How to monitoring Advances
SUPERVISION, FOLLOW-UP AND MONITORING OF INVESTMENT /ADVANCES
Lending is one of the most important functions of a commercial bank and with the modern concept of social order and participation of commercial banks in various phases of commercial, industrial, agricultural and other economic activities of the country, it is of paramount importance that banks have to be very careful while choosing a borrower.
Before sanctioning a loan a banker carefully appraises the loan proposal of the borrower & to determine their credit worthiness on the basis of principles of sound lending
Simply an appraisal of loan proposal is not a guarantee against risk of non-payment by the borrowers. This is only a part of the job.
The other and equally important responsibility of the lending banker is to follow-up and supervises the use of the credit.
2. So, a banker while sanctioning any loan should ensure that the credit facility is allowed to the genuine borrowers for genuine economic purposes, money lending is properly used for generation of income through increased economic activities and the borrowed money is repaid in time. All these can be ensured through an effective supervision and follow-up system of the advances.
3. Supervision and follow-up are closely related. Supervision gives more emphasis on proper end-use and follow-up gives more emphasis on timely recovery of advances.
By supervision we mean to have a proper control over the borrowers’ operation to ensure the end use of funds.
4. Supervision keeps track of the end-use of fund lent. It includes adequate arrangement by bank for maintaining close contact with the borrower and his activities in order to remain well informed about the position and progress of the project financed and to offer appropriate guidance to the borrower, where necessary.
Follow-up includes efforts to ensure that the terms and conditions of the advance at–
Recovery stages are complied with and money lent is repaid as per schedule of repayment.
It also includes efforts to regularize the irregular advances. Recovery of advances largely depends on effective follow-up.
Follow-up is the systematic process through which these activities are carried out.
5. The basic objective of supervision and follow-up system is to ensure that the advances granted by the bank are safe as the funds lent by banks belong to the depositors and the bank management has tremendous responsibility in safeguarding the interests of millions of depositors. Supervision work of loan starts right from the stage of selection of a borrower whereas Follow-up work of loan starts immediately after disbursement of the loan.
Supervision and follow-up of advances are the direct responsibilities of the branch. Branch is the unit wherefrom the proposal is made for any advance and disbursement is made. The borrowers maintain his account with the branch, operations are conducted through the account, reports, and returns are submitted, by the borrower to the branch. So success depends on how effectively the branch ensures supervision and follow-up of the advances.
Bank branches responsible for supervision and follow-up have to follow the following:
To ensure that operations of accounts are regular, Bad indications warrant greater supervision.
To keep watch over the inflow and outflow of Fund.
Maintenance of production and sales record.
To verify proper end-use of funds for the purpose for which loan was given.
Progress made in construction and operations.
Inventory position and Turn over rate observation
Ensure that security/collaterals have been obtained as per terms of sanction.
Ensure that the valuation of security has been assessed correctly.
Position regarding insurance of goods.
Ensure that the documents have been obtained as per terms of sanctions.
Regular inspection of the security and verification of document.
Reasons for default or delayed payment of loan installments.
Appropriate actions are taken in time to regularize the irregularities and recover as per schedule.
Keep regular contract with the borrower.
To keep a watch on safety of funds.
Ascertain financial positions of the borrowing concern from time to time through the study of audited Balance sheet/Financial statement.
Obtain Periodical balance confirmation.
Obtain stock statement as per terms of sanction against hypothecation and pledge of goods.
Maintenance of limit registers.
Non-compliance of any terms and conditions of the loan.
Other account of the borrower.
– Monitoring is a process of ensuring that performance takes place in conformity with the plan. In case of project loan it starts from the selection of the borrower and remains to live throughout the life of a loan.
It is in fact, an action inducing effort, meaning thereby that it would ensure that commitments made by various organizations are followed up by action.
Monitoring basically involves three steps:
– reviewing and
Why Monitoring –
Return flow of funds
Loan Monitoring requires information and use of Judgement:
– An information system provides data for analysis and judgement.
Method of obtaining Information:
During implementation stages
During operation stages.
During Implementation Stage
To see that the project is carried out as it was intended or modified in the light of changing circumstances.
To see that the conditions of lending are complied with by the borrowers.
To see that the proceeds of the loans and invertible funds are made available to the borrower according to project need and to see that the fund so released is utilized for the intended purpose.
To see that the funds provided to the borrower are adequately safeguarded (such as security and insurance coverage)
To synchronize the interest of the client with that of the lending institution it is necessary to assist the borrower in obtaining infrastructural facilities and govt. concessions and approval.
To ensure adequate feedback to management and appraisal team in matters of cost over-runs, financing deficiencies and project implementation delays, if any.
During Operational Stage
To see that the operations of the project are carried out as was intended or modified and that the terms and conditions of lending are complied with.
To attend to the distressed accounts as long as the unfavorable conditions/genuine problems exists.
To obtain payment of installment promptly and to prevent occurrence of arrears in the normal course.
To provide the lending institution with a continuing source of data of financing and economic trends.
To maintain a satisfactory relationship with the client with a view to promoting a well – balanced attitude of helpfulness and understanding.
CHECK LIST FOR INVESTMENT/ADVANCES
Bank’s prescribed Loan Application duly filled in.
Client’s application in their letterhead.
Certificate of Commencement of Business (in case of Public Ltd. Co.).
Certificate of incorporation (in case of Private Ltd. Co.).
Certified copy of Memorandum & Articles of Association (in case of Public & Private Ltd. Co.).
Certified copy of Form xii of Joint Stock Company.
Up to date Trade License.
Board Resolution of the Company to create loan.
Annexure- “ka” Form of Bangladesh Bank with duly signed & seal for collecting CIB report of each director.
Up to date Income Tax clearance Certificate.
Net worth of the Directors including Chairman & Managing Director.
Name & address, father’s, mothers & husband name of the Directors & their number & percentage of Shares.
Describe in brief about the company & its sister concerns (name, address, nature, last year’s performance i.e., turnover, profit etc.
Last year’s group performance and financials.
Global liabilities of the Company & its sister concerns.
Last 3 (Three) years audited Balance sheets of the Borrower Company (in case of old Co.).
Projected Cash flow statement.
Bio data mentioning detail experience of the Directors & other key personnel with two copy Passport size photographs.
Project profile (total area with detail plan, estimated project cost certified by 1st class civil engineer, marketability).
Project implementation schedule and payment schedule with source.
Working capital requirement.
Expected earning forecast and production capacity
Original Deed of proposed land.
Bia Deed of proposed land.
C. S., S.A , R.S and Math Parcha of proposed land.
Mutation Parcha with D.C.R of proposed land.
Upto date ground rent receipt of proposed.
Photograph of the proposed land.
Up to date non- encumbrance Certificate of proposed land.
Mouza map & Site plan.
Original plan of Building approved by RAJUK.
CHECK LIST FOR INVESTMENT AGAINST MTDR.
Client’s application in their letterhead.
Original MTDR receipt duly discharged by authorized signatory.
Charge documents (enclosed) duly signed by authorized signatory.
Board Resolution as per attached format for availing Investment facility against pledge of MTDR.
CHECK LIST FOR HOUSE BUILDING INVESTMENT
01. Prescribed application from of the Bank duly filled in & signed along-with client’s own hand written application intending to enjoy the scheme.
02 (Two) attested photographs.
03. Approved plan from competent authority for the building to be constructed
Attested copies of original titled of the land on which the building to be constructed.
Mutation Parcha, CS, SA, & RS Parcha of the land.
Up-to-date Rent Receipt
Legal Opinion from the Bank’s Panel Lawyer
Deed of contract with seller in case of purchase of ready-made house/apartment.
Inspection report of the concerned branch mentioning the site, location, value, present market value, forced sale value of the property etc.
Whether enjoying any other investment facility with our Bank, if so to what extent, in what mode and from which branch to be stated clearly in the inspection report including detail particulars of the security there against & Present performance of the existing investment.
Other Sources of income with proper & acceptable evidence as proof
Trade License, in case of proprietorship concern
Memorandum & Article of Association, In case of Limited Company
Partnership deed, in case of partnership firm
Where the Client is a service Holder, Certificate from the employer stating the Present Rank, Date of Joining, Date of Retirement from the Service, Total Salary and net taking Salary of the applicant etc.
Any other papers/ documents if deemed necessary.
An undertaking must be obtained from the client stating that he/she will purchase the construction materials as per estimate submitted with the proposal.
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