Posted on 9th Nov 2024 01:17:41 AM Accounting
Introductions and Industry Background
During the last three decades, BSB has been contributing in building up of a new generation of entrepreneur, broad- basing the country’s industrial and economic growth, setting up of import substituting and export oriented projects Vis-à-vis creation of new employment opportunities. In spite of certain failures in achieving its desired objectives, the success of the bank is undoubtedly remarkable.
Bangladesh is a late starter in the process of industrialization. Before liberation some simple process industries like jute, textile, sugar mills, two pulp and paper mills, a small fertilizer plant, a cement factory etc. were established. After liberation the first five-year plan (1973-78) of the country adopted an import substitution strategy for industrialization with emphasize on domestic production of basic needs and investment goods. From liberation BSB always tries to encourage entrepreneurs to setup new industries. Now Bangladesh has to pursue on export led development strategy with emphasize on industrialization for sustained economic growth and social development. As a result the importance of BSB is increasing over the times. BSB generally is giving financial assistance.
Bangladesh’s financial system underwent structural changes with the nationalization of commercial banks in 1972. Prior to nationalization of commercial banks, the financial system comprised of twelve private commercial banks and two government owed development banks- one for industrial finance and the other for agriculture finance. Industrial development banks, as public sector banks were established in Bangladesh in the early sixties when all commercial banks are privately owned. AS a result, the government had given the structure and management of the bank. It could influence the behavior of the development bank, but not of the private commercial banks.
In 1972, six nationalized commercial banks (NCBs) were created out of twelve commercial banks. But in 1984, with the adoption of the privatization policy by the government, two banks were denationalized. At present, there are three NCBs and four government owned development banks- two for industrial finance (Bangladesh Shilpa Bank and Shilpa Rin Sangstha) and two for agricultural finance (Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank), twelve commercial banks including two denationalized banks (Bangladesh Bank 1993).
The underlying assumptions behind the creation of separate institutions to finance industrial enterprises were that-
· The profit-oriented commercial banks would not supply long-term industrial loans since they consider it is risky.
· The potential entrepreneurs require cheap credit; and
· The specialized staffs are necessary to screen and monitor industrial loans.
Industrial Policy
Industrialization is the prime concern of all the economics, especially in developing countries. Since his independence, numerous policies and efforts have been made to accelerate the pace of industrialization in Bangladesh. But till today, our industrial sector has remained very weak. Local investment has not yet picked up. The multinational corporations still do not find Bangladesh an attractive place for investment, bureaucratic hassle, deteriorated law and orders situation, underdeveloped infrastructure, lack of skilled labour, technologies and proper policy are the note able factors discouraging both local and foreign investment.
The gradual liberalization of industrial policy in Bangladesh stated with the announcement of industrial policy, 1982. This was followed by successive reforms and amendments within the broad theme of a liberalized and competitive market economy. Bangladesh will have within a decade a sizeable industrial sector where manufacturing will account for at least 25 percent of the GDP and at least 20 percent of the employed workforce. This will mean a considerable rise from the figure of 10 percent around which the sector’s share in GDP and employed population has hovered for most of the past two decades.
A vibrant and dynamic private sector will be the principal actor in Bangladesh’s industrial arena. The industrial sector of Bangladesh will be competitive in the liberalized internal market as well as in the external market. The industrial sector of Bangladesh shall have a dominant export orientation.
The goal of external competitiveness implies the pursuit of industrialization in accordance with the dynamic comparative advantage of the economy. Given Bangladesh’s resource endowment, the principle of dynamic comparative advantage means production of labor-intensive manufactures with skill up-gradation and productivity growth as its cutting edge. This however, does not preclude the possibility of Bangladesh having a niche high-tech industrial sub-sector that may be externally competitive.
Dispersal of small and medium industries will constitute and important element in the industrial policy approach. Industrial development will be sustainable from the point of view o environmental concerns and resource availability.
In June 1993 the government decided to further activate and strengthen the role of private sector in trade and industry with a view to accelerating economic development. With this end in view the Government adopted a comprehensive privatization policy and laid down detailed procedure to facilitate the process of privatization. The policy is aimed at relieving the financial and administrative burden of government, improving efficiency and productivity, facilitating economic growth, reducing the size and presence of the public sector in the economy and help meeting the national economic goals. Industrial policy 1999 aims at addressing these concerns building on earlier efforts and gains towards industrialization of Bangladesh economy.
Policies
Loan Re-Scheduling
When a loan becomes classified as a bad loan, all principal and accrued interest may be “paid off” with a new and larger loan if the defaulter deposits a down payment, which is normally less than 10%. Once re-scheduled in this manner the loan is removed from its classified status since technically it has been repaid. The new loan made to the same borrower is considered to be a performing asset that is a good and collectable loan generating a steady stream of payments. The transaction helps both defaulter and bank manager. The banker can report a larger portfolio of performing loans and possibly earn an influence at a higher level. The influence level and bribe amount are proportional to the amount in default, the number of prior rescheduling episodes, and whether BB is involved. BB does not allow defaulters to re-schedule more than twice. The bribery amount or influence needed for subsequent re-scheduling rises proportionately. There is at least one famous example of a re –scheduling against BB regulations that was made possible with influences from a parliamentary standing committee.
Re-scheduling of insider loans at private banks are internally handled and do not normally involved corruption of public officials unless NN is drawn into the process in a regulatory role. In that case the private bankers may need to make a suitable arrangement with BB officials. Alternately they may apply influence at the MOF to override the applicable BB rules.
Diversion of Loans
Willful defaults are related to a well-organized loan diversion scam. NCB managers the MOF, members of parliament, and even parliamentary standing committees may become party to the conspiracy in exchange for and appropriate payoff or gift. A term loan is taken against what appears to be a legitimate project but is actually a worthless shell. The proceeds from the loan are diverted to overseas banks or to illegal business activities such as smuggling. The project itself is loser by design. The borrower defaults on the loan and gives up the assets of the amount in default. Ironically, the actual investment made in the smuggling business with the banks funds may be very profitable but these profits are well beyond the reach of the bank.
Objective of Industrial Policy
The main objective of the industrial Policy shall be to remove the present industrial chaos and production lag in the interest of large-scale industrialization, even-handed development of all regions, containment of unemployment, self-sufficiency in industrial production and boosting up of exports of industrial products so that people from all walks of life have the taste of national prosperity:
· Industrial units shall be set up in a planed way in different regions of the country at both government and private initiatives.
· Industrial units, which are vitally important for defense and national security, shall be brought under the Public Sector in consideration of the fact that their retention in private hands will jeopardize national interests.
· Mills and factories now run by the Public Sector shall be handed over to the private owners in phases and in doing so, precaution shall be taken to safeguard reasonable interests of the labour and the people as a whole.
· The shares of Public Limited Companies shall be extended to the maximum number of people and low shall limit share-purchase by a particular family.
· Small, medium-scale and new entrepreneurs shall be provided with interest-free loan as well as other special incentives.
· Small and medium-scale industries shall be set up throughout the country based on labour-intensive technology instead of capital-intensive technology.
· There shall be an extensive drive to set up small and cottage industries throughout the country while the existing units such as hosiery goods, bamboo, cane, wood, earthen-wars and other types of cottage industries shall be given to import substitute, export promotion, agriculture-oriented and agro-based units.
· Necessary steps shall be taken for proper marketing of products of Cottage Industries.
· All able-bodied persons shall be imparted job-oriented training to build them up as auxiliary force for industrial promotion.
· The existing complex process in obtaining government sanction and ancillary facilities shall be removed so that setting up of industries becomes easier and corruption-free.
· After abolition of interest system the capital market shall be reformed in such a manner that investment turns profitable.
· As an encouragement to industrialization additional incentives shall be provided to export- orientated industrial units including small and cottage industries.
· For promotion of indigenous industries and augmentation of production Import Duty on raw materials and machinery shall either be reduced or rescinded.
· With a view to removing the problems faced by the weaving industry as well as development of this industry as a whole reduction of production cost and improvement in quality shall be given special attention.
· Cotton yam, dyes and chemicals shall be made easily accessible the weavers.
· All taxes on the handloom industry shall be withdrawn and the prevailing corruption shall be uprooted.
· Necessary arrangements shall be made for advancing interest-free loan to the weavers on easy terms.
· Compatible efforts shall be made for promotion of the jute industry with the ultimate objective of making it profitable.
· For promotion of the garments industry and expansion of its markers appropriate measures shall be taken including launching of backward-linkage, forward-linkage and ancillary industries.
Modification, extension and overall development of sugar, leather, salt, tea, textile and cement industries shall be effected so as to make the country self-reliant in these sectors.
With a view to promoting tourism Sea beaches and historical places shall be preserved, reconstructed, developed and modernized. Alongside that adequate facilities for tourists shall be ensured.
The Salient Features of Industrial Policy
The industrial policy has some important features. They are-
· To develop the industrial sector in order to increase its contribution to the gross domestic product, income, resources and employment.
· To expand industries by putting more emphases on development in the private sector and in this respect to make the role of the Government promotional rather than regulatory.
· To encourage domestic and foreign investment in overall industrial development.
· To develop export-oriented, export linkage and efficient import substitution industries.
· To especially encourage the development of small and cottage industries.
· To expedite development of the labour- intensive industries through acquisition and improvement of appropriate technology.
· To attain self-sufficiency in essential consumer goods through efficient production.
· To encourage development of industries based on industries raw materials and indigenous technology.
· To encourage balanced industrial growth in different regions of the country.
· To encourage investment in the intermediate and basic industries.
· To limit the role o f the Government generally in establishing strategic and heavy industries and to improve efficiency in the public sector.
· To put special emphasis on the increase of productivity in industries and ensure optimum utilization of the existing industries.
· To create possible opportunities for revitalizing and rehabilitating sick industries.
· To make effective arrangements for improving standards and controlling quality products.
· To take appropriate measures for preventing environmental pollution and maintaining ecological balance.
Incentives to Industries
There shall be a tax holiday for five, seven, nine, and twelve years for industries set up in the developed, less developed, least developed and special economic zones respectively which will remain effective until the year 1995. The period of such tax holidays will be calculated from the month of commencement of commercial production. The national Board of Revenue will determine the eligibility of tax holiday and the time of commencement of commercial production will be certified by the respective sponsoring agencies.
The national Board of Revenue in consultation with the Ministry of Industries will publish in the official gazette area wise classification for the application of confessional duties and tax holiday and this will be revised from time to time to keep pace with industrial expansion.
There will be no discrimination in case of duties and taxes for the same type of industries set up in the public and private sectors.
Local industrial products will be protected through tariff rationalization keeping in view the interests of the entrepreneurs and the consumers.
To create internal market for jute products, industries producing jute substitute synthetic fibers, especially polypropylene bag will be discouraged, high tariff rates will be imposed on related imports in these areas. In addition, effective steps will be taken for compulsory use of jute bags for packing of food grains, sugar, cement, fertilizer etc.
Duties and taxes on import of goods which are produced locally will be higher than those applications to import of raw materials to be used to produce such goods. In cases where credits/loans obtained from foreign industries or Government through private initiative for private industrial investments is related to commercial banks/DFIs through the Government, the following conditions shall be applicable.
· The Government will relent the above-mention credits / loans through commercial banks/DFIs. The concerned Banks/DFIs will disburse the credits/loans to the entrepreneurs with applicable service charge.
· The entrepreneurs shall undertake full responsibility for repayment of the loans/credits. For this, the concerned Banks/DFIs will provide guarantee to the Government for repayment of the loans/credits, concerned Banks/DFIs will however be entitled to claim collateral from the entrepreneurs.
An exchange rate Fluctuation Absorption Scheme (EFAS) will be created to reduce the impact on industrial sponsor for fluctuation of Bangladeshi currency with foreign currencies.
Special incentives will be provided to encourage nonresident Bangladeshi for investment in industries. In case of their investment in Bangladesh, they will enjoy facilities similar to those given to the foreign investors. Besides, they will be able to buy newly issued share/debentures of Bangladeshi companies. Moreover, they will be able to maintain foreign currency deposit in the NFCD account for up to five years.
Provision will be made up to 80-100 percent accelerated depreciation allowance.
Objective of the Study
Bangladesh Shilpa Bank is a specialized bank. Its main duty is to establish industries in the country. In this purpose it provides loans to the entrepreneur. The study helps me to know the overall activities of BSB. The main objective of study is to find out how the overall operation of BSB is performed. To what extent it is successful to achieve its goals and why many of its industries are become sick. The prime objective of this report are-
· To get an overall idea about the operation of BSB
· To examine the status of loan recovery
· To identify status of sickness of enterprises financed by BSB
· To identify the causes behind sickness of enterprises
· To evolve measures for overcome the problem of sickness
· To determine the limitation of Bangladesh Shilpa Bank
· The criterion on the basis of which the industries are identified as a sick industry
· To understand the rehabilitate program
· To know which firms are rehabilitate and which are not?
· To recommend some steps to overcome such problem
Background of Bangladesh Shilpa Bank
Non-Bangali entrepreneurs and the public sector nearly monopolized economic activity in the Pakistan era. Of the very few Bengali business professionals active in East Pakistan fewer yet survived 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 Pakistani business families the field was wide open for the development of a homegrown Bengali private sector, but the bad news was that both a capital base and an entirely entrepreneurial class would have to be developed out of an economic vacuum.
Capital formation rapidly occurred and the newly nationalized bands. A wash in deposits, found themselves with a serious asset management problem because there were few professional entrepreneurial risk takers with business skills and proven track records to whom 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 (EPF) both of which were established for the industrial development of Pakistan were converted into a 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 (president’s order no 129 of 1972). The BSB order, 1972 was amended subsequently by the parliament to provide more operational autonomy 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 to balancing, modernization, replacement and expansion of existing industrial units in Bangladesh both in private and public sectors. It also provides other types of financial assistances like guarantees for credit/loans, equity-support and working capital loans to the BSB- financed projects. BSB also provide banking business on limited scales.
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