Project on: Loan Classification Provisioning Requirement & Recovery Strategies of Eastern Bank Limited & Prime Bank Limited, A Comparative overview

Abstract

The report entitled *Loan classification, provisioning requirement and recovery strategies of Eastern Bank Limited & Prime Bank Limited, A comparative Overview.' focus on the defaulter scenario of the two banks. At the same times, this report also emphasizes on the provisioning conditions and recovery strategies of those banks. identifications the reasons for which the loans are actually becoming classified are a hard job. lt requires expertise in banking field. ln this report, I basically try to discover the reasons by analyzing several real classified loans of the two banks. These reasons are basically divided into three types. First of all, the fault is with the bankers. Most of the times they fail to identify the motivation of the clients. Then they rely on the data provided by the clients, which are not cent percent valid. At the same time they don't analyze the data properly. Secondly, client's over confidence about the project. Finally, existing rules are encouraging tonic for the intentional defaulters because, for recovery banks have to go for a time consuming procedure and most of the time bank fail to recover. The most related factor associated with loan classification is provisioning. The rate of provisioning is not same for all classes. For substandard loan bank keeps 20%, for doubtful 50% and for bad 100% of loan amount. Here loan amount does not mean the total amount, which was paid by the bank. Fixed deposit, security, interests are deducting from the loan amount and provision creates on rest of the figures. At last I give recommendations to remove the classified culture from our banking sector and conclusion Basically the recommendations are for the Govt. who is responsible to impose rules and regulations. Although all classified loans are not become so because of the existing laws. As a result proper documents are essential. So for documents they have to think, " where we have what we need". Finally Conclusion basically put emphasizes on the importance on loan classifications Because classified loans destroy the bank's value to both the stockholders and clients. The stockholder and client can easily measure the efficiency of the banks by checking the percentage of classified loans.