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Value of Eligible Collateral Security | Base for Provision | Credit Operation | #collateral #provisions
Question:
Adit Enterprize took a Loan from Loyal Bank Limited. The present loan outstanding amount is 50 Lacs. There is 10 lacs Taka unrealized interest in the Interest Suspense Account. Other collaterals are as follows
a) The Value of Mortgage Land is taka 30 Lacs
b) The Value of a tin Shed is Taka 10 Lacs
C) The Value of Pledged goods is Taka 10 Lacs
d) Taka 10 Lacs of the deposit is kept Lien against the Loan
What is the value of the eligible collateral and Base for provision?
Question: What is the value of the eligible collateral and Base for provision?

Answer:
We have to follow the Bangladesh Bank BRPD Circular 14.
Instructions of the Circular

As per BRPD Circular 14, value of eligible Collateral calculation:
100% deposit under Lien of the Bank
100% Value of the Government Bond / Saving Certificates under Lien
100% market Value of Gold and Ornaments Pledged in the Bank
50% Market Value of the easily Marketable Commodity kept under the control of the Bank
50% Market Value of the Land & Building Mortgaged with the Bank.

Answer a)
Collateral Security = 50% of Mortgage Loan + 0% of Tin Shed + 50 % of The Pledged Goods + 100% of the Deposit Lien.
Value of Eligible Collateral Security = 50% * 30 Lacs + 0% * 10 lacs +50% * 10 Lacs + 100 % *10 Lacs = (15 + 0 + 5 + 5 + 10) = 30 Lacs

As per BRPD Circular 14, Base for Provision Calculation for Classified Loan:
Formula 1) 15% of the Total Outstanding Balance of the Loan
Formula 2) Outstanding Balance of the Classified Loan Less the amount of Interest Suspense Account and the Value of Eligible Collateral.

Base For Provision Calculation:
Formula -1) Base for Provision = 15% of 50 Lacs = 7.5 Lacs
Formula - 2) Base for Provision = Total Outstanding Balance of Classified Loan - Interest Suspense Account - Value of Eligible Collateral Security = (50 Lacs -10 Lac's - 30 Lacs)
= 10 Lacs
So, We can take Base for Provision = 10 Lacs ( Answer)
(Higher The amount We should take as Base For provision.)