Supervision and Control of loans
Control at Branch Level
Branch Managers are expected to exercise commonsense and proper care in handling advances whether sanctioned by them or any other appropriate authority. The managers are responsible to see that all advances are properly constituted; that is to say, they must see that:
(a) the account-holder is legally competent to borrow;
(b) all the necessary documents have been correctly executed and other formalities, if any, duly complied with;
(c) a proper authority, covering operation and conferring power to overdraw, is held in respect of accounts operated upon by persons other than the borrowers themselves.
The Branch Managers should ensure that the security is correctly valued, is easily saleable, the margin is properly maintained, there is a quick turnover of stocks, and adequate insurance coverage, where necessary, has been taken.
Stock statements should be obtained once or twice a month, as arranged. One of the statements should give the position as on the last date of the month. The certificate at the foot of the statement should be signed by a person authorized to operate on the account. A copy of the statement is kept at the branch and the other is sent to the Regional/Head Office, according to the practice of the bank. In the case of hypothecation, stock statements with usual declaration should be obtained and verified with the stock register.
Operation of customer’s account
All advance accounts must be frequently scrutinized. Troublesome accounts, if any, sometimes require daily attention. Particular care should be taken when the balance in the account remains very near or goes beyond the drawing limit or there is no good turnover. It may be stated in this regard that the branch agent should guide and advise the ledger clerks handling overdrafts and cash credit accounts and the officers in the departments concerned to keep him informed about any significant fluctuations therein. An intelligent ledger clerk or officer can provide valuable assistance by drawing attention to any peculiar or unusual transactions passing through the account.
Notwithstanding all the care the banker may take, things may sometimes go wrong. For example, a cheque is presented through clearing, which if paid, will result in an authorized overdrawing and if returned may damage the customer’s credit. It is of course the normal practice to get in touch with the customer and endeavor to have suitable provision made for the cheque; but the point to be stressed is that the bank may be suddenly placed in a position where it is asked to grant an advance in excess of what may be considered safe. Whatever the banker’s decision, he will be helped by the information he has at his disposal regarding the customer concerned, and for that purpose adequate and methodical records are of great value. Copies of proposals, reports and general correspondence filed systematically are in valuable when such an emergency arises. Any additional information received regarding borrowers, from time to time, should also be carefully entered in the branch records. Over and above that, the importance of the banker’s touch with the borrower’s affairs can hardly be over – emphasized.
The financial position of the borrowers and guarantors, if any, must be reviewed from time to time, at least once in a year. Companies must send copies of their audited balance sheets. These documents should be carefully studied and the trends watched.
The amount of the advance should be applied to the purpose for which it is taken. In practice it may be difficult for the banker to supervise effectively that this is done. Experience in this regard is the best guide. It would, however, be borne in mind that ‘purpose’ is playing an increasingly important role in modern banking.
Confirmation letters should be signed by the borrowers, guarantors or their duly constituted attorneys, half-yearly or annually, as may be the practice of the bank, not only with regard to the balance in the account but also for the securities held. A balance confirmation letter, besides confirming balance and securities also extends the period of limitation.
Period of limitation in any account must be watched from time to time.
All important dates in regard to an account, e.g., due date of insurance policies, dates of collection of interest on Government securities, dates of expiry of sanctioned limits, limitation period, date when the next balance sheet of a borrowing company is due, must be diarised.
The borrower should normally pass all his business to the, bank with which he deals. If he does ‘not do so, an enquiry in the matter may be necessary, as to his other bankers and the facilities, if any, sanctioned by them. The operations on other accounts, if any, of the party with the branch and/or other banks, if any, should be looked into.
Control at Regional/Head Office
Returns and statements
All branches submit to, the Regional/Central Office reports on advances at regular intervals and also whenever the Central Office decides to call for such statements. Very often the system provides for a detailed report at the half-yearly and annual closing of the bank. By means of these reports, the executives at the Regional Office and Central Office are able to assess the course and safety of the bank’s advances.
Review of advances
All advances are ordinarily reviewed once in 12 months. A little before the prescribed period, the Agent prepares a comprehensive statement of the position of the party and the operations on the account and makes recommendations to the appropriate authority, either for continuing the account with the same, reduced or increased limit, or for cancelling the facility.
Branches are periodically inspected by internal auditors/inspectors and external auditors. During each inspection, the inspector makes a comprehensive and detailed examination of all advances including documents, security and turnover and whether the terms and conditions of the sanction have been complied with.
Control by Board of Directors
The Board of Directors of a bank determines the general lending policy of the bank, taking into account directions of the Government, Public Interest, directives and/or suggestions of the Bangladesh Bank, surplus or paucity of funds with the bank and the general conditions of the money market. The Board also periodically reviews the larger and the more difficult advances to which its attention is drawn by the General Manager/Chairman. It further considers reports on advances in general at the time the annual accounts are presented to it. The Board frequently acts through a, committee or committees of directors: It also considers salient points of inspection/audit reports.
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