Shilpa Bank

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank
Internship Report
ON Loan Operations Analysis & Evaluation:
Bangladesh Shilpa Bank
YOUR PARTNER IN INDUSTRIALIZATION
Internship Report
ON Loan Operations Analysis & Evaluation:
Bangladesh Shilpa Bank

Submitted To Dr. Md. Afjal Hossain
Professor Internship Supervisor, Department of Marketing aculty of Business Studies University of Dhaka
Prepared By
MD. Abul Kalam Azad MBA Roll No.-102 MBA 6nd Batch Department of Marketing University Of Dhaka
Department of Marketing Submission University of Dhaka
Date of
Letter of Transmittal
August 19, 2006 Mr. Abu Taleb Supervisor & Assistant Professor Department of Banking University of Dhaka Subject: Solicitation for acceptance of the Internship Report. Dear Sir, I am pleased to submit my internship report after successful completion of internship program on Rehabilitation of Sick Industries: An Evaluation in Bangladesh Shilpa Bank, Head Office, Dhaka-1000. I am absolutely pleased on my department for replacement in a specialized bank named Bangladesh Shilpa Bank. I was assigned to engage with the bank from July 24, 2006. This report is an outcome of the internship program I have undergone. The preparation of this formal report is of an integrated part of our M.B.A program and I am quite happy to submit it duly applying all that I think should have to be included and which should not to be included. It was a great experience for me and though I am on the learning curve but, this report has put an impression on my mind all the matters of the efficient management of ones time, skills, experience, knowledge, and finally reality. If I am not asked to submit this report then it might be like that I am going out of our program without having something so much important for my life and so much practical. I strongly believe that this sort of knowledge is an invaluable asset in my life. Finally, thank you for your supportive thought and kind consideration for formulating an idea and developing the structure of the report. All the works presented here is done with utmost sincerely and honestly. I have tried to make this report comprehensive and informative. I hope any unintentional mistakes that may remain in this report will be considered with compassion. Thanking You, ----------------------(Md. Abdul Malek) MBA Roll: 2-241
MBA 2nd Batch, Department of Banking University of Dhaka
Acknowledgement
It is well known that practical knowledge in subject matter is essential to substantiate the theoretical knowledge gathered in the educational institutions. In order to resolve the dichotomy between these areas, I was assigned to carry out on internship program in Bangladesh Shilpa Bank. When I got chance to work as intern in Bangladesh Shilpa Bank, it was like a long cherished dream to come to reality. At the very outset, I would like to thanks to the All Mighty Allah for special blessing in completing the report. There are also a few people who really deserve to be thanked for making this paper a success. Without their support this paper could never have been completed. This internship report is an accumulation of many peoples effort. So with my full honesty I would like to show my gratitude to them who helped me in preparing this report. First of all we would like to thank the Bangladesh Shilpa Bank authority to give me the opportunity for internship program. In this regard I express my gratitude to Mr. Abdul Awal Chowdhury, Asst. General Manager, Training Department, Bangladesh Shilpa Bank, to allow me to complete my internship in the bank. I am also indebted to Engineer A.S.M. Masudul Alam, Assistant General Manager, Project Rehabilitation Department, for providing his profound guidelines. In this regard I also express our heartiest gratitude to the officials of the various departments of the bank. Habibur Rahman Patwari, Deputy General Manager of the Department of Loan Operation Department also deserves to get special thanks for his kind discussion. Especially I am grateful to Mrs. Maksuda Siddiqua, Officer, Training Department who provided various information and materials. I am also
thankful to the Department of Banking, University of Dhaka for giving me such exposure to the practical business world. My special thanks goes to my internship group members: Md. Faruquzzaman (Department of Accounting & Information System), Md. Shahidul Islam (Department of Banking), Mohammad Anower Hossain (Department of Banking) and Md. Akabbor Hossain (Department of Marketing) for their help in preparing this report. Finally, my sincere thanks go to my internship supervisor Mr. Abu Taleb, Assistant Professor, Department of Banking, University of Dhaka for his appropriate suggestion, moral support and invaluable cooperation, inspirations from time to time in completing the internship program. His extended support and advice, any time discussion helped me more than anybody in this regard. However, the responsibilities of errors and omissions in the report, if any, lie with me.
Executive Summary
The perfect coordination between theory and practice is of paramount importance in the context of the modern business world in order to resolve the dichotomy between the theoretical and practical areas. Internship Program brings a student closer to the real life situation and thereby helps to launch a career with some prior experience. The internship program at Bangladesh Shilpa Bank helped me a lot to learn about the practical environment and situation of a financial institution and also make up a bridge between the theoretical and practical aspects. Internship Program is also an integral part of MBA Program. The report is prepared on the basis of few days practical experience at the Bangladesh Shilpa Bank (BSB). This report is organized as follows:
Section-1: contains background of study, objective of the study, statement of the problem, methodology of the study, justification of the study, report organization, limitation of the study and benefits of the study. Section-2: contains brief overview of BSB and the functions of its various departments. Section-3: contains research themes, findings and suggestions of Bangladesh Institute of Development Studies& Ministry of Industry on sick industries and various newspaper reports on sick industries rehabilitation. Section-4: contains method used to identify a sick industry, some identified industries on the basis of some criteria, precautionary measures regarding sick industries, rehabilitation policy and programs of Bangladesh Shilpa Bank, role of Project Rehabilitation Department of BSB regarding the rehabilitation of the sick industries and their success in this regard. Section-5: contains the findings, suggestive measures & concluding remarks of the report. All information included in this study is taken mainly from various manuals of various departments of BSB, annual report of BSB 2004-2005, loan sanctioning letter, research paper & Internet etc. Certainly there are some problems in their rehabilitation of sick industries. In order to overcome these problems, some suggestive measures have been included in my study.
TABLE OF CONTENTS Subjects

Acknowledgement Executive Summary
Page no.
Section-01: Introduction of the Report

1.1 Background of the Study 1.2 Statement of the Problem 01 02
1.3 Objectives of the Study 1.4 Methodology of the Study
02 03 04 04 05 05
1.5 Justification of the Study

1.6 Report organization 1.7 Limitation of the Study 1.8 Benefits of the Study Section-02: Organization Part 2.1 Background of BSB 2.2 Institutional Overview 2.3 Zonal & Branch Offices 2.4 Ownership 2.5 Mission of BSB 2.6 Management 2.7 Functions of BSB 2.8 Interest Rate on BSB Loan 2.9 Different Functional Departments of BSB Section-03: Literature Survey 3.1 Research Paper of Bangladesh Institute of Development Studies (BIDS) on Sick Industry 3.2 Sickness syndrome in the industry sector of Bangladesh: Chronology of Govt. Initiatives and various studies 3.2(a) Industrial Sicknesses and its Incidence in Bangladesh 3.2(b) BIDS Comprehensive Study on sick Industries 3.2(c) Causes of Industrial Sickness and Suggested Policy Measures for Prevention and Rehabilitation
06 07 08 08 08 09 09 10 10-17 18
19 19 20 21-23
3.2(d) Preventive Measures 3.2(e) Remedial Measures 3.3 Studies on Sub-Sectoral/Enterprise Level Sickness 3.4 Ministry of Industry (MOI) - Sponsored Sickness Study by the House of Consultants Ltd 3.5 Functioning of Sick Industries Rehabilitation and Revival Cell Under IP-91 3.5(a) Definition of Sick Industry According to Sick Industries Rehabilitation and Revival Cell 3.5(b) Causes of Sick Industry According to Sick Industries Rehabilitation and Revival Cell 3.5(c) Recommendations of Sick Industries Rehabilitation and Revival Cell for Sick Industry 3.6 Recognition of Sick Industries in the Fifth Five-Year Plan (1997-2002) 3.7 Supportive Measures Proposed in the National Budget of 1998-99 for Curbing Industrial Sickness 3.8 Formation of Special Committee on Interest Remission for the Identified Sick Industries 3.9 Daily Star Report on April 7, 2006 3.10 Financial Express Report on February 2, 2006 Section-04: Data Analysis 4.1 Sick Situation of a Industry 4.2 Method Used to Identify a Sick Industry 4.2(a) Quantitative Factors
23-27 27-28 28-29 29-31 31-34 32 32-33 33-34 34-35 35-36 36-37 38 39-40
42 42 42-44
4.2(a.1) On the Basis of Cost- Benefit Analysis

4.2(a.2) On the Basis of Break-Even Analysis 4.2(a.3) On the Basis of Financial Problems/Shortage of Working Capital 4.2(b) Qualitative Factors 4.2(b.2) The symptoms of Sick Industry 4.2(b.3) Technological Problems 4.2(b.4) Administrative and Managerial Problems 4.2(b.5) Marketing Problems
42 43 43-44 44-55 44-45 45-46 46 47 47 48 48 49-51 51-53 54 54 54-55
4.2(b.6) Economic Problems 4.2(b.7) Political Problems 4.2(b.8) Other Reasons of Sickness
4.3 Argentis Score Model to Identify a Sick Project 4.4 Identified Sick Industries 4.5 Major Causes That Affect the Sick Industries in Bangladesh 4.6 Impact of Sick Industry in Bangladesh or BSB 4.7 Precautions about Sick Industry
4.8 Rehabilitation Policy of Bangladesh Shilpa Bank 4.8(A) Management Perspective 4.8(B) Technological Perspective 4.8(C) Financial Perspective 4.8(D) Marketing Perspective
4.9 Programs Taken to Rehabilitate the Sick Industries 4.10 Facilities Provided Under Rehabilitation Program 4.11 Are All-Sick Industries Rehabilitated?
55 55-56 56 56 56-57 58 58-60 61
4.12 The Industries which are Rehabilitated and the Industries 61 which are not Rehabilitated 4.13 Role of Management of Rehabilitation Department of BSB 4.14 List of a Few Successful Rehabilitated Industries 61-62 63-64
Section-05: Findings, Suggestive Measures & Concluding 65-70 Remarks

5.1 Findings Of The Study 5.2 Suggestive Measures Conclusion 65-66 67-69 70
Form A
Supervisors Certificate
This is to certify that the Internship Report on Rehabilitation of Sick Industry: An Evaluation in the bonafide record at the report is done by Md. Abdul Malek as a partial fulfillment of the requirement of Masters of Business Administration (MBA) degree from the Department of Banking, University of Dhaka. The Report has been prepared under my guidance and is a record of the bonafide work carried out successfully.
--------------------------------Signature of the Supervisor
Form B
Declaration
I do hereby solemnly declare that the work presented in this Internship Report has been carried out by me and has not been previously submitted to any other University/ College/ Organization for an academic qualification/ certificate/ diploma or degree. The work I have presented does not breach any existing copyright and no portion of this report is copied from work done earlier for a degree or otherwise. I further undertake to indemnify the Department against any loss or damage arising from breach of the foregoing obligation.
----------------------------Signature of the Student ID. No.-2-241 Batch: 2nd
Department of Banking University of Dhaka Date:
1.1 Background of the Study.

The perfect coordination between theory and practice is of paramount importance in the context of the modern business world in order to resolve the dichotomy between the theoretical and practical areas. Any academic course of the study has a great value when it has particular application in the real life. Only theoretical knowledge bears little importance unless it is applicable to the practical life. When theoretical knowledge is obtained from a course study it is only the halfway of the subject matter. So we need proper application of our knowledge to get some benefits from our theoretical knowledge and to make it more fruitful. Such application is made possible through internship. For the completion of this internship program, the author of the study was placed in a bank namely, Bangladesh Shilpa Bank. Internship Program brings a student closer to the real life situation and thereby helps to launch a career with some prior experience. My internship is on the evaluation of Project Rehabilitation Departments functions of BSB. Bangladesh is one of the countries of manifestation. Here industrial established sector is very weak. Shilpa So government to has Bangladesh Bank stimulate
industrialization. Since Bangladesh is a developing country
and the present economic condition of Bangladesh is of open market in natures, in this situation, the specialized bank like BSB can play necessary role toward the economic improvement of BSB is to provide term loan to different industries and entrepreneurs in Bangladesh. The purpose of BSB is not only to grant credit but also to develop the country through industrialization. But all industries are not always successful. Some industries become sick due to technical, management, economic & political reasons. In my report rehabilitation procedure of such sick industries has been analyzed.
1.2 STATEMENT OF THE PROBLEM
From the perspective of rehabilitation of sick industry in developing country like Bangladesh, BSB is a unique state owned leading financial institution. BSB provides financial and technical assistance to broaden the private as well as public sector industrial base of the country. BSB provides finance both in local and foreign currencies for establishment of new industrial projects as well as balancing, modernization, replacement and expansion of existing industrial units in Bangladesh both in private and public sectors. But activities to industrial development are not emphasizing ones. Bureaucrat, political interference in case of project appraisal-all these problems are faced in our country.
1.3
OBJECTIVE OF THE STUDY
The objective of the report is to comprehensive study on Bangladesh Shilpa Bank and to find out the problems and opportunities for the industrial development. The objective of the study is also to find out to what extent it is successful to achieve its goals and why many of its industries are become sick. The prime objectives of this report are as follows:
To get an overview of the operations of Bangladesh Shilpa Bank

To acquire practical experience about working environment, to know discipline and behavior of an organization that will help me to buildup my career.
To evaluate the success and status of loan recovery To understand the criterion on the basis of which the industries are identified as a sick industry To know the rehabilitation program taken by BSB to rehabilitate these sick industries To know the firms which are rehabilitated and which are not rehabilitated. Finally to recommend necessary steps to overcome the problem of sickness of industries
METHODOLOGY OF THE STUDY

Correct and smooth completion of research work requires adherence to some rules and methodologies. In order to conduct the report, the decision had been taken to collect various types of primary data and secondary data. Data have been collected by oral interviewing the responsible officers. Different form of statistical configurations such as table percentages rates and ratios has been used to make the study meaningful and realistic. After collecting data from the interview and material provided by them, data was first carefully scrutinized. Then the data was organized as required. In order to make the study effective and efficient, following two sources of data and information have been used widely. (a) Primary information/data The primary data have been collected by oral interviewing the responsible officers and staffs of the BSB, practical deskwork, direct observation of the functions of various departments of BSB and relevant documents studies as provided by the officers concerned. (b) Secondary Information/data The secondary information comes from annual report of the BSB, relevant papers/books and periodicals publication and manual of different departments.
Sources of Data
Primary Sources
Secondary Sources
1. Practical desk work 2. Oral interview of the respective officers and staffs of BSB 3. Direct observations of the functions of various departments of BSB 4. Relevant documents studies as provided by the officers concerned
1. 2. 3. 4.
Annual report of the BSB Annual budget of the BSB Various documents of the BSB Extensive literature search on the basis of these documents of publication 5. Shilpa Banks Website (www.shilpabank.com)
These reports and documents have been analyzed in the light of analytical review. Some graphical presentation, growth rate and trend analyses have also been used.
1.5 JUSTIFICATION OF THE STUDY

As this study has been done based on imperial evidence, it will have both practical and academic value. It will help the concerned parties to get a clear picture regarding the contribution of BSB since its inception. From this study one can be able to know about present practice of BSB in industrial development in our country. The finding of this report will help to take appropriate actions and steps for the betterment of existing practice, which basically help the industrial development of the country. It would also be clear what procedures have BSB has followed to rehabilitate the sick industries. It is well known to everybody that institutional education and practical life is totally different. Practical life is the application of institutional education. So, it is natural to face realities of life in practical oriented life.
1.6 REPORT ORGANIZATION
The report is organized as follows: The initial part of the report is the introduction of the report, the history and background, financial conditions and activities of Bangladesh Shilpa Bank. The main part of the report is the literature survey about the sick industry; methods to identify the sick industries, the quantitative and qualitative factors used for identification of sick industries, sick industry classification and the rehabilitation procedure of these sick industries by Bangladesh Shilpa Bank and include some findings as well as suggestive measures and concluding remarks.
1.7 LIMITATION OF THE STUDY

This internship report is my first assignment outside our course curriculum in the practical life. In performing this report our lack of proper knowledge greatly influenced in this performance. Beside this, some limitations in preparing this report have been faced. The main limitations are as follows: Confidentiality is the main problem; as a result some confidential facts were not sufficiently disclosed by the respective personnel. Lack of available up-to-date information Only few days internships experience is not enough to find out all the pros and cons of such a vast project. The employees of BSB are reluctant to supply any information because of maintaining confidentiality in their record keeping. As Bangladesh Shilpa Bank is a large financial institution; it is very difficult to understand each and every aspect of its operation within a very short period of time.
1.8 BENEFITS OF THE STUDY

This study bridges between practical & theoretical life. It has created an opportunity to face practical lice for the first time. I have obtained a comprehensive knowledge on the
organization; it has made clear what procedures BSB follows to implement a project & to rehabilitate the sick industries, it has enriched my personal skills and knowledge on identification of the causes of sickness of an industry and measures to overcome the problem and also gained knowledge on rehabilitation programs of BSB.
2.1 BACKGROUND OF BSB

Non-Bengali entrepreneurs and the public sector nearly monopolized economic activity in the Pakistan era. Of the very few business professionals are active in East Pakistan fewer yet survived after the war. Post independence Bangladesh therefore presented a unique set of opportunities and problems for the private sector. The good news was that without the stranglehold of the elite Pakistan business family the field was wide open for the development of a homegrown Bengali private sector, but that both a capital base and an entirely new entrepreneurial class would have to be developed out of an economic vacuum. Capital formation rapidly occurred and the newly nationalized banks found themselves with serious asset management problem because there were few professional entrepreneurial risk takers with business skills and proven track records to which this capital could be made available under normal and prudent banking practice. Under this sort of circumstances, the former Industrial Development Bank of Pakistan (IDBP) and the Equity Participation Fund (EDF) both of which were established for the industrial development of Pakistan were converted into single institution named Bangladesh Shilpa Bank. Bangladesh Shilpa Bank comes into existence on October 31,
1972 by the Promulgation of Bangladesh Shilpa Bank order 1972 (presidents order no 129 of 1972). The BSB order, 1972 was amended subsequently by the parliament to provide more operational autonomy to its management. The main objective of BSB is to provide finance both in local and foreign currencies for establishment of new industrial projects as well as balancing, modernization, replacement and expansion of existing industrial units in Bangladesh both in private and public sectors. It provides other types of financial assistances like guarantees for credit/loans; equity support and working capital loan to BSB financed projects.
2.2 INSTITUTIONAL OVERVIEW

Bangladesh Shilpa Bank comes into existence on October 31, 1972 by the Promulgation of Bangladesh Shilpa Bank order 1972. The head office of this institution is in Dhaka. Presently, Bangladesh Shilpa Bank has five divisions, twenty-one departments, three zonal offices and fifteen branch offices. Total number of employees of the organization is 794, as on the date up to June 30, 2004.
2.3 ORGANIZATION & ITS CAPITAL STRUCTURE AND SOURCES OF FINANCE
Table 01 Established : October 31, 1972 Organization : Head Office Division Department Zonal Office Branch Office Manpower Capital Structure: Authorized Paid-up : TK. 2,000 million : TK. 1,320 million
Dhaka 5 21 3 15 794
Authorized capital of Bangladesh Shilpa Bank is Tk.. 2000 million and the amount of paid up capital Tk.. 1320 million. Other sources of Banks fund are the Government, Bangladesh Bank, Commercial Banks, local/overseas financial institutions and suppliers credit. At least fifty one percent of the authorized capital of Bangladesh Shilpa Bank must be subscribed by the government and remaining forty nine percent may be subscribed Bangladeshi nationals or by financial institutions local or foreign. Presently, 100 percent ownership of the bank belongs to the government
2.4 OWNERSHIP
At least the government subscribes 51% of the authorized capital of BSB and the remaining 49% is subscribed by Bangladeshi Nationals or by local or foreign financial institutions. Presently, 100% ownership of the bank belongs to the Government.
2.5 ZONAL & BRANCHES OFFICES OF BSB
2.6 MISSION OF BSB

Bangladesh Shilpa Bank (BSB) is the state owned Leading Development Financial Institution (DFI) of Bangladesh. 'Shilpa' means industry. BSB provides financial and technical assistance to broaden the private as well as public sectors industrial base of the country. It prioritizes, especially, Export Oriented/Export Linkage industrial units, Efficient Import Substitution, Joint Ventures, Commercialization of local technology and promotion of agro-based industry.
2.7 MANAGEMENT
The overall policy formulation and the general direction of Banks operation vests in a board of directors appointed by the Government. This Board of Directors consists of 9(nine) members including the Chairman and the Managing Director. Non-Governments shareholders subscribing to the capital of the bank shall eventually elect 4 directors from amongst themselves. The Managing Directors is the chief executives of Bank. The General Managers assist the Managing Director in conducting the overall banking business.
2.8 FUNCTIONS
BSB extends term loan facilities in local and foreign currencies to industrial projects (both new and BMRE) in the private and public sectors. Besides Bank also performs the following activities: Provides working capital loans to industrial projects; Provides equity support in the form of underwriting and bridge finance to public limited companies Issues guarantees on behalf of borrowers for repayment of loan; Extend commercials banking services along with deposit mobilization;
Purchases and sales shares/securities for BSB and on behalf of customers as member of Dhaka Stock Exchange (DSE) Ltd. and Chittagong Stock Exchange (CSE) Ltd. for capital market development; and Conducts projects promotional activities along with preparation of various sub-sectoral study reports
2.9 INTEREST RATE ON BSB LOAN

In BSB interest rate is not same in all sectors. There are differences in interest rate. Export oriented industries are charged 9% interest rate. Agro based industries, small & cottage industries, large & medium industries are charged 10% interest rate in case of long-term loan. In Export loan interest rate starts from 7% to 11% from different case. On the other hand, in commercial, bridge & other loans interest rate starts from 10% to 14.50%. 2.10 DIFFERENT FUNCTIONAL DEPARTMENTS OF BANGLADESH
SHILPA BANK
There are eight functional departments of Bangladesh Shilpa Bank. The operational activities of Bangladesh Shilpa Bank have operated by these departments in different way. Every department has its own policies, procedure, and strategy to lending, and implementing credit. Each of the department is depends on each other for sanctioning loan for propose industries, which applied for loan. Loan Operation Department is the first step of loan sanction procedure and it is comparatively most important department of Bangladesh Shilpa Bank. 1. Loan Operation Department 2. Project Implementation Department 3. Human Resource Management Department 4. Law Department 5. Loan Accounting Department
6. Project Rehabilitation Department 7. Central Recovery Department 8. Documentation and Machineries Procurement Department
2.10A LOAN OPERATION DEPARTMENT

Bangladesh Shilpa Bank (BSB) grants loan on the basis of certain criteria. The loan operation department does the first activities of loan granting. Any entrepreneur who wants to borrow money, from Bangladesh Shilpa Bank must fulfill at first Bank Standard Questionnaire Form (BSQF) in terms of Tk. 1,000.
Functions of Loan Operation Department:

i. At first an application form is supplied to the entrepreneur (required Tk. 1,000), after the entrepreneur submits filling up the application form. After filling up the application form it is submitted by the entrepreneur. A project appraisal letter is supplied by the entrepreneur ii. To give advice to the entrepreneur about industrial investment. To give loan from and to appraise the proposed project from various aspects- Management & organizational appraisal, technical appraisal, marketing appraisal, economic appraisal & financial appraisal. iii. To take clearance from privatization board for proposed project, if necessary. iv. To take necessary action to process and approve co-financing project v. Loan sanction letter send to subsequent department vi. To take necessary action to implement the project vii. Re-evaluate the project on the basis of past evaluated loan agreement if necessary, according to the updated information viii. To issue gazette notification about loan procedure on behalf of government ix. To examine and appraise the joint venture proposal of Bangladeshi and foreign investors
x. Advise about preparation of loan application form to non-resident people of Bangladesh xi. To encourage foreign lease-financing organization who provide equipment and new technology to set up business in our country. xii. Keeping of non-resident Bangladeshi and joint investment guarantee statement preparation, memorandum and approved letter xiii. To evaluate and give opinion about zonal office sanctioning loan and their lending activities xiv. After analyzing the project appraisal, the board decides the loan should be sanctioned or not; xv. If the loan is sanctioned it is forwarded to the project implementation department.
2.10B PROJECT IMPLEMENTATION DEPARTMENT

When the loan operation department it is forwarded to project sanctions the loan implementation department (PID) performs the following activities: i. Undertaking necessary initiative after granting loan in favor of the project. ii. Taking necessary action to make the factory lay-out. iii. Making necessary adjustment in case of change of the project place, change of board of directions and change/extension product mix etc. iv. Making necessary attempt to give the loan a stage by stage after the loan granting. v. To ensure that necessary capital has been supplied by the entrepreneur and to ensure its proper utilization. vi. To give necessary assistance in the case of Bridge loan from any financial institution. vii. Taking necessary indicatives to construct the lay-out of the project according to construction cycle. i. Monitoring the machinery of the project, inspection and taking any kind of advice regarding to any machine related problem from machinery department. ii. Verification of new material process of project ensuring the cash capital according to the loan terms and condition and providing necessary assistance in this matter. iii. Inspection and monitoring experimental production extension of loan period.
iv. Making the final construction report (FCR) and transferring it to central recovery department (CRD) and concerned department/authorities. v. Determination of the construction period of the project preparing loan repayment schedule and taking after necessary action regarding this. vi. Monitoring and inspecting the project to see whether the project is implementing according to time schedule and taking necessary initiatives to solve any kind of problem arising out there form and providing necessary advice to the entrepreneur. vii. Receiving insurance letter against the predetermined risk of the implementation project assets n ensuring its deposit to bank. viii. Inspection of the utility of the principles regarding the project implementation and presiding up to date principles.
2.10C DOCUMENTATION AND MACHINERY PROCUREMENT DEEPARTMENT

After sanctioning loan by Loan Operation Department, it issues a letter to documentation department, parities and after concerned departments. The documentation department issues a letter to the parties to produce necessary documents.
Functions of Machinery Procurement & Documentation Department

1. Documentation schedule preparation/selection and approving for tender 2. To assist the promoters to invite tender and other formalities 3. Give advice to investors/entrepreneurs about tender invitation to collect project machinery 4. To analyze the tender price, quality of machinery among the bidders and taking approval from the authority 5. Documentation and contract completion with loan recovery after loan sanction 6. Examination of project memorandum and statement of affairs 2.10D CENTRAL RECOVERY DEPARTMENT Project implementation department make a repayment schedule and given it to the borrower. Normally the interval is 6 months. This department inspects the project after
every 6 months to see whether there is any leakage. If the borrower fails to repay the loan as the application of the borrower it is rescheduled. Sometimes a portion of interest is exempted. If the borrower fails to repay the loan than it is transferred to law department to take legal action on the application of the borrower. Sometime the project is transferred to project Rehabilitation Department to restore the project.
2.10E LOAN ACCOUNTING DEPARTMENT Loan Accounting Department is the department, which centrally maintains all loan amounts of the bank. There are 4 sections, which performs the activities of the department. 1. Not due section: Not due is the installment not yet due for payment in schedule time fixed by the project department/Branch officer. 2. Amount due section/overdue section: The payment of installment and interest in not paid/cleared in time is overdue. The functions of this section are: a. Accurately list of balance preparation b. Advice sending to borrower c. Quarter/half year by interest charge. 3. Replacement section: When the overdue is rephrased or waived then the replacement section will do the needful activities. 4. General and policy section: General and policy section do the following: a. To prepare the monthly Trial balance. b. Monthly recovery statement. c. Monthly disbursement schedule d. To make entry all the transaction as per daily statement received from the branch officer. e. All list of balances of not due send to the Head Office and branch Office.
f. To prepare distribution of work among the officers and staff as specific guidelines of the authorities.
2.10F LAW DEPARTMENT If the Bangladesh Shilpa Bank fails to recover its loan in the normal way; it must take alternative action and file case in the court. Legal action taken during the year 2003-2005 Position of projects under litigation Legal notice issued Filling of suit Cases settled outside the court Auction 2003-2004 Number of projects 126 205 6 2 2004-2005 Number of projects 33 23 11 11
2.10G HUMAN RESOURCE MANAGEMENT DEPARTMENT

The department of Human Resource Management was not it name as now. Modernizing the structure of the administration of the bank and development the skill of the human resources and reducing operating cost of the organization. The directors 244th meeting was conducted on 23rd April 1996. In this meeting, rename of the Administration Department as Administration & Human Resources Department and Department of Labor as Department of Human Resources Management.
There are five sections in this department SL. NO. 01 Section General administration & policy section 1. Fixing human activities/position 2. Fixing principle relating to organization 3. Fixing principles relating to delegation of power 4. Activities union 02 Management section 1. Provide employment policy 2. Provide transfer policy 3. Provide promotion policy 4. Fixing pay scale 03 04 Disciplinary section Welfare section 5. Fixing annual increment policy Mitigate the compliant against personnel 1. Provide scholarship policy 2. Assist the helpless personnel 05 Leave & medical section 3. Provide retirement benefit 1. Provide medical facility allowance 2. Provide vacation opportunities 3. Provide conveyance facility & & relating to trade Activities principle relating to
resources
allowance 2.10H PROJECT REHABILITATION DEPARTMENT The objective of BSB is to stimulate industrialization of the country. But many of the projects, which are loaned by BSB, become sick and cannot carry on their projects. There are many reasons, so government tries to revive the proposed project for greater advancement of the country. In these types of cases, BSB provides assistance to rebuild their structure to restart their businesses. Additional financial assistance may be required moreover, more information and advice may given so that the entrepreneur may run the business more efficiently, sufficient return & contribution to the economy.
Functions of Project Rehabilitation Department

1. Recommendation and taking to rehabilitate a project after tracing the cause of sickness if the files are transferred to Project Rehabilitation Department from the ensured department/ branch/ zonal office after the primary analysis of the project. The rehabilitation process starts after the recommendation of the advisory committee formed by the General Managers. 2. The files of the projects are transferred to Law Department to take necessary actions, which are deemed not to be rehabilitated. Again if there is no opportunity to rehabilitate any it also rejected. 3. Verification of the proposal regarding rehabilitation recommendation preparing the implementation schedule and taking necessary initiatives to take care the project and deciding the single or joint management system of the bank and performing other activities regarding these.
4. Production of the rehabilitated project, making of the products analysis the targeted loan recovery and actual situation and taking necessary initiates regarding these
3.1
ACCORDING
TO
RESEARCH
PAPER
OF
BANGLADESH
INSTITUTE OF DEVELOPMENT STUDIES (BIDS) ON SICK INDUSTRY

Sickness in the industrial units is not a new phenomenon as is evident in the developing countries. Even in the industrially advanced countries of the world, varying degrees of sickness are found to occur. An industrial unit may face a number of odds during its implementation and operation stage because of a number of factors in the environment internal and external. If the problems perpetuate & does not permit the unit to pursue the normal course of operations leading to reasonable utilization of capacity, generation of surplus, debt servicing, etc, it can be presumed that some kind of sickness has engulfed the unit and if this trend grows unchecked, it would adversely affect production and employment in the country besides other socio-economic repercussions. However, it is also recognized that in a market economy, the survival of the fittest and weeding out of inefficient industrial units is a natural outcome, which is considered useful as well because the exit of the non-competitive and loss-incurring units should not pose difficulty to any society. But sickness assuming an epidemic shape creates concerns to the policy makers and stakeholders. Experience suggests that small-scale industries are more prone to sickness as compared to medium and large-scale industries. In this context, sickness in small industry should not be left only to the market forces. Creation of objective conditions and enabling environment through suitable policy support are essential for sustained growth of the small industry sector in the developing economies. It is, therefore, imperative to diagnose the causes of sickness so that preventive measures are suggested. Even if a small unit turns sick despite taking all possible precautionary measures, efforts should be made to find out the possibility of its revival. This warrants appropriate package of restructuring and rehabilitation strategies. If the units survival is still under threat, it should be better allowed to die a natural death.
The researchers have shown the incidence of sickness and causes thereof in the industry sector of Bangladesh with particular reference to small industry sub-sector and suggest policy measures, both preventive and corrective, to address the problem of sick industries in the backdrop of pursuing the rapid industrialization strategy as the major prop for acceleration of economic growth in their paper. For this purpose, extensive survey of literature has been made and relevant Govt. publications, pervious studies and various initiatives taken by the successive Governments have been consulted. SectionII presents the industrial scenario in Bangladesh, Section-III highlights the role of small industries in the economy and polices pursued, Section-IV brings out the sickness syndrome prevailing in the industrial sector of Bangladesh, industrial sickness in neighboring countries is briefly described in Section V, and Section-VI deals with the suggested policy framework for prevention of industrial sickness and rehabilitation measures. 3.2 SICKNESS SYNDROME IN THE INDUSTRY SECTOR OF BANGLADESH: CHRONOLOGY OF GOVT. INITIATIVES AND VARIOUS STUDIES In this section the researchers have shown the industrial sicknesses and its incidence in Bangladesh. They said that Sick industries refer to those units, which perform poorly against expected results, incurs cash losses for consecutive years, gradually erode the entire net worth and obviously fail to service the debt obligations. They think that the following major criteria are used to identify a sick unitA unit incurring financial loss/not being capable to produce at / above break-even point A unit incurring continuous cash losses A unit having negative equity A unit having excess of current liabilities over current assets A unit making defaults in payment of principal sums with interest.
A unit having low capacity utilization A unit having worsening debt-equity ratio
They also observed that it is very difficult to recognize sick units on some definite criteria as a wide variety of interlinked symptoms characterize the sickness of a unit. Likewise, a number of causes are responsible for turning an industrial unit as sick. These causes prevailing simultaneously in a unit may be closely inter-related or even independent of each other. Some of the causes originate outside the unit (e.g. changes in the structural and environmental factors like infrastructural problem, govt. policies, etc.) and some crop up within the unit itself that relate to the functional areas like management, production, finance etc. BIDS also made a comprehensive study on sick Industries in 2005. This study based on Ministry of Industry (MOI) data reveals that the highest incidence of sickness is as followsSectors The manufacturing of textiles The sub-sectors-food manufacturing Non-electrical machinery Leather and its products % of sickness 19.6% 14.3% 5.7% 5.4%
It appears from the study that small scale industries is at the top (72.5%) in terms of incidence of sickness, followed by "medium" and "large" scale industries 19.7% and 4.1% respectively. From the enterprise level survey of the study they found that among the internal factors causing industrial sickness, the entrepreneurs have singled out use of obsolete technology as the most important one (23%) followed by faulty employee appointment (15%), lack of working capital (13%), marketing problem (11%), poor management (9%), and wrong feasibility (5%). Among the external factors, lack of working capital has been mentioned as the single most important cause (35%) followed by natural calamities (13%), trade
liberalization (9%), problems in disbursement of project loan (7.5%), poor infrastructure/utilities (7%), political unrest (5%), and smuggling (3%). They have also identified some causes of Industrial Sickness and suggested policy measures for Prevention and Rehabilitation. They classified the causes into two categories: (I) External causes (exogenous factors)
The external causes, which are beyond the control of the industrial unit, usually affect the industry group as a whole. (II) Internal causes (endogenous factors)
Internal causes occur due to some intra-firm weaknesses in various functional areas of the unit and are, therefore, management related: A. INTERNAL SL. Broad Area 01. Managemen t Detail Causes a. Lack of proper education, training, experience and business outlook of the Sponsors/Entrepreneurs b. Poor Entrepreneurial skills c. Poor Management d. Poor Equity base e. Lack of Integrity/Division of Funds f. Faulty Project Planning and Appraisal a. Wrong choice of technology b. Improper utilization of production capacity c. Imbalanced and Defective Machinery d. Poor Raw-material Planning e. Inadequate Quality Control f. Poor labor relations
02. Production/ Technical
03. Marketing
g. Location problem a. Lack of Market Planning b. Inadequate Market Survey c. Poor Collections d. Defective Pricing a. Poor Management of Financial Resources b. Delay in Mobilization of Equity Funds c. Faulty Costing d. Adverse debt-equity combination e. Lack of Proper Accounting system a. Lack of Competence b. Lack of Loyalty c. Lack of Professionalism
04. Finance
05. Personnel
B. EXTERNAL SL. Broad Area 01. Govt. Policy & Implementatio n Detail Causes a. Frequent Policy changes b. Lack of Proper Implementation of Industrial Policies c. Liberal Import Policies d. Poor Infrastructure / Frequent Power Disruption e. Smuggling f. Fiscal Anomalies g. Exchange Rate Fluctuation h. Lack of Co-ordination between various ministries and Govt. Departments, etc. i. Over-Saturation of particular industry type / Sector due to wrong policy j. Non-availability of Raw-material, etc. a. Non-availability/Inadequacy of Working Capital
02. Bank &
Financial Institutions
b. Lack of required financial assistance for BMRE c. High rate of Interest on bank loan d. Lack of timely decision & support by the banks and financial
03. Environment
institutions. a. Political Unrest b. Labor Unrest c. Market Recession d. Delay in Project Implementation
a) PREVENTIVE MEASURES They have shown that small industrial units fall sick much to the occurrence of external causes while medium and large industries get exposed to sickness largely due to internal causes. Though it would be hardly impossible to eliminate the causes altogether, attempts should be made to undertake measures that would reduce the magnitude of ailment in the industrial units for healthy survival and growth. So, they have suggested to take the following measures to prevent industrial sickness: 1. Macro-economic Policy changes: The industrial entrepreneurs should make their own appraisal within a predictable macroeconomic environment. For this, policy changes should not be abrupt, have to be preannounced and gradual. 2. Sub-Sector wise Long term Policy: For each sub-sector, the long-term policy (e.g. for a period of 5 years) should be announced by the Government so that entrepreneurs appraisal of the policy implications do take a near-accurate shape. 3. Implementation of the Announced Polices:
There should be effective co-ordination amongst the various ministries, Govt. Departments and relevant agencies involved for proper implementation of policies related to industrialization. 4. Development of Small industry Sector: The small industry sector is characterized by low-level of technology, low equity base, traditional management practices, poor marketing outlets and undeveloped subcontracting arrangement. The small industries should not be left to the market forces only. The following measures may be taken for preventing sickness in the small-scale sector: Arranging access to institutional credit at reasonably lower rate of interest. Industrial Estates equipped with the required facilities should be set up in suitable locations. Entrepreneurship and Technology training should be arranged and then linked with the provision of credit facilities. A national level training institute for entrepreneurship development in the small-scale sector should be set up. Meanwhile, BSCIC Training Institute and DCCI Business Institute may be strengthened for up gradation of capability of the existing entrepreneurs. Establishing complimentary relationship with the medium and large industries should make sub-contracting arrangements. Government supplies may be procured from small industries as far as possible. Data Bank should be developed at the Chamber Bodies/BOI/BSCIC to facilitate the adequate flow of market-related information. There may be one marketing agency entrusted with the responsibility of purchasing all goods manufactured by SSI units (Say, up to Tk. 10 million investment) and the task of channeling sales through various sales depots.
5. Rationalization of Tariff: In cases where deemed necessary, some protective measures should be taken by restricting import of the locally produced finished goods so that fiscal anomalies could be removed. 6. Improvement of Infrastructural Facilities: Insfrstructural facilities including utilities should be made available to the entrepreneurs at low cost and at the appropriate time. 7. Monitoring of Saturation in Particular industry Sub-sector: There should be some agency entrusted with the task of monitoring the establishment of too many units in the same sub-sector so that over-crowding could be prevented. 8. Development of Linkage Industries: In order to mitigate the problem of non-availability/scarcity of raw material as well as marketing of finished goods, backward and forward linkage industries should be set up in a planned way. Moreover, close linkage of industry with agriculture will help ease problem of scarcity of raw material. 9. Active Support of Banks and Financial Institutions: In case of industrial units where term loan is needed, the availability of working capital should be ensured as part of the financial package. Banks should provide due attention to process the working capital needs of the industrial units without any delay. The banks and financial institutions should actively consider BMRE Loan for the existing industrial units undergoing the reality of rapid change in technology so that productive capacities are not rendered idle/underutilized.
Interest rate on loan should be made lower by improving operational efficiency of the banks. This will help reduce financial costs of the industrial units and thus gain access to competitiveness. Bank-client relationship should be based on understanding of the mutual problems and prospects for greater interest of survival of both the entities. Banks should improve the quality of project appraisal in order to prevent the growth of born- sick projects and for that, availability of adequate and accurate data and skilled manpower have to be ensured. Banks could fix up a time limit for sanction and disbursement of loan limits for helping timely implementation of the projects/utilization of capacity of the borrowing industrial units. Monitoring system of the projects financed by the banks should be thoroughly intensive and for this, both off-site and on-site mechanisms should be used in conjunction with each other in order to take timely steps for prevention of sickness. Educated entrepreneurs with technical know-how should be encouraged to set up industrial units. They should be provided with all possible support, both financial and non-financial without emphasis on collateral. 10. Expansion of Market Base through Increased Exports: Domestic market is gradually getting squeezed due to the influx of officially imported foreign goods and smuggled goods. On the one hand, increasing the number of exportable products should expand export market. On the other, anti-smuggling drive should be strengthened. For this, import policy should be restructured in a way that discourages smuggling to a great extent. 11. Use of Predictive Models:
Banks and entrepreneurs should follow some predictive models for early detection of sickness on the basis of evaluation of financial health of the industrial units. 12. Facilitation of Enabling Environment Deterioration of Law and Order, extortion, harassment etc. should be checked at any cost. In case of natural calamities, special assistance should be provided for resilience.
b) REMEDIAL MEASURES They also suggested the following measures for the industrial units approaching towards sickness and already turned are as follows: (i) Every bank and financial institution should have a "Project Rehabilitation Cell" manned by the experts of various disciplines. There should be ongoing process of evaluation of the heath of the assisted units by the banks to detect early warning signals. For this, congenial bank-client relationship is a must for extending co-operation to each other. Genuine sick units capable of being revived should be allowed rehabilitation package by way of rescheduling of existing loans, waiver/remission of interest payments, conversion of short-term liabilities into long term obligations, etc. depending on the merit of the each case. There might be one "Interest Remission Committee" to be formed by the Govt. from time to time to address the genuine problems of small sick units (where investment ceiling may be up to Tk. 1 crore). However, this step should not encourage the non- sick units to avail of this temporary facility. The screening process should be strict enough to select the genuine sick units for such concession. As it was followed previously, the Govt. may compensate up to 50% of the waived interest to the concerned banks.
If necessary, change of management of the sick units should be brought in to facilitate successful running of the projects. Only financial and management rehabilitations of the sick units will not bring the desired result unless Govt. assistance in the form of reduced taxes, duties, concessions on various charges like gas, electricity, etc., imposition of restriction on related import items etc are made available. Bangladesh Bank may set up a sick industry Cell to monitor the performance of the lending institutions in handling the problems of sick units and to co-ordinate the rehabilitation efforts of banks, financial institutions, Govt. and other agencies involved. Possibilities of mergers and acquisitions may be explored in case of sick industrial units not capable of being revived by their own strengths. Suitable policy guidelines may be framed in this regard. SOEs found chronically sick should not be allowed to operate in the limping state any further. In case of sick SOEs capable of being revived, disinvestments process may be expedited.
3.3 STUDIES ON SUB-SECTORAL/ENTERPRISE LEVEL SICKNESS

Mr. Saha, Head of Research Division of Depository Financial Institution (DFI) (1997) carried out a research work on industrial sickness of the DFI- financed projects in Bangladesh.
He identified the following principal causes are responsible for the sickness of DFIfinanced projects:
i.
Internal: i. ii. iii. iv. v. vi. Marketing problem (31%) Management inefficiency and lack of entrepreneurial skills (22%) Faulty project planning and appraisal (14%) Imbalance of machinery and inappropriate technology (12%) Implementation delay in (mobilization of equity, etc) (12%) Others (diversion of funds, labor problem, etc.) (9%)
ii.
External: i. ii. iii. iv. v. vi. vii. viii. Delays in loan sanction and disbursement (22%) Non- availability/ shortage of working capital (21%) Power problem (15%) Changes in Govt. policy (import liberalization) (13%) Non-availability/ irregular supply of raw material and other critical inputs (11%) Natural calamities (57%) Smuggling, Political unrest (5%) Others (8%)
He found out the following important findings of the study: Most of the sick projects (64%) were established during the 1980s Average capacity utilization of the sick projects was 41% Working capital finance gap (difference between the required working capital and available working capital) prevailed within the range of 21-80%. for 76.48% of the sample sick projects.
3.4 MINISTRY OF INDUSTRY (MOI) - SPONSORED SICKNESS STUDY BY THE HOUSE OF CONSULTANTS LTD.
In 1988, under the sponsorship of Ministry of Industries (MOI), Government of Bangladesh (GOB), the House of Consultants Ltd. undertook a study to develop criteria and identify the causes of sickness of manufacturing establishments in Bangladesh and find solutions to remove or at least reduce the impact of the causes. According to the study, an industrial unit has been defined to be sick if it fails to cover all the costs of production (including finance cost) and earn normal profit in the long run (i.e., a three year period). A set of criteria was developed for the study in order to identify an industrial unit as sick which are as follows: If it incurs net loss in consecutive years, If its debt-equity ratio deteriorates over time (net loss wiping out the equity base), If it fails to meet debt-servicing liabilities on time, If it defaulted in payment of past taxes, If its share price is going down (in case of public limited companies listed in the stock exchange), If it is facing working capital problem and its cash ratio is declining over time (creating liquidity problem). By applying the above criteria to a sample of 300 industrial units, it was found that 67.3% were sick in terms of one or more criteria. The extent of sickness is the highest i.e., 75.8% among the small-scale industries. The major causes contributing to the state of sickness are listed below: Poor entrepreneurship Lack of proper studies Lack of management & technical knowledge Low equity base and dishonesty of purpose
Poor market planning Idle capacity/low capacity Infrastructure (power, etc) Shortage of funds (Working capital & BMRE) The study suggested a number of measures to alleviate the cause of industrial sickness. The immediate measures includedEasing debt burden, Reappraisal of sick units, Debtequity swap, Rescheduling, Funds for BMRE & Working Capital, Manpower training, uninterrupted power supply, etc. On the other hand, the suggested long run measures were conducting sector reviews, developing project preparation capability, creating an Institute of Technology, creating management capability, etc. However this study suffers from methodological problem.
3.5 FUNCTIONING OF SICK INDUSTRIES REHABILITATION AND REVIVAL CELL UNDER IP-91
A Sick Industries rehabilitation and Revival Cell was formed in the middle of 1991 at the Ministry of Industries (MOI). The cell headed by the Secretary, MOI, and GOB with representatives of all prominent chambers and financial institutions had the following terms of reference To define a sick industry To identify sick industries and the reasons thereof on the basis of a survey To submit report with specific recommendations for arriving at the appropriate solutions in each case 1. Definition of sick industry according to Sick Industries rehabilitation and Revival Cell The cell defined a sick industry as follows
An industrial unit (a) which could not reach the stage of normal production with normal profit or (b) has incurred loss or remained at the unprofitable level for consecutive 3 to 6 years from the first year of commercial production or (c) could not produce above the break-even point for reasons beyond the control of the entrepreneurs. 2. Causes of sick industry according to Sick Industries rehabilitation and Revival Cell The Cell identified the following major causes of various types of industries fallen sick: Selection and Implementation of Projects without the required feasibility studies Supply of imbalanced and defective machinery Inadequate/Non-availability of working capital (in majority of the cases) Non-provision of financial assistance for BMRE, where necessary Lack of timely decision and support by the financial institutions and the related agencies (in majority of the cases) Loss incurred by natural calamities. Unauthorized inflow of smuggled and officially duty-free foreign goods Frequent power disruption, irregular supply & high price of power Improper utilization of productive capacity Disruption of production due to political unrest, labor unrest, etc High rate of interest on bank loan Marketing problem for locally produced goods Upward movement of exchange rates
Fiscal anomalies between the imported raw material of locally produced goods and imported finished goods. Lack of sound management Lack of proper implementation of industrial policies 3. Recommendations of Sick Industries rehabilitation and Revival Cell for sick industry A number of recommendations were suggested by the selection committees separately sub-sector-wise in order to rehabilitate and revive the identified sick industries, which were finally approved by the sick industry cell. The principal recommendations were here as under: Waiver of 100% penal and 50% - 100% normal interest Rescheduling of outstanding loan for repayment in easy installments Provision of necessary working capital, financial and technical assistance to BMRE cases after conducting fresh feasibility studies Withdrawal of all filed suits Supply of electricity and other utilities on regular basis and discontinuance of peak hours of electricity Unnecessary delays in providing financial assistance and support to be avoided Stoppage of unauthorized inflow of foreign goods Lowering of interest rate on industrial loan Fiscal anomalies to be removed Introduction of special insurance scheme on easy terms for natural calamities
Compilation of accurate statistics for investment decision In order to provide protection to home industry, local goods that are produced abundantly should be discouraged for import. The report further suggested that as there exists special need for co-ordination between the operations of the different ministries, agencies, banks and financial institutions and the policies and rules of the Govt. and various laws for rehabilitation of sick industries, a "Board for Industrial and Financial Restructuring" might be formed through enactment of special laws. Under the same law, there may be a high level appellate authority to review the appeals of the concerned quarters and provide judgments against the decisions of the said board.
3.6 RECOGNITION OF SICK INDUSTRIES IN THE FIFTH FIVE-YEAR PLAN (1997-2002)

The Fifth Five Year Plan (1997-2002) was launched by the Government. Unlike the previous Five-Year Plans, the Fifth Five Year Plan recognized the presence of a large number of sick industries and listed the main reasons therefore as follows: Depreciation of taka in relation to the foreign currency in which loan capital was obtained Technological obsolescence Withdrawal or lowering of protective tariff wall, Management inefficiency Inadequate working capital support by the banking system; and Pilferages by the sponsors, in collusion with the personnel of the lending banks or financial institutions
In this paper it has been suggested that during the plan period concrete steps will be taken to remove the relevant causes of sickness through joint efforts of the owners, management, labor and the funding agencies.
3.7 SUPPORTIVE MEASURES PROPOSED IN THE NATIONAL BUDGET OF 1998-99 FOR CURBING INDUSTRIAL SICKNESS
While announcing the national budget for the financial year 1998-99, the Finance Minister referred to the sick industries in Bangladesh. Though he admitted the realities of sickness in the context of governing principles of capitalism, he attributed the main reasons of sickness to mismanagement, political and economic stability and rapid liberalization and unexpected shifts in economic policy. A package of supportive measures was proposed in the budget speech with a view to scaling down the problems of sick industries which are follows: Since small entrepreneurs are adversely affected by the phenomenon of sickness and detailed investment analysis is hardly possible in case of small units, steps would be taken for providing assistance to the small sick industries already registered with MOI. A special committee would be set up to consider remission of interest and penal interest up to 100% of those enlisted sick industries which had borrowed up to Tk. 50 lacs from any state-owned bank. The Government would reimburse 50% of such remitted interest amount to banks. The amount remaining due after remission would become payable by three years in monthly installments. Sponsors of sick industries having borrowed more than Tk. 50 lacs, and being unable to pay the dues, may submit compromise proposal to the banks for decision on the basis of bank-client relationship. In cases, the sponsors believe that their sick industries can be profitably rehabilitated; they may submit feasibility reports to the concerned banks for taking appropriate steps on the basis of guidelines given by the special committee.
Where court cases are pending, all proceedings would be taken within the legal framework without compromising the interests of the banks. Upon implementation of the above measures, all Govt. Committees relating to sick industries would stand abolished and hence, all sick industries would have to seek redress under the Bankruptcy Act. The Government will issue bonds worth Tk. 60 crore in FY 1998-99 to compensate the banks for implementation of the above measures. If necessary, allocations for this purpose may be enhanced in the future.
3.8 FORMATION OF SPECIAL COMMITTEE ON INTEREST REMISSION FOR THE IDENTIFIED SICK INDUSTRIES The Ministry of Finance considered some observations of SIA and constituted a Special Committee on Interest Remission under the convener ship of a retired judge. While resolving the cases under consideration for remission of interest, the following reasons were found to be dominant in contributing to sickness in industries: Selection of project without proper feasibility studies and appraisal Failure in selecting appropriate technology Supply of defective machinery due to inexperience of both entrepreneurs and banks Problem in marketing the produced goods Location problem and lack of skilled manpower Non-availability/Inadequacy of working capital from the financing banks
Delay in financing decision and loan disbursement Natural disasters Smuggling of foreign goods/liberal import policy Frequent power disruption/Non-availability of gas and power connection. Frequent changes in exchange rates and fiscal anomalies. Lack of co-ordination amongst various ministries and Govt. departments Over-crowding of industries in the same sub-sector Deterioration of law and order, political instability, extortion, strike, etc Management inefficiency, etc
However, in April 2001 the Finance Minister in his speech remarked that there was no scope for continuing state support for rescue of sick industries. He added that the Govt. tried its best to reduce the number of sick industries from over 1700 to less than 400 through supportive measures. But this should not be looked upon as a permanent phenomenon in a market oriented economy.
3.9 DAILY STAR REPORT ON APRIL 7, 2006

Govt. urged to frame law for protecting sick industries
--Staff Correspondent President of Bangladesh sick Industries Association Chowdhury Muhammad Ishaq urged the government to constitute a rehabilitation and reconstruction board and frame an appropriate law for protecting the sick industries of the country. He said at a Press conference held at the National Press Club on Saturday, "The government had identified 2580 industries as the sick industries and of them 100 are in the public sector. About one lakh workers have become jobless and 49000 people have been affected directly due to serious disruption in these industries," He said- only 700 sick industries could be traced and others were abolished. The president of the association alleged that the government policy for rescheduling the loans was not the borrower friendly. He urged for keeping the sick industries out of the purview of Artha Rin Adalat. Responding to a question he said the association had submitted its demands to the government and met with the Minister for Law and Parliamentary Affairs Barrister Moudud Ahmed. The minister according to them assured the association of reviewing the problem faced by the sick industries. .
3.10 FINANCIAL EXPRESS REPORT ON FEBRUARY 2, 2006

Entrepreneurs in distress: Rescue plan of sick industries shelved --By Staff Reporter
Chowdhury Muhammad Ishaq, President of Bangladesh sick Industries Association said that entrepreneurs burdened with their sick industries have been passing their days in
distress since 1991, due to non-implementation of the government decision to write off banks bad debts. He thinks that the causes which led to loss of commercial viability of these sick units included selection and implementation of the projects without judging viability, supply of sub-standard machines for the units, non-cooperation of banks to provide working capital to the units, lack of fund for BMRE of the projects, affected by the natural calamities, power outages, drastic fall in productivity for various reasons, lack of protection for marketing of the local products, reduction of export market, continued losses, nonavailability of connections of gas and electricity as per need, absence of proper industrial policy and lack of efficient management. He also identified non-cooperation of the commercial banks to provide working capital in time as key factor for turning their industrial units sick. The association leader also informed that the sick Industries Rehabilitation Cell formed as per government gazette notification on June 1991, identified sick units and recommended immediate measures to rehabilitate the sick units by waiving their bad debts. But instead of paying heed to the cause, Bangladesh Bank issued a circular asking the commercial banks and other financial institutions to go for legal battle and settle bank loans through filing of cases against the defaulters before the Artha Rin Adalat, they regretted.
Secretary General of the Association Rafiqul Hoque Akand informed that as per a survey, at least 700 private sick industries needs write off their debts on principle loan involving Taka 300 crore,, the association leaders said adding that the remaining 1,780 enterprises have no existence due to various factors including fund constraints.
Senior Vice- President of the association M Siddiqur Rahman also demands necessary steps immediately for promulgation of Bangladesh sick Industries Act and constitution of
sick Industries Rehabilitation Reconstruction Board to address the problem in a proper manner. He also demanded scrapping of cases filed against the sick industries entrepreneurs under the existing Bankruptcy law to end their harassment.
Industrialization is the prime concern of all the economies, especially in developing countries. Since the independence, numerous policies and efforts have been made to accelerate the pace of industrialization in Bangladesh. Bangladesh government has established specialized financial institution named Bangladesh Shilpa Bank on 31st October 1972 with view to providing long term and intermediate term loan to the entrepreneurs for accelerating the process of industrialization of the country by providing financial assistance and equity support.
At the very beginning of Bangladesh Shilpa Bank, it was the only institution without whose support industrial project was impossible to build up. About the entire industrial unit established up to 1990 is the output of Shilpa Bank. It is the bank whose main objective is to encourage and motivate the potential entrepreneur to set up the new industry in the various part of the country. Although some commercial banks are providing short as well as long term industrial support to potential entrepreneurs, but still, Bangladesh Shilpa Bank is on the prior position. For the industrial development the contribution of BSB is incomparable. Bangladesh Shilpa Bank undertakes various projects by providing finance, machinery and other aids, some projects are implemented successfully and some projects are failed to attain the goal and these firms are called sick firms according to the BSB language. Sick industries mean the industries, which either become stuck-up during construction or could not operate successfully after implementation. These projects could either pay back the banks dues or make any contribution to the national economy. These projects were identified as sick due to their inability to generate sufficient fund for debt servicing. There are so many sick industries in Bangladesh, which has no specific statistical data. Here the main objective is to identify the causes of sickness of these industries.
4.1 SICK SITUATION OF A INDUSTRY

Normally BSB meets the long-term credit needs for implementation of the projects. BSB charter provides for extending working capital to its financed projects only to a limited scale. While sanctioning loans by BSB provision is made for commercial banks to provide 70% of the working capital needs. But in most cases it is found that the project management either cant raise the required working capital from the commercial banks, or they cant raise required amount in due time. As a result these projects could not go into operation on schedule time and they become unable to pay the interest and the principal amount. At last they are treated as sick industry. In Bangladesh, the growing incidence of industrial sickness and its adverse impact on the economy in the form of loss
of productive capacities, investment potential, employment, etc. drew the attention of the policymakers in the Government first in the late eighties. In the nineties, with the advent of market economy and consequent trade liberalization, the intensity of industrial sickness took a new dimension. The successive governments came up with policy measures at different periods to address the problem of sick industries.
4.2 METHOD USED TO IDENTIFY A SICK INDUSTRY

There are some specific criteria to identify a sick industry. Two types of factors can be considered to identify the sick industries. They areQuantitative factors Qualitative factors A. QUANTITATIVE FACTORS: To identify a sick industry the following quantitative factors are considereda) On the basis of Cost- Benefit Analysis For identifying a sick industry the following criteria may be considered by cost- benefit analysis. If the cost of the project is more than the benefit then the industry is to be considered as a sick industry. Sometimes the industry cant recover the cost of labor, material. For this reason the industry goes into loss. b) On the basis of Break Even Analysis Production TR
Profit
VC
Break-Even Point FC
Cost
O An industry should produce up to break-even point due to recover the fixed cost or overhead cost. If they cant recover fixed cost then this industry can be considered as a sick industry. c) On the basis of Financial Problems/Shortage of Working Capital The shortage of working capital is the most acute problem for majority of the sick industries. Working capital is required to finance purchase of required raw materials and other short term needs of a project after it is implemented. A survey shows that 28% of the projects suffer due to shortage of capital. The problems, which lead an industry toward sick, are as followsMeasurement of investment outlay and cost of the project are not appropriate When the means of financing is not available When the project is not profitable When the production is not reached at the break-even point When they cant calculate appropriate risk level of sick Loan application with insufficient amount of money that would not meet fixed and operation cost Cash flow of the project is not available If actual cost of the project is more than the budgeted cost Shortage of working capital, i.e. if they do not manage the sufficient working capital If interest rate increases the cost of working capital then the project may become sick Lack of adequate operating capital Higher fixed cost, i.e. increase the fixed cost as a result of increasing of the price of machinery, land or other fixed items
When variable cost increases When there is no sufficient mortgage Improper inspection of bank financed project Insufficient insurance facility Economic problem comes from the social cost benefit analysis. B. QUALITATIVE FACTORS: To identify a sick industry the following qualitative factors can be consideredThe symptoms of Sick Industry Sick industry is difficult to define. Nonetheless the symptoms of sick industry are as followsThe initiator is unable to pay sufficient money at the implementation stage The delay of implementation increases the project cost. It also creates many problems and the burden of loan interest is increased. Lack of full production or frequent obstruction of industry The initiator is unable to pay the loan installment and other liabilities The failure of payment of loan installment in time increases the burden of loan amount Inability to submit the financial statement in time Increase the tendency of undertaking unfair means in preparing the papers of stock materials Goods of the stock increase of unsatisfactory sale Profit from investment decrease gradually The production level decreases gradually Taking loan from various sources at a high rate Applied for a large amount of loan Non-cooperating tendency with the loan providing bankers Lacking of perfection in the market
Technological problems A survey of Depository Financial Institution reveals that 12% of the projects suffer due to technological problems, which lead an industry toward sick, are as followsMachinery imbalance causing lower capacity utilization is the major technical problem of many projects. Some also suffer from faulty technical design. Whether the preliminary test and studies are not appropriate Availability of raw materials, powers and other infrastructural facilities are not established. The selected scale of operation is not optimal The production process chosen is not suitable The equipment and machine chosen are not appropriate Lack of modern technology like incapable to use the computer and modern machinery If the selection of machinery becomes faulty, it will not ensure the achievement of objectives Wrongly or inappropriate selection of the machinery Lower capacity of the machine resulting price will be higher, i.e. production cost higher Inconsistency between the origin of raw materials and the factory location Production of products and final consumption adversely affect the business Lack of infrastructure facility Selection of old and backdated technologies to be used in production Delay of machinery procurement & rapidly change in technological environment Unavailability of supply of gas, electricity and water etc 1. Administrative and Managerial problems Success of a firm largely depends on management. There are some internal conflict between the workers and managers. According to the research paper of Bangladesh Institute of Development Studies reveals that 9% of the projects suffer due to
administrative and managerial problems. The administrative problems, which lead an industry towards sick, are as followsWhen the management is not capable to manage all the managerial aspects; management should have proper planning, organizing, controlling, administrating and monitoring. Weak management of the project Lack of efficiency of employment as well as managements Conflict and also death of managements partner Death of main entrepreneur of the project Insufficient employees Unskilled human resources Corruption and intentional misuse of organizational assets Lack of proper planning, organizing, controlling, administrating and monitoring
Marketing Problems A survey of Depository Financial Institution reveals that 31% of the projects suffer due to marketing inefficiencies, which lead an industry toward sickness, are as followsIf the aggregate demand of products of proposed project is not possible to fill up. If due to national financial crises product demand decrease Introduction of new brand product Wrong forecasting about the market When change the consumption trends in the past and present consumption level If change occurs in the Import and export policy When market share of the project is under low appraisal Smuggling of substitute goods If the raw material of the product is not purchased at appropriate time Improper market justification
If production cost is high resulting selling price high which ultimately decreases the demand Lack of market expansion and production diversification Shortage of raw material supply High competition in the market Cheap price of the foreign product Economic Problems ] The economic problems, which lead an industry toward sickness, are as followsEconomic problem comes from the special cost benefit analysis It does not impact of the project on the distribution of the income in the society as well as the level of saving and investment.
Political problems The political problems, which lead an industry toward sick, are as followsPolitical pressure Political instability, which hampers the production Insufficient facility provided by govt. to industrialist like tax rebate Political problem like worker unrest, hartal Political pressure to loan procurement Inappropriate action taken by govt. to protect smuggling Political terrorism Other Reasons of Sickness
Except the above problems there are also some problems, which lead an industry towards sickness. A survey Depository Financial Institution also reveals that 9% of the projects suffer due to other problems, which are as followsSelection of inappropriate industrial unit, which is not financial and logically viable in concerned country Delay of loan application Internal delay of industries construction after loan sanction If a portion of loan amount used for personal use Delay of operation start Over estimation of mortgage value Delay of loan procurement and sanctioning process Delay of documentation formalities in respect of loan Causing of rehabilitation measure Insufficient enforcement of law for recovery of loan Inappropriate location of industries Natural disaster that hampered production Terrorism that hampered to establish an industry Delay of implementation 4.3 ARGENTIS SCORE MODEL TO IDENTIFY A SICK PROJECT To support the above definitions and to identify which industry is sick, a model has been included here. In 1977, Argenti developed the model called A Score Model. This model is discussed with a list of drawbacks, which hindered the success of an industry. All the drawbacks carry some points, which are used to identify a firm as sick or not. The model is based on1. Defects 2. Mistakes 3. Symptoms Weight Defects 8 Chief Executive Officer (C. E. O) is an Autocrat Situation Occurs Qualifying Marks 10
4 2 2 2 1 3 3 15 43 15 15 15 45 4 4 4
Chief Executive Officer (C.E.O) is also the Chairman Passive Board of Directors Imbalanced Board Weak Financed Director Poor Management Depth No Cash flow Plan No Budgets/Budgetary Controls Poor Response to change 10 High Leverage (debt/equity) Overtrading Big Project Gone Wrong 05 Financial Signs Weak Creative Accounting Rumors/Staff Turnover/Low Morals/Untidy Offices/Frozen Salaries
Total Mistakes
Total Symptoms
Total 12 Total possible score: 100
Qualified: 25 or less
According to the Model, defects part carries total 43 weights and qualifying marks in this part is 10 out of 43. IfThe C.E.O is an autocrat then the industry is weighted by 8 And the C.E.O is also the chairman then the industry is weighted by 4. For Passive Board of Directors the industry is weighted by 2 Imbalanced Board of Directors the industry is weighted by 2 Weak Financed Directors the industry is weighted by 2 Poor Management Department the industry is weighted by 2 No Cash flow Plan the industry is weighted by 3 No Budgetary Control the industry is weighted by 3 Poor Response to change the industry is weighted by 15.
If the industry gets 10 or less marks in this defect part then it will not be considered as sick. But if it gets more than 10 then it will be treated as sick. In the mistakes partForHigh leverage, the industry is weighted by 15 Over trading the industry is weighted by 15 And Big Gone Wrong the industry is weighted by 15 If the industry gets 10 or less marks in this part then it will not be considered as sick. But if it gets more than 10 then it will be treated as sick. In the symptoms partFinancial weakness carries 4 marks Creating Accounting carries 4 marks Rumors/Staff turnover/Low morals also carries 4 marks. Here the total weight is 12 and qualifying marks is 5. According to above model it is clear to identify the sick industry. The industry, which gets score less than 25, is not considered as sick industry. But the industry, which gets more than 25 score, is considered as sick industry.
4.4 IDENTIFIED SICK INDUSTRIES

In Bangladesh there are so many sick industries. The sick industry concept is not the newest one. It is occurring from the pre-independence of Bangladesh and Bangladesh inherent some sick industries from its birth. After independence this is also continuing. The exact figure of sick industry is not identified. But on the basis of the above factors 274 sick industries that are financed by BSB are identified as sick during the year 20032005. Some of them are stated below:
Some Sick Industries G.M.K Textile Ltd. Ali & Sons Ltd. Meraj Fabrics Ltd. Shardar Textile Mills Ltd. Jahan Group of printing & Nima Corporation Ltd. packaging Al-Amin Printing & packaging Riad Products Pvt. Ltd Tas Toys Pvt. Ltd Micro Aliment J.K.K Industry Ltd Malik Auto Rice Mill Al-Amin Lee Factory United company Mitaly Enterprise Pvt. Ltd
Grand Dhaka Hotel Pvt. Ltd Helal Engineering Pvt. Ltd Hotel Konic Pvt. Ltd Quick Carrier Ltd Toronody Water Ways Pvt. Tempkul Ltd Rubber Tito Textile Ltd Retarding Brick Linker Ltd
Manufacturing Co. Ltd. Ltd Hasan Agro Engineering Companygonj Workshop Ltd Industry Pioneer Iron Foundry & Padma Tyre
Engineering Industry Diamond Industry Pvt. Ltd Shovo Auto Rice Industry Nakko Ice Ltd Jahanara Moulding Ltd & South East Enterprise Oriental Foundry Khan & Khan Uttaran Engineering complex Rangpur Food Company Mocca Mills Ltd Noor Rice Mills Mrs. National Cold Storage
Engineering Workshop Allama Nails Allied Coxbazar Aqura Resources Industry Pvt. Ltd North Bengal Silicate D & S Auto Rice Mill Bancharampur Textile Agro Producer Ltd Altaf Rice Mills Rangpur Poly Com.
Industry Pvt. Ltd Mohadevpur Auto Rice Hossain Electric Com. Laksham flour Mills Noor Cold Storage Shovo Rubber Industry
Source: Manual of Project Rehabilitation Department 2005 From the above statistics it is clear that there are so many projects in Bangladesh are sick. An analytical discussion makes it clear to us that the reasons of their sickness and which projects are sick for which causes.
If we further analyze it we find a clear picture of the sick projects and their relevant causes. These things are explained below under a table:
Working Cap.
Tech. + Mkting Tech. + W/C
Mgt. + Mkting
Mgt. + W/C Mkting + W/C Tech. + Mgt.
Tech. + Mgt+ + W/C
Mgt. + W/C+Mkting Others 3 1 1 5 13 3 1 5 1 5 4 33
Technical
Marketing
Tech. + Mgt.
Sectors Food & allied Textile Metal products Jute Engineering Paper printing Service Electrical Petrochemicals Non-metallic Chemicals Pharmaceuticals Tannery Transport Total No. of problems Source: Manual of Project Rehabilitation Department 2005 3 9 4 1 2 2 1 3 25 8 3 5 3 3 1 1 2 1 1 3 31 9 33 3 2 1 2 1 51 19 3 2 7 4 1 4 1 2 3 46 3 3 1 1 2 1 11 1 2 2 1 1 7 6 7 2 2 1 18 5 1 3 1 2 1 13 3 1 1 1 1 1 8 1 3 1 1 7 3 7
Management
75 64 13 20 16 12 9 13 8 10 6 14 9 5
234
-1 - 1 1 1 2 1 1 1 8 11
Total number
Causes
4.5 MAJOR CAUSES THAT AFFECT THE SICK INDUSTRIES IN BANGLADESH

A survey of Depository Financial Institution reveals that22% of the projects suffer due to administrative and managerial problem. 12% of the projects suffer due to technological problems. 12% of the projects suffer due to shortage of capital. 31% of the projects suffer due to marketing inefficiencies. 9% of the projects suffer due to other problems. So, we see that only one reason does not affect the sick industries. All the abovementioned reasons are responsible for sickness of industries in Bangladesh.
4.6 IMPACT OF SICK INDUSTRY IN BANGLADESH OR BSB Sick industries have negative consequences on BSBIncrease of non-performing assets in organizational level as well as national level Decrease contribution in GDP and GNP Decrease in productivity at national level Average effect in banks profitability Increases the classified loan Increase the lending rate of interest, which adversely affect the new and regular borrowers Affects adversely in the economic growth rate of the country Create adverse psychological impact on the prospective entrepreneurs.
4.7 PRECAUTIONS ABOUT SICK INDUSTRY

Sick situation arises in an industry in some abnormal period. But if the rate of sickness is overwhelming then it becomes a matter of fact. So before providing loan importance
must be given on correct evaluation procedure. So at pre-investment stage the following things must be consideredExamine the project appropriately The project cost is calculated in a proper way The proper location is selected Defect machinery must not be purchased Ensure sufficient skilled and experienced personnel Proper steps are taken to protect uneven breakdown of electricity Ensure that proper people are involved in the managing committee Ensure the financial capability of the initiator Ensure the procedure of makeup the preliminary cost and the doubtful loss Ensure the quality of the produced product Ensure the proper way to marketing the produced product Consider the change of taste of customer Proper plan is taken to implement the project Steps are taken to avoid the potential conflict.
4.8 REHABILITATION POLICY OF BANGLADESH SHILPA BANK

All sick industry is not rehabilitated because the all-sick industry has not al l possibilities to rehabilitate. Its mainly depends on the nature of the sickness. The sick industry that is probable to rehabilitate by providing and assisting some predefined criterion. The predefined criterions are based particularly on: 1. Management perspective 2. Technical perspective and 3. Financial perspective 4. Marketing perspective In the case of rehabilitating sick industries the bank takes different policies in different situations, which are given as follows: 4.8(a) MANAGEMENT PERSPECTIVE
Management of the project should measure the aggregate demand of the product or the project and also maintain the market share. Consumption trends and production are to measure for rehabilitating a sick industry. If the bank thought that a little change in the managing committee would reestablish the project then they make a change in the managing committee. 4.8(b) TECHNOLOGICAL PERSPECTIVE Whether the raw material and technology is available or not that must be measured in the form of price quality. If they thought that some technological change would reestablish the project they make some technological change. 4.8(c) FINANCIAL PERSPECTIVE In the financial measurement the project should compute the cost of capital and maintain budgeting. The present value of net cash inflow should be higher than the present value of cash outflow. In such case, the bank provides some financial treatment that the amount of interest is to be waived or re-phased or providing consulting service, i.e. 1. Success about the proper way 2. Inspiration by providing motivation After considering an industry as sick, then the industry is taken into rehabilitation by aiding above additional support of those sick industry that can recovers the additional investment then it seems to be as rehabilitated industry otherwise not. In some extraordinary case they bound to take some terrible decision because of some political pressure. 4.8(d) MARKETING PERSPECTIVE The employees of project rehabilitation department are employed in this case. Value delivery sequence of Project Rehabilitation Department is shown belowChoose the value 1. Segmentation 2. Targeting 3. Positioning Provide the value 1. Product/Service develops 2. Pricing 3. Distributing Communicate the value 1. Sales force 2. Promotion
Choose the value 1. Segmentation the reasons of sickness Uncontrollable Controllable The causes behind sick industries are discussed belowShortage of working capital Lack of marketing knowledge Technological obsolesces Administrative and managerial inefficiencies Present economic situation of home and abroad Political condition Other reasons behind sickness Management perspective Technical perspective and Financial perspective 3. Positioning in the market BSB rehabilitates the sick industries of their financed projects. Provide the value Their products areSupporting the management Providing the working capital Technological enrichment Their programs areDebt relief Injection of additional funds Direct management 2. Targeting to rehabilitate
Communicate the value The personnel of Project Rehabilitation Department are employed for this purpose.
4.9 PROGRAMS TAKEN TO REHABILITATE THE SICK INDUSTRIES

BSB has taken the following programs during the year 2003-2005Deferred payment of IDCP (Interest during construction period) after some moratorium period in installments Regular loan repaying projects are honored with special certificates and BSB Crests. They are encouraged to take more loans/working capital. Problem projects are given waiver of interest, rephasement/rescheduling, block account facilities for easy repayment of banks loan. Injection of additional funds Balancing & modernizing of machinery Product diversification Strengthening or changing the project management Restructuring of loan accounts with transferring part of loans/interest in interest free block account
4.10 FACILITIES PROVIDED UNDER REHABILITATION PROGRAM

BSB had given loan to sick industries at the first time TK. 513 lac during the year 2005. Second time BSB gave them under rehabilitation program. Loan sanctioned BSB had given loan at the first time Under rehabilitation program: Long term loan Working capital TK. in lac 513.00 163.00 25.56
The bank also makes a program of taking over management of the sick projects directly where the above measures were not considered sufficient due to inefficient management/mismanagement. So they created a department called Sick Project Management Department for ensuring efficient management of such sick projects. The
responsibility of this department is to make such projects capable of debts servicing through profitable operation. So the bank continued sanctioning of term loans during FY 2004-2005. This year local currency loan of TK. 989 million, which was sanctioned to 27 projects. Of the total sanctioned amount TK 687 million was for 21 new projects and an additional loan of TK. 302 million was for on-going projects including 3 for BMRE purposes. Sanction of term loan Million TK. 2003-2004 Number Number Local projects 21 3 Foreign of projects of New projects Existing projects (BMRE) Additional loans Total 3 27 136 989 136 989 3 38 136 1009 136 1009 currency currency 687 166 687 166 of projects 34 1 2004-2005 Total Number Local Foreign Total currency currency 826 47 826 47
Under rehabilitation program BSB has taken so many measures to rehabilitate the sick industries during the year 2003-2005. Summarized measures that are taken by BSB to rehabilitate the sick industries are given below-
Loan outstanding (Million TK.) Total outstanding
Measures taken (Million TK.) Block A/C Waiver of interest Additional Loans Working Capital Equity participation 1 (2) 4(2) 18 (2) 23 (6)
Projects
525 411 46 444 23 51 66 44 33 22 165 70 3 3 1906
950 785 350 524 40 94 85 53 45 28 211 101 30 3 3299
12 21 5 3 2 2 2 2 1 1 1 53
37 (10) 13 (6) 73 (3) 1 (1) -3 (1) 118 (21)
Rephasement
Overdue
35 (10) 13 (6) 73 (3) 121 (19)
28 (7) 54 (6) 18 (3) 4 (1) 104 (17)
21 (9) 161 (16) 6 (4) 1 (1) 14 (2) 7 (1) 5 (2) 33 (2) 1 (1) 6 (1) 8 (1) 263 (39)
2 (1) 30 (5) 52 (5) 6 (2) 2 (1) 1 (1) 93 (15)
Source: Manual of Project rehabilitation department of BSB 2005 Note: Parentheses indicate number of projects
4.11 ARE ALL-SICK INDUSTRIES REHABILITATED?

All sick industries are not rehabilitating because the all-sick firms have not all possibilities to rehabilitate. Its mainly depends on the nature of sickness. The sick industry, which is probable to rehabilitate by providing, and assisting the following supports are rehabilitated.
4.12 THE INDUSTRIES WHICH ARE REHABILITATED AND THE INDUSTRIES WHICH ARE NOT REHABILITATED
A. Sick industries, which are rehabilitable Changing of management structure Providing financial aids or loan without interest or lower rate of interest Financial treatment that the amount of interest is to be released Assisting for replacement of machine Rehabilitation is sometimes depending on merit of the project. Providing consulting service a) Success about the proper way b) Inspiration by providing motivation B. Sick industries, which are not rehabilitable After considering a firm as sick, then the firms are taken into rehabilitation by aiding above additional support of those the sick firm that can recover the additional investment then it seems to be as rehabilitated firm otherwise not.
4.13 ROLE OF MANAGEMENT OF REHABILITATION DEPARTMENT OF BSB

Bangladesh Shilpa Bank was established to stimulate industrialization in the country. So, it financed in various types of industries. The industries on which it financed, all are not a successful one. Some of them have failed to gain success and identified as a sick industry. Rehabilitation Department is mainly deals with this sick industry. They find out the causes of sickness of a particular project. Sometimes they reschedule loan according to the capabilities of the project. Moreover more information and advises may be given so that the entrepreneur may run the business more effectively, sufficient return may gain and contribute to the economy. If the project is to rehabilitate, send to the law department and finally sued against the project. The main activities of rehabilitation department are as followsThe department primarily selects a sick project. PID investigates the project and find out the causes of sickness and formed a committee to investigate the project. Then it is taken to be considered for rehabilitation. After considering it as a
rehabiliatable industry, it is taken it the implementation after the approval of rehabilitation consultant committee. Take necessary action to rehabilitate sick project after appropriate investigation. Take steps about rehabilitation document examination, recommendation preparation, implementation and activation of plan. Confirmation about project profitability Take necessary steps about production, marketing of product and loan repayment. Duties give up to the third party or previous management after successful managing of the project. Managing and directing recommendation preparation about take over project. Analyze and compare the production, marketing and recovery of the rehabilitated project and take appropriate action according. When there is scope to rehabilitate a project, document transfer to law department to take further steps.
4.14 LIST OF A FEW SUCCESSFUL REHABILITATED INDUSTRIES

After taking some initiatives and providing assistance in terms of management, technical, marketing and financial the following sick projects financed by BSB have become successful during the year 2003-2005. Chemicals and Pharmaceuticals 01. S.S.R Chemical Industries Ltd. 02. Islam Polymers & Plasticizer Ltd. 03. Raja Plastic Industries Ltd. Location Dhaka Tangail Gazipur
04. KDH Laboratories Ltd. 05. Asiatic Business Ltd. 06. Pharmadesh Laboratory Ltd. Cotton, Woolen & Synthetic Textiles 01. Azim Mannan Garments Ltd. 02. Desh Gannents Ltd. 03. Jems Sweaters (Pvt) Ltd. 04. Auto Spinning Mills Ltd. 05. Techno Textile Mills Ltd. Food & Allied Products 01. Meenhar Sea Foods Ltd. 02. Mimi Chocolate (Bd) Ltd. 03. Modern Industries (Bd) Ltd. 04. Mustafa Cold Storage Ltd. 05. Bangladesh Beverage Industries Ltd. 06. Bengal Fish & Frogleg (Export) Ltd. Paper, Paper product & Printing 01. Eagle Box & Carton Mfg. Ltd. 02. Holiday Printing Ltd. 03. Toka Ink Ltd. 04. Bangladesh Paper Product Ltd. 05. Orient color Printers Ltd. 06. Transfer Paper Ltd. Tannery & its products 01. Apex Footwar Ltd. 02. Lexco Ltd. 03. Leather Board Ltd. 04. Comfort Footwar Ltd. 05. Bangladesh Chemical Ltd. Non-metallic Mineral Products 01. Savar Refractories Ltd. 02. Tajma Ceramic Industries Ltd. 03. Standard Ceramic Industries Ltd. Metal products 01. Rangpur Foundry Ltd. 02. Scala Industries Ltd. 03. Oriental Foundry & Agro Engineering Ltd. 04. Bogra Metal Industries (Pvt.) Ltd. Electrical Machinery & Goods 01. Bangladesh Lamps Ltd. 02. National Fans Ltd. 03. Eastern Tubes Ltd. 04. National Accessories Ltd. Service Industries & Miscellaneous 01. Hotel Simon Ltd. 02. Hotel Elysium Ltd.
Dhaka Sylhet Dhaka Chittagong Chittagong Dhaka Gazipur Gazipur Chittagong Dhaka Munshigonj Rangpur Dhaka Chittagong Dhaka Dhaka Dhaka Chittagong Chittagong Bogra Dhaka Dhaka Dhaka Dhaka Narayangonj Dhaka Bogra Gazipur Rangpur Gazipur Dhaka Bogra Dhaka Gazipur Dhaka Chittagong Coxs Bazar Dhaka
03. G.Q. Ball Pet Ltd. 04. Rajanigandha Tankers Ltd.
Magura Dhaka
Source: Manual of Project Rehabilitation Department of BSB 2005 It is observed that a large number of projects are sick and they are loan defaulter. In this situation some suggestions has been given that will help BSB to overcome some of their problems.
FINDINGS OF THE STUDY

During the internship program the following findings have been found out from my study: Sometimes improper feasibility reports are submitted by sponsors, which do not contain adequate and reliable information. Sometimes pressure groups involvement in sanctioning loan Lack of business experience of the entrepreneurs. So, when they start business they may be failure in business and they may become loan defaulter. Lengthy procedure and long time (more than three months) involved in the appraisal of project. Lack of adequate, updated and accurate information from the Management Information System (MIS) Unstable policy of the government due to political changes over time Sometimes inefficient allocations of resources create a huge amount of bad debt Lack of financial commitment on the part of the borrower, the result being the failure of mobilization of equity by them in future means they divert their equity in other purpose after getting the loan amount. Lack of effective monitoring in projected work. Management conflict is one of another important problem in the situation of sickness. Lack of motivation and team speed Lack of proper scheduling in projected work.
Absence of an up-to-date project appraisal manual, because the present manual was designed 18 years ago. So many aspects should consider which do not cover by the existing manual. Dependence on imported technology and non-availability of adequate information about that from local source. Lack of adequate, updated and accurate information in the country. Both primary and secondary data are not readily available. Inadequate attention is paid to analyze risk and an uncertainty associated with the projects, means only sensitivity analysis is done to analyze the risk. There is no system of accountability of the project appraisal team if the approved project fails due to their improper appraisal. Most of the personnel are not as much experienced and skilled to operate banks activities in proper way. Shortage of working capital is another problem because some industry may sick for this problem. Inefficient project cost estimation, not considering inflation, different changes in the cost factors, waste and spoilage, personnel replacement cost etc. As a result sometimes project become sick. Because of countrys existing political instability, unstable tariff and fiscal policy some industries may become sick. No use of latest technology and permanent IT specialist Poor quality of local machinery, equipment and construction materials is another cause for sickness. Lack of co-ordination among various financial institutions in exchange of information Lack of proper control over the project may cause of sickness. Delay in settlement of case Project rehabilitation is one of the criteria of BSB that revives the sick project Finally contribution of BSB is the highest in the industrialization of Bangladesh though there are some problems.
SUGGESTIVE MEASURES
Being the prime Development Financing Institution BSB continues its efforts to make an effective contribution towards expansion of industrialization process of the country. With keeping this view, following suggestive measures can be taken to overcome the noted problems. From my viewpoint, the suggestive measures to resolve sickness are as follows: Sanctioning of loan to the sponsors should be made through making feasibility report properly. Loan appraisal procedure is time consuming and to some extent project plan become irrelevant after getting the loan. Since all the process is completed, he is bound to take this loan because some expenditure has already been incurred (sunk cost). As a result loan recovery may slow and sometimes difficult. My suggestion is that BSB should rearrange appraisal procedure so that the entrepreneurs can take loan within short period of time. Experienced and motivated entrepreneurs should be allowed for sanctioning the loan. BSB should avoid unnecessary political interfere. If political problem influences the baking activity must create new problem, no doubt. BSB should give more consideration on physical investigation before issuing loan. However project appraisal should be strict so that nobody cal use its loopholes. Sometimes real entrepreneur does not get bank loan. So actual entrepreneurs should be identified and give loan. The projects/industries, which are profitable, should be identified and sanctioned loan to those projects/industries. Risk adjusted discount rate method; program evaluation and review technique (PERT) and probability analysis should be introduced. Market Research Institution should be established for proper market survey.
A co-ordination cell should be established for sharing information among various institutions. Responsibility should be established to all employees according to their involvement in appraisal project. Honesty, morality, responsibility and patriotism of employees should be enhanced. Properly check the feasibility report before issuing loan. Proper policy to be adopted and implemented BSB must have to identify viable project and make feasibility study through efficient personnel before sanctioning of loan to an industry. Employees who are directly involved with loan recovery should be motivated and experienced. BSB should introduce modern communication system so that every department or unit can get information in his or her desk. Now one department must have to go other departments for information. It is also time consuming. Preserving documents also need to be computerized instead of filing. Encouraging the borrower to repay the loan in time. Special arrangements should be introduced in this respect. Legal steps should be dynamic so that default loan recovery should be accelerated. And security against the recover the loan. Project must be scrutinized in and appropriate manner as well as the sponsor taking into consideration on the changing environment and economic reforms and globalization. National observation committee can be established to analyze, evaluate and solute proper loan recovery. In selecting borrower, 5Cs (capital, capacity, character, condition, collateral) must be considered. Proper communication should be established with the clients. Ensure accountability among the appraisal team who appraise the sick industry. Number of trained supervisor to be revised loan should be sufficient to
Both primary & secondary database of the BSB should be improved & strengthened.
SOME OTHER IMPORTANT SUGGESTIONS

On the basis of interest rate The interest rate of the bank in different sectors is not favorable to the new entrepreneur. So the interest rate in priority sector should be truncated to a minimal percentage. This should be reduced to encourage agro-based industries, small & cottage industries, which are very much viable for the economic development of a country. Promoting new entrepreneurs To promote new entrepreneurs following steps can be takenNo collateral Tolerable interest rate No bureaucratic problem Encouraging existing entrepreneurs To encourage existing entrepreneurs following steps can be takenLesson the red tappism Awarding the good entrepreneurs Incentives such as lowering interest rate for the existing customer for their better repayment behavior.
CONCLUSION
Bangladesh Shilpa Bank is a well-known specialized bank of our country. We cannot think industrialization in our country without the contribution of Bangladesh Shilpa Bank. Although there are some drawbacks of BSB activities nevertheless it plays an important role in the industrial sector of Bangladesh. We get clear idea about this contribution through the analysis of the BSB activities from 1972 to till now. Although some unexpected political pressure hamper such activity but BSB always tries to overcome these sort of problem by his own policy and procedure. We observed that BSB able to contribute to GDP through their industrialization. It is clear that industrialization is the base of the economy of the economy. I observed that the loss of BSB is 100 crore less than that of previous year. It present that the position of BSB is more strength than previous year. Another notable thing is that BSB reduces their loan sanctioning area. As a result their loan sanctioning reduced to TK. 429 million. I think, it is not good news for our economy. Because new industry essential for employment generation. At present BSB carefully takes steps for sanctioning loan because of a huge fund become irrecoverable due to sickness of various projects. It is indeed that sickness is the consequences of unconscious and lack of investigation in case of issue of loan. We know sick project is the burden of bank as well as overall economy of Bangladesh. So, now-adays BSB is reducing rehabilitation of sick industries. Because those industries, which are unable to pay their previous loan amount, if they are rehabilitate by the BSB most of them will not be able to pay the rehabilitated money also. So there was huge amount of loss occurred and for this reason project rehabilitation of sick industry and the work of this department is decreasing day by day. So I think BSB will close their rehabilitation to reduce their loss. I think proper scrutinizing of project proposal and careful physical verification may make sure to be profitable of that industry as well as Bangladesh Shilpa Bank. Bangladesh Shilpa Bank should concentrate on loan recovery that is necessary for long-term profitability and sustainability. Without pros and cons everybody should to
confess of BSB contribution. We expect continue their operations without influence and contribute more and more to our industry that brings good luck to the nation.
Bibliography
1. Bangladesh Shilpa Bank "Annual Report 2004-2005" 2. Different Project Appraisal reports of BSB. 3. Loan sanctioning letter of BSB. 4. Bangladesh Shilpa Bank Ordinance 1972. 5. Manual of different departments of BSB. 6. BSB web side " www.shilpabank.gov.bd" 7. Manual of Project Rehabilitation Department.

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Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

Bangladesh Shilpa Bank

YOUR PARTNER IN INDUSTRIALIZATION

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

Bangladesh Shilpa Bank

Department of Marketing Submission University of Dhaka

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

MBA 2nd Batch, Department of Banking University of Dhaka

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

TABLE OF CONTENTS Subjects

Section-01: Introduction of the Report

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

1.3 Objectives of the Study 1.4 Methodology of the Study

1.5 Justification of the Study

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

4.2(a.1) On the Basis of Cost- Benefit Analysis

42 43 43-44 44-55 44-45 45-46 46 47 47 48 48 49-51 51-53 54 54 54-55

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

55 55-56 56 56 56-57 58 58-60 61

Section-05: Findings, Suggestive Measures & Concluding 65-70 Remarks

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

--------------------------------Signature of the Supervisor

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

----------------------------Signature of the Student ID. No.-2-241 Batch: 2nd

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

Department of Banking University of Dhaka Date:

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

1.1 Background of the Study.

industrialization. Since Bangladesh is a developing country

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

OBJECTIVE OF THE STUDY

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

To get an overview of the operations of Bangladesh Shilpa Bank

METHODOLOGY OF THE STUDY

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

1.5 JUSTIFICATION OF THE STUDY

1.6 REPORT ORGANIZATION

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

1.7 LIMITATION OF THE STUDY

1.8 BENEFITS OF THE STUDY

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

2.1 BACKGROUND OF BSB

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

2.2 INSTITUTIONAL OVERVIEW

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

2.5 ZONAL & BRANCHES OFFICES OF BSB

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

2.6 MISSION OF BSB

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

2.9 INTEREST RATE ON BSB LOAN

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

2.10A LOAN OPERATION DEPARTMENT

Functions of Loan Operation Department:

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

2.10B PROJECT IMPLEMENTATION DEPARTMENT

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

2.10C DOCUMENTATION AND MACHINERY PROCUREMENT DEEPARTMENT

Functions of Machinery Procurement & Documentation Department

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank