 1981. Formerly it was
known as “Industrial Promotion and Development Company of Bangladesh Limited”. Becoming
the first private sector Development Finance Institution (DFI) and Non-Banking Financial
Institution (NBFI) in Bangladesh, it has been playing a pivotal role in fulfilling the core
objectives to create greater industrialization in Bangladesh since its origin. International Finance
Corporation (IFC), USA; German Investment and Development Company (DEG), Germany; The
Aga Khan Fund for Economic Development (AKFED), Switzerland; Commonwealth
Development Corporation (CDC), UK; and the Government of Bangladesh (GOB) , these groups
of shareholder were cooperated to found IPDC.
The company is headquartered in Dhaka and has operations in Chittagong, Sylhet, Gazipur,
Narayanganj, Bogra, Jessore, Mymensingh, Uttara, Dhanmondi and Motijheel.
IPDC is a public limited company and listed in both Dhaka Stock Exchange and Chittagong
Stock Exchange. It was licensed as a Financial Institution by Bangladesh Bank under Financial
Institutions Act on 7 February, 1995. IPDC received AA1 Rating in long term and ST-1 in short
term, which is a testimonial of their financial strength and strong debt paying ability.
With the time, the Company introduced innovative financial products and services. Today IPDC
is a diversified financial institution with a wide range of products and services covering
corporate finance and advisory services, middle market supply chain finance, retail wealth
management and retail finances.

7
  About the company
As of June 2018 IPDC at a glance –

ESTABLISHMENT IN NO OF BRANCHES NO OF EMPLOYEES

1981 12 558

NO OF CUSTOMERS LOAN PORTFOLIO DEPOSIT PORTFOLIO

8223 37 Bn 32 Bn
Figure: 1.1 (IPDC at a glance)

 Mission
Enabling our customers and communities to live unbound and to live to their fullest potential by
extending innovative financial solutions in a friendly, timely, transparent and cost-effective
manner

 Vision
Becoming the most passionate financial company in the country with a special focus on youth,
women and underserved areas.

 Core Values
IPDC finance limited hopes to create remarkable customer experiences. For this they:

Serve their Go beyond Relentlessly

customers the normal
8 pursue
with passion call of duty innovation
and honesty as other and novelty
 Figure: 1.2 (Core Values)

 Organizational Hierarchy of IPDC

9
Organizational Hierarchy of IPDC (CONT.)

Figure: 1.3 (Organizational Hierarchy)

10
  Milestone Investments
IPDC Finance Limited is holding a centric role in the development of the industrial view of
Bangladesh. IPDC has been a partner in a number of milestone projects that were the first in
Bangladesh of its kind. There are many in this, but some of them are listed below:

First Leasing Company :

First Housing Finance Company :

Second Housing Finance Company :

First Theme Park :

First Preference Share Investment :

First Independent Power Producer :

First International Standard Private :

Hospital

First Private Sector 5 Star Hotel :

First Private Sector TV Channel :

11
First Institutional Investment in :
Private Sector Education
 Table: 1.1(Milestone)

2.2 Business Overview

 Corporate Information
Company Name (Registered)
IPDC Finance Limited

Incorporation Date
28 November 1981

Legal Form
 A public limited company which is incorporated in Bangladesh under the company Act
1913
 Listed with the Dhaka and Chittagong Stock Exchange Limited since 02 December 2006.
 Licensed as Financial Institution under Financial Institutions Act on 07 February 1995.

Head Office (Registered)

Hosna Centre (4th floor)
106 Gulshan Avenue, Dhaka 1212

Email
[email protected]

Website
www.ipdcbd.com

 Branches
Below is a list of branches that are currently providing services to people and organizations
engaged in different spheres-

12
 Locations of Branch Headcount
Dhaka 04
Gulshan Avenue - Head Office
Motijheel
Dhanmondi
Uttara
Chittagong 01
Sylhet 01
Narayangonj 01
Gazipur 01
Bogra 01
Jessore 01

Table: 1.2(Branches)

 Capital structure

Authorised Capital (Tk.) : 4,000,000,000

Total paid-up capital (Tk.) : 2,181,608,160

 Shareholders

IPDC’s current shareholders and their percentage of share are listed below:

shareholders Percentage of
share
The Government of the Peoples’ Republic of Bangladesh 21.8778%
(GOB)
BRAC 25.0000%
Aga Khan Fund for Economic Development (AKFED) 11.0522%
Ayesha Abed Foundation 10.0000%
RSA Capital 05.0000%
General Public 27.0700%
Total Shares 100%

Table: 1.3 (shareholders)

13
A graphical view will help to understand the percentages easily-

Figure: 1.4(shareholders)

2.3 Products Overview

 Offered Products and Services of IPDC

IPDC Finance Limited offers a wide range of financial solutions through its three business
segments which includes Corporate, SME and Retail-

Corporate Business:
The Corporate Financial Services Division of IPDC offers the full spectrum of corporate finance
services to large public and private enterprises. Products under corporate finance are as follows-
 Lease Finance: Lease finance is provided against industrial machineries, commercial
equipment, generators, vehicles, vessels, industrial large engines and so forth that will be
newly procured or already procured machineries and related assets

14
  Project Financing: Project finance is provide for any new business unit as well as for
any existing project.
 Term Loan: Term Loan is given to the long-term business. It generally used to meet
various capital or fixed expenditures.
 Short Term Financing: This financing meet the short term cash requirements. This
helps to carry out the dat to day activities.

Small and Medium Enterprises (SME) Business:

The following products are under the Small and medium enterprises (SMEs):
 Lease Finance: Offered to small and medium size business for having fixed asset like
machineries, vehicles, vessels etc.
 Long Term Finance: Offered for meet up various fixed expenditures.
 Short Term Finance: Offered for meet up day to day expenditures.
 Financing Women Entrepreneurs: This financing is especially for the women in
business for helping them in success.
 Work Order Financing: This financing is offered to reduce the gap between time of
processing the order and receipt of payment.

Retail Business
Some personal financial services are offered to fulfill the needs of individuals. These are
included in retail business. The products belong in this category are discussed below:
 Savings Schemes: some savings schems are Deposit Premium, Millionaire Deposit and
Ultiflex Deposit schemes.
 Deposit Schemes: Among the wide ranges of products that are offered in this type
schemes, Annual Profit, Fixed Deposit General, Double Money Deposit, etc. are
included.
Besides these, Home Loan, Auto Loan and Personal Loan are also included here.

2.4 Strategic Decisions Making Tools Overview

By SWOT Analysis IPDC try to identify their strength, weakness, opportunities and threats.
And this analysis help them to make different strategic decisions about the wellbeing of the
organization. SWOT Analysis of IPDC is described below-

15
  SWOT Analysis:
STRENGTH WEAKNESS OPPORTUNITIES THREATS

1.Unique 1. For retail and 1.Regulatory advantage in retail lending 1.B are
shareholding SME business there becoming the
structure is a room for 2.Middle income people is rising powerful
improvement in competitor.
2.Relationship case of brand 3.Women entrepreneurs are increasing day
with corporate recognition and by day 2.Restrictions
houses Internal capacity. on low cost
4.Growing services sector deposit by the
3.Risk 2.Nistribution regulatory
management network is very 5.Young people is becoming more active in
framework narrow the workforce 4.Product
limitation
6.Mobile and internet uses are rising

Table: 1.4 (SOWT)

Chapter 3

16
 Credit Risk Management (CRM)
of IPDC Finance

3.1 Credit risk & Credit Risk Management

When there is a possibility that a certain borrower will fail to repay a loan or meet contractual
obligations then it’s called Credit risk. This risk leads the lender in not receiving the owed
principal and interest. AS a result the lender faces losses. When lenders offer mortgages, credit
cards, or other types of loans, there is a risk that the borrower may not repay the loan. Like that

17
when a company offers those to a client, there remains a risk that the client may not repay the
loan.
It is always hard or may be impossible to detect who will be defaulter yet a well-designed
assessing and managing credit risk program can reduce the amount of losses. And for this every
organization has its credit risk management section that solely work to lessen the overall credit
risk.

3.2 Non-Performing Loan (NPL)

Nonperforming loan refers to the borrowed money which the borrower has not paid. There is
time period of usually 90 days. And if the payment is not done by this time than that loan will be
called non-performing loan. In this case no interest & principal will be paid within that specified
period. Definitions of a nonperforming loan will be depended on the loan's terms and agreement
as there is no definitive definition of a NPL.

3.3 Credit Risk Management at IPDC

Credit risk is the potential that a borrower or counterparty fails to meet an obligations on agreed
terms. There is always a probability that a borrower will not repay his loan as obligated resulting
into credit risk exposure or financial losses or otherwise known as non-performing loans (NPL).
And obviously any losses is bad for all the NBFIs as well as IPDC. As losses can lead to any
destruction of the business. So, IPDC has to conscious about lessening the overall NPL rate by
managing the credit risk effectively and efficiently.
For this management, IPDC established manuals for their credit management. Through which
they get help to minimize their credit risk as well as NPL. Those managements tool is discussed
in the following part of the report.
Even after the hardest try of managing the risks there can be NPLs. Guidelines about any NPL
are discussed below as well.

So firstly, how IPDC is working for managing their credit risk will be discussed:

18
  Credit Principles
IPDC always try to follow the defined credit principles in the pursuit of its lending activities.
That is because the can avoid the credit risks. Credit risks are generally calculated based on the
borrower's overall ability to repay. For assessing credit risk on a consumer loan, all lenders as
well as IPDC look at the recognized 6 C’s of good credit, that are-
Character, Capacity, Conditions, Capital, Collateral & Customer Relationship
They also look at the 5 C’s of bad credit, that are-
Complacency, Carelessness, Communication, Contingencies & Competition.

These are the fundamentals that should be checked in every loan request. In addition, IPDC
faithfully follow some special codified credit principle to make their credit risk management
process more efficient. Some of them are discussed below in short-

o Any credit facilities of IPDC must not conflict with Bangladesh Bank/ Regulatory Bodies
Guidelines, Directives, Regulations/ Laws of the Land.

o Credit facilities shall be extended upon proper appraisal of customer’s background,

character as to integrity (e.g ability and willingness to repay), and capacity to service debt
including interest & fees (i.e through study and analysis of financial statements) and past
track record (e.g Loan defaults / breach of commitments or covenants)

o Credit facilities shall be extended upon proper assessment of pertinent risks to minimize
loan defaults.

o IPDC shall be fully customer focused and aim to build a long term relationship with its
customers through proper counseling, problem solving, expeditious service delivery etc.

o Credit staff shall immediately inform appropriate supervisors when they are unable to
adequately manage respective functions or when signs of irregularities or deterioration of
an account or its management surfaces. Likewise, the higher-ups in the credit chain must
immediately communicate with the credit staff on matters of changes in Rules/
Guidelines/ Strategies/ Policies / Procedures etc.

o IPDC shall behave ethically and transparently in all its credit activities. In this context
credit staff shall not engage in conducts which are illegal.

19
 o Pricing of products must be commensurate with the degree of credit risk undertaken by
IPDC. In the bare minimum, yield from funding must cover the Cost of Deposit,
Overhead Cost, Provision Requirement and Risk Premium.

o IPDC shall maintain a diversified credit portfolio to mitigate concentration risk. In this
regard, the Company shall have peak exposure level caps for Business Segments,
Business/ Industry Sector and Single Obligor Exposure.

 Credit Approval
For managing any credit risk it is important to approve the loan with maximum possible filtering.
In IPDC this important work is done smoothly. Here The Credit Approval Discretion (CAD)
authority is vested in three tiers within the credit chain. These are:

o The Board of Directors (BOD)

o The Executive Committee (EC)
o Management Credit Committee (MCC)
The Management Credit Committee shall comprise of the following members:
o Managing Director and CEO
o Deputy Managing Director and Head of Operations.
o Head of Credit Risk Management.
o Head of Special Asset Management.
Every credit is approved step by step with the help of the above mentioned authorities.

 The Credit Approval Process

The Credit Approval process begins with the receipt of ‘Customer Application’ by the
concerned Relationship Manager (RM), along with the all required documents. And this process
ends with the issuance of a ‘Sanction Advice’ to the Customer.
In between there are some other steps that should be followed before going to the end of this
credit process.

Customer Suitability

20
Before making available any credit to a customer, the lending officers should understand the
customer and its business fully. As IPDC will not extend any credit facilities that are not
appropriate with the nature of the customer’s business.
The facilities and associated risks should be fully understood by all the borrowers.
Borrower Verification
- Verification of the Individual or Business entity is mandatory in any credit request. It is done
through fulfilling the whole “Know Your Customer [KYC]” requirements. This requirement
should comply with the anti-money laundering legislation of the country as well as IPDC’s
guidelines. KYC requirements must be satisfied prior to establishment of any relationships.
- Every Individual or Corporate Entity have the legal documentation and formal establishment.
- Every client must have the legal capability to engage in a contract. Only then they can enter
into contractual credit relationship with IPDC.
Credit Assessment Criteria
A professional and structured approach to the assessment of every proposition is essential.
Lending decisions which are not well founded often result in unsatisfactory situations which will
require a disproportionate time and cost input in the future and may ultimately lead to a loss for
the Company.

Risk appraisal is as relevant to small advances as it is to larger borrowings. All aspects of a

proposition should be assessed to enable a balanced lending decision to be made and a quality
service provided. The highest standards in risk appraisal, monitoring and control should be
exercised.

3.4 Credit Assessment & Risk Grading

Risk management at IPDC covers independent credit assessment for any new investment,
internal risk grading for the existing portfolio, reviewing the existing portfolio, NPL
management and overseeing the provisioning requirement for the accounts. Those will be
described here in details.

 Credit Assessment
A thorough credit and risk assessment is conducted prior to the granting of any facility. The
result of this assessment is presented in a Credit Memorandum (CM) that originates from the
Relationship Manager (RM) of the Business/Retail Banking Division. This CM is reviewed by
the Credit Risk Management (CRM) team for identification of the risks.
21
The RM has the ownership of the customer relationship. They are also responsible for ensuring
the validity of the submitted credit application for approval.
RMs must know their customers and conduct all the needed procedures on new borrowers,
principals, and guarantors in order to ensure that their representation about themselves are the
true one.
In addition of these things, other risk areas should be addressed. They are following:

1. Borrower Analysis
2. Industry Analysis
 Industry analysis should address the following areas:
 Size and profitability
 Maturity
 Degree of industry concentration/fragmentation
 Cyclicality
 Bases of Competition
 Barriers to entry/exit
 Sources of Government Support
3. SWOT Analysis
4. Supplier/Buyer Analysis
5. Historical Financial Analysis
6. Projected Financial Performance
7. Credit Background
8. Account Conduct
9. Adherence to Lending Guidelines
10. Mitigating Factors
11. Facility Structure
12. Purpose of Credit
13. Project Implementation
14. Foreign Currency Fluctuation
15. Security
16. Type of Control on Cash Flow
Similarly, disbursements should be made mainly through such mediums as Payment Order,
Demand Draft, Inter-Bank account transfer etc. to ensure proper use of funds.
 Risk Grading
The Credit Risk Grading (CRG) is the grading of the underlying credit-risk for a given exposure.
The grading are done by pre-specified scale. This Credit Risk Grading is the basic thing for
fulfillment of the Credit Risk Management system.

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Credit risk grading is an important tool for any Financial Institutions to carry on the credit risk
management that helps to understand various dimensions of risk involved in different credit
transactions. Moreover, the credit risk grading system is a must to take decisions both at the pre
and post sanction stage.
GRADING SHORT NAME NUMBER
Before Superior SUP 1 placing any rescheduling
Good GD 2 proposal, the RMs must
Acceptable ACCPT 3 specify existing and
Marginal/Watch List MG/WL 4 proposed grading of the
Special Mention SM 5 facility.
Sub Standard SS 6
Doubtful DF 7
Bad & Loss
 Functions of Credit Risk Grading BL 8

As I have stated earlier, credit risk grading is an important tool. A sound grading system
promotes a financial institution’s safety and soundness by effective decision-making. Grading
systems measure credit risk and differentiate individual credits and groups of credits by the risk
they have. This helps to monitor changes and trends in risk levels. The process also assess to
manage the risks to optimize returns.
 Credit Risk Grading provides a quantitative framework for helping in provisioning
requirement of the overall credit portfolio.
 CRG provides a quantitative measurement of risk which shows the risk level of a
borrower and enables quick decision making.
 CRG outputs can be relevant for individual credit selection. The other decisions can be
related to pricing or other specific features.
 Risk grading would also be relevant for monitoring, internal MIS and assessing the
aggregate risk profile of the company.

 Credit Risk Grading of IPDC for Business Entities

IPDC has introduced CRG consisting of the following 8 categories. Here the first 5 stages
represent various grades of acceptable credit risk and last 3 stages represent unacceptable credit
risk. IPDC considers CRG 1 to 3 as acceptable for any new facility. However, in case of clients
with promising features but poor risk grade (below 3 but not below 5), IPDC consider new
facilities as a special case upon approval of the delegated authority.

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 Table: 1.5 (Grading)

The above CRGs will be determined by a quantitative analysis based on Risk Grade Score Sheet.
A detailed explanation of different stages of Credit Risk Grading is given below:

Superior - (SUP) - 1
The secure credit facilities falls in this grading. Like facilities that are fully covered by cash,
government guarantee or the guarantee of a top tier international Bank
Good - (GD) - 2
The borrowers who have Strong repayment capacity or have excellent liquidity and low leverage
or have well established, strong market share falls in this section. And the company having
consistently strong earnings and cash flow and very good management skill & expertise get this
grading. For this grading aggregate Score have to be of 85 or greater based on the Risk Grade
Score Sheet
Acceptable - (ACCPT) - 3
These borrowers are not that much strong as those “GOOD” Grade borrowers. Yet have enough
liquidity, cash flow, earnings and obviously a good record. Acceptable collateral, management,
parent/sister company guarantee etc. are used to secure the credit. Score should be of 75-84.
Marginal/Watch list - (MG/WL) - 4
These borrowers are associated with above average risk as they have strained liquidity, higher
leverage, less cash flow. Low business credit is detected here. Score is 65-74 based on the Risk
Grade Score Sheet.
Special Mention - (SM) - 5
These borrowers have potential weaknesses. So they deserve a close attention of the management
as if left uncorrected then it may result in a deterioration of the repayment of the borrower. Here
several management problems are exist. Score will be 55-64 based on the Risk Grade Score
Sheet.

Substandard - (SS) – 6

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The financial condition is weak here. So the possibility of repayment is in doubt. So Bangladesh
Bank criteria for sub-standard credit will be applied here. Score will be 45-54.
Doubtful - (DF) – 7
Here full repayment of principal and interest is supposed to be unpaid. And the likelihood of loss
is high. So Bangladesh Bank criteria for doubtful credit will be applied here. The aggregate
Score will be 35-44.
Bad & Loss - (BL) - 8
Here possibility of recovery is poor and legal options have been pursued. And Bangladesh Bank
criteria for bad & loss credit will be applied here. The aggregate score is less than 35 here.

3.5 Periodic Reviews

 Periodic Ratings Review

CRG of the client is done before any new proposal for investment is submitted for approval.
Moreover, the credit portfolio is reviewed in terms of CRG by the CRM division on an annual
basis for continuous loans to incorporate any degradation/up gradation of the accounts.
Respective RMs complete CRG of their portfolio ensuring utmost objectivity in calculating Risk
Grading Score Sheet. Further, CRM Division keep regular interaction with the Relationship
Managers (RMs) and with the clients for knowing the financial condition of the borrower. The
following areas will be covered while reviewing the risk grading:
 Checking whether the borrower is in compliance with the approved terms and conditions.
 Reviewing the latest financial statements to determine financial stability of the borrower.
 Undertaking physical visit to the borrower’s site to observe the current activities of the
borrower, ensure that all collateral as per approval terms are in place and also to
interview the top management of the Borrower to evaluate their business progress.
 Examining the repayment behavior of the borrower.
 Obtaining market intelligence on the borrower
 Obtaining latest CIB report.

 Account Review

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To minimize credit losses, monitoring procedures and systems are there that provides an early
indication of the deteriorating financial health of a Borrower. There are systems that is placed to
report the following exceptions to relevant executives in CRM Division and RM team:
 Any past due of the past for instances principal or interest payments, bills, account
excesses etc. Any breach of facility covenants is also included here.
 Absence of regular financial statements. And breaching of any covenant.
 An Account Review for each borrower must be carried out annually.

3.6 Early Alert Account

Any Account that requires monitoring, supervision, or close attention by the management for any
potential risks or weakness is known as An Early Alert Account. Theses weaknesses have to be
corrected, if not then they may result in deterioration for the repayments.

 Early Alert Process

Early identification, prompt reporting and proactive management of Early Alert Accounts are
prime credit responsibilities of all RMs that must be undertaken on a continuous basis. An Early
Alert Reports are prepared by the RM and then signed by the Head of Business Banking. After
that the report are sent to the approving authority in CRM Division. Then the Risk Grade are
updated immediately without any delay.
Sometimes the facilities face difficulties in spite of having a prudent credit approval process. So
this early identification is important to have a protection against any disaster.
Contacting with customers in a daily basis enhance the possibility of developing strategies that is
mutually agreed by both Customer and IPDC.
An Account can be re-classified as a Regular Account from Early Alert Account status when the
symptoms of the Early Alert classification have been removed or when there is no dues left. An
acceptance from the CRM Division is required for this conversion from Early Alert Account to
Regular Account.

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 3.7 Non-Performing Loan (NPL) Management

 Non-Performing Loan (NPL) Account Management

All NPLs are assigned to Account Managers within the Special Asset Management (SAM)
Division. SAM division is responsible for coordinating and administering the action plan or
recovery process of the account. Some of the assistance from Relationship Management
(Business/Retail Banking) is sought, it is essential that the autonomy of the SAM Division be
maintained to ensure appropriate recovery strategies are implemented.
The management of NPLs is a dynamic process. So the strategies associated with it is regularly
reviewed. There also a full process which is established to share the lessons learned from the past
experience regarding credit losses so that regular modification can be done for lending
guidelines.

 Non-Performing Loan (NPL) Monitoring

On a quarterly basis, a Classified Loan Review Report (CLR) is prepared by the SAM Division
to update the status of the action/recovery plan, review and assess the adequacy of provisions,
and modify IPDC strategy as appropriate.

3.8 Rescheduling

For rescheduling the problem accounts and monitoring them periodically IPDC has some clear
guidelines to follow.
The main purpose of rescheduling is to make a maximum recovery of the expected and actual
problem accounts. This rescheduling are done time to time and try to sort the problem accounts
within shortest possible time.

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  Objective of Rescheduling:
(i) A modest settlement for the problem accounts.
(ii) To provide aid in case changed business condition of borrower’s
(iii) For a better management of outstanding.

 Events of Rescheduling:
On occurrence only of the following cases rescheduling would be considered-
(i) When an overdue has been accumulated or seems to be accumulated for any kind
of change in the business conditions. And if the Borrower is unable to pay the
entire accumulated overdue in a single installment.
(ii) When the borrower is capable of paying the dues as per revised arrangement.
They must also have the willingness of such payments.
(iii) The business of the borrower must be in operation. The assets also have a
productive value and life for servicing the outstanding liabilities.

 Forms of Rescheduling:
Rescheduling can be done by using one or more of the following ways:
(i) Rescheduling can be done by extending the financing term keeping the lending
rate unchanged.
(ii) Reversely lending rate can be reduced keeping financing term unchanged
(iii) Both can also be done together. That is lending rate will be reduced and financing
term will be extended.
(iv) Payment can be delayed for a short-term period, with or without extending the
maturity date. .

 Guidelines for rescheduling as per Bangladesh Bank:

For rescheduling any problem account, some criteria are mentioned in the guideline of
Bangladesh Bank the mentioned criteria are strictly followed by IPDC. Those criteria are
discussed below:

 Only after the cash payment of at least 15% of the total overdue or 10% of the total
outstanding amount of loan, whichever is less; the application for first rescheduling
will be taken into account.
 Application for second rescheduling will be considered when cash payment of
minimum 30% of the total overdue or 20% of the total outstanding amount of loan,
whichever is less; are done.

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 Rescheduling application for more than two times will also be considered after cash
payment of minimum 50% of the entire overdue or 30% of the total outstanding
amount of loan, whichever is less;
 Prior approval of the BOD is to be obtained for any debt rescheduling proposal.

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Chapter 4

Comparative Analysis
and
Findings

30
 4.1 Analysis and Findings

As stated before, IPDC Finance Ltd is the first Non- banking financial institution in Bangladesh
and it has attained extraordinary growth in all the fields of business as a multi-product financial
institution.
From the overall study here we came up with some findings that will be discussed below.
 Lending Portfolio
The loans and advances of IPDC is showing an upward growth rate. For the year, 2016 they have
BDT 19,481 million in their loan portfolio whereas the amount of loan portfolio was BDT
34,467 million in the year of 2017 having a growth rate of 76.9%.
Surely the growing rate is a good sign for them but in comparison with the other competitors like
IDLC, they have very poor lending portfolio. IDLC has a lending portfolio of BDT 62,217mn in
2016 & 71,499mn in 2017.

Chart Title
80,000 71,499
70,000 62,217
60,000
50,000
40,000 34,467
30,000
19,481
20,000
10,000
0
2016 2017

IPDC IDLC

Figure: 1.5 (Lending Portfolio)

 Loan Disbursement
Loan disbursement rate is also seen to be increased in IPDC. In 2016 BDT 25,030mn loan was
disbursed and in 2017 the amount was BDT 34,681mn, recording a growth rate of 38.6%.

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If again we compare with another leading NBFI IDLC, we can see here loan disbursement
amount is also bigger than that in IPDC. In 2016 and 2017 they disbursed BDT 35453mn and
BDT 43404 respectively for loan.

Chart Title
50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
IPDC IDLC

2016 2017

Figure: 1.6 (Loan Disbursement)

 NPL Ratios
If we study the industry we can see that has a very lower NPL rate comparing to others. Above
discussed credit risk management procedure shows the success of the IPDC in managing any
credit risk that leads to a very small NPL ratio.
If we talk about IDLC, another NBFI of the Bangladesh we will find a bigger NPL ratio
comparative to IPDC. And this scenario states that IPDC itself has a very good managing skills
about credit risk which helped them to maintain a minimum NPL.
NPL ratios of recent two years of two leading NBFI companies IPDC & IDLC are discussed
below:

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 NPL Ratio

3.5
2.95
3 2.77
2.5
2
1.5
1 0.71 0.62
0.5
Table: 1.7 (NPL Ratio)
0
Here it is seen 2016 2017 that in 2016
IPDC IDLC
IPDC had only 0.71% of
NPL whilst IDLC had 2.95%. And in 2017 the rate has decreased slightly becoming 0.62 & 2.77
respectively.
As we discussed earlier, IPDC has a lower loan portfolio and loan disbursement comparing to the
other leading NBFI’s which can be threat for them to survive in the industry. But they have a
very lower NPL rate comparing to another Leading NBFI that is IDLC.
From this, it can be said that IPDC is doing very well regarding NPL and it’s being possible only
for their excellent managing power of credit risk.

Some other important findings about IPDC can also be discussed here, like-
 IPDC is successfully spreading its business resulting in launching three new branches in
Jessore, Mymensingh and Comilla in 2017.
 Total borrowing from the bank of the Company for the last year was BDT 4,214.1mn that
hold 11.6% of the total liabilities. This amount is significantly lower, that indicates a
minimum dependency on bank borrowings.
 If we go through the financial highlights it is clear that IPDC is doing well in collecting
deposits day by day. Earlier Deposits were not that much frequent like now. They have
now a very good relationship with the depositors for their reputation in settling its
obligation to its depositors. The updated deposit amount is approximate BDT 29,747mn.
 IPDC has been paying the dividend on a regular basis to the shareholders. It reflects that
the company is doing well in their operational activities.
 All the financial ratios showed the good financial condition and prospect of the
Company.

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Chapter 5

Recommendation &
Conclusion

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 5.1 Recommendation

As a pioneer and leading company in NBFI industry, IPDC Finance has been sustaining its
quality in an impressive way. As they are the very first NBFI Company, their experience in this
field has made them very much concerned about different credit risk. A very skilled department
always working with this sector and trying to analyze the risk of different credit and accordingly
take different initiatives to remove those effectively.
So far they have proven themself as a leading organization in risk assessment and it is proved by
their lowest NPL in the industry. Without any hesitation it can be said that, IPDC Finance is the
best in NBFI sector. But after studying the organization it is felt that some things can be done
more precisely. Those things can be mentioned here as recommendation.
 IPDC is not that much renowned in comparison to other NBFI’s in the industry. One
reason can be that they use so little branding strategy. Branding And advertising activities
should be increased.
 More detail information can be found out for making assessment more accurate.
 As RMs are the initial data collector they should be more conscious about the information
of the borrowers.
 Assessing for industry and individual borrower should have different parameters in more
detailed version.
 IPDC can develop some customized processes for overall credit approval process in
addition to the general guideline of Bangladesh Bank.
 To minimize the default risk IPDC has to make continuous improvement in the lending
procedure. This will also increase profitability ratios.
 Continual researches and innovative ideas should be made.

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  IPDC works too little in advertising themselves. They should emphasize on more
advertisements. So that people can know more about them.

.These recommendations are only the suggestions not any final decisions. Following those can
improve the credit risk sector as well as overall customer service in order to gain the customer
satisfaction.

5.2 Conclusion

Now if you come to the conclusion of the report, firstly we have to say that in Bangladesh, Credit
risk as well as Credit risk management is becoming a vital issue day by day. The tools for
managing & minimizing customer credit risk have been advanced considerably in recent years.
There is a common guideline proposed by the central bank of Bangladesh for the financial
institutions that help them to check the default problems. Whenever it is necessary, Bangladesh
bank is always there to provide the directions about the activities.
As we know by now that IPDC is very mush cautious in managing their customer credit risk. Yet
we tried to recommend some issues as there are scopes for improvement. They should give
special focuses on their recovery sector.
Yet some issues can be raised, like these days many industries are lack of liquidity asset that
results in not repaying the dues to the NBFIs. To avoid this situation the past default behavior
and the character regarding repayment of the borrowers must be examined to predict the future
payment performance of them.
Sometimes there are some willful defaulters who always tries to be defaulter intentionally. Here,
a good CIB database can be helpful to figure out those corrupt borrower. Moreover, these
defaulters must be punished by the law for reducing the practice by the other people.
Another concerned issue is that most of the time the financial statements contain manipulated
data in a certain degree. So if people want to take any decision by analyzing only these
statements then those decisions will be wrong and faulty. Special focus should be given in this
respect.

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Moreover, corruption can be took place internally to some extent. For which both borrower and
lenders are being affected. So with the external assessment, there must an internal assessment be
done continually.
From the overall discussion, it can be clearly understood that credit risk management is a
complex process for which all financial institutions along with IPDC must take a serious
approach in managing these issues. They have to comply regularly with all the needed activities
and promptly follow the Bangladesh Bank’s instructions. They should be more focused in
employing the knowledgeable and skilled persons who can deal with these complicated things.
Besides network systems should be given more focus as it is very important in creating efficient
and effective credit risk management process.

5.3 References

 https://en.wikipedia.org/wiki/IPDC_Finance
 https://www.ipdcbd.com/aboutus/ataglance
 https://www.ipdcbd.com/aboutus/mission
 https://www.ipdcbd.com/aboutus/shareholders
 https://www.ipdcbd.com/overview/Interest_rate_-_19_Aug_2018.pdf
 https://www.ipdcbd.com/retail/overview
 https://www.ipdcbd.com/home/sme
 https://www.ipdcbd.com/home/corservices
 https://www.ipdcbd.com/areport/IPDC_AR_2017_Final.pdf
 http://dspace.bracu.ac.bd:8080/xmlui/bitstream/handle/
10361/794/06104024.pdf;sequence=4
 https://www.ipdcbd.com/home/csr#
 https://www.ipdcbd.com/home/ipdcgreen

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