PREFACEIn order to be able to cope with the changing environment it is necessary to have some practical experience. As the students of Business Administration we have to pass through a series of various managerial techniques. During this practical course we are provided with an opportunity to learn that how the theoretical knowledge can be implemented in practical grounds.
I was selected to do my internship in National Bank of Pakistan MAIN Branch Multan. I worked there for six months & it gave me a greater practical knowledge about the operations of a bank. In the following pages I have narrated my experience, observations & all the working activities which I observedduring my six week internship at NATIONAL BANK OF PAKISTAN MAIN BRANCH MULTAN.
EVOLUTION OF BANKINGIt has not so far been decided as to how the word 'bank' originated. Some authors opine that this word is derived from the word 'bancues' or 'banque' which mean a bench. The explanation of this origin is attributed to the fact that the Jews in Lombardy transacted the business of money exchange on benches in the market-place; nad hewn the business failed, the 'banco' was destroyed by the people incidentally the word 'bankrupt' is said to have been evolved from this practice th opponents oh this opinion argue that if it was so, then how is it that the Italians money changer were never called 'Banchierei' in the middle ages?
Other authorities hold the opinion that the word 'bank' in derived from the German word 'back' which means 'joint stock fund' latter on when the Germans occupied major part of italy the word 'back' was Italianized into 'bank'.
It is therefore not possible to decide as to which of the opinions is correct, for no record is available to ascertain the validity of any of the opinions.
Banking in its modern form and structure stared in Britain when many of the Lombardy merchants came to England in the fourteenth century and settled in the parts of the city of the London now calledLombard Street.
The king Edward –III established the Office of Royal Exchanger for changing foreign money at a profit for the benefit of the Crown
In 1854 the joint Stock Companies Act opened an era of corporations; and the Limited Liability Act, 1855, restricted the liability of the share holder of the limited company to
DEFINITIONS OF BANK
(1) "Banks do business of money. Rather banks do business of lending and borrowing loans."
(2) "Banks are guardian distributor of cash money".
(3) "Banker or a bank or a person or company carrying on the business receiving moneys and collecting drafts for customers subject to the obligation of honoring cheques drawn upon them from time to time by the customer to the extent of the amount available on their current accounts".TYPES OF BANKS
Primarily all banks gather temporarily idle money for the purpose of lending to other and investment gain in the form of return, profits and dividends etc. however, due to the verity of resources of money and the diversity in lending and investment operations, banks have been place in various categories, such as
Central bankCommercial bank:
The commercial banks received deposits from the general public, which are repayable on demand upon written orders of the depositors. As their most distinctive feature the commercial banks maintain the checking accounts for the constitutions.
Te commercial banks are also distinguished for providing short-term finance to trade, commerce and industry to enable these sectors to expand their productive activities
Merchant banks are those, which have been mainly financing the domestic and international trade. During the late 18th and early 19th centuries the trade between countries was financed by bill of exchange by well-reputed merchant's houses for which they would charges a commission for their services
The basic purpose of these banks is to inculcate the habit of saving in the people the savings banks deposits are not repayable upon only the written order of depositor but the depositor of his agent has to appear personally at the saving banks to make withdrawal and for this purpose he must present a pass book a certificate of deposit or some similar documents to prove his right to receive his payments. Post office savings banks and savings accounts at national saving organizations are well known national saving banks in Pakistan.
These banks mainly deal in loans for acquisition or construction of real estate against the securities of mortgage.
Consumer banks :
These banks providing finance for purchasing consumption goods for the use of Brewers
These banks assists business houses and governmental bodies to raise money through the sale of stocks and bond for usually long term purposes these banks perform the usual functions of raising deposits of idle money from the public and finance the business houses other bodies.
Central banks occupy the unique position in banking structure of a country because they have been interested with the responsibility of controlling the money supply, interest rate, and financial market of a country for the purpose of economic development.
INTRODUCTION ABOUT BANKING SECTOR
Banking is the business of providing financial services to consumers and businesses. The basic services a bank provides are checking accounts, which can be used like money to make payments and purchase goods and services; savings accounts and time deposits that can be used to save money for future use; loans that consumers and businesses can use to purchase goods and services; and basic cash management services such as check cashing and foreign currency exchange. Four types of banks specialize in offering these basic banking services: commercial banks, savings and loan associations, savings banks, and credit unions.
A broader definition of a bank is any financial institution that receives, collects, transfers, pays, exchanges, lends, invests, or safeguards money for its customers.
This broader definition includes many other financial institutions that are not usually thought of as banks but which nevertheless provide one or more of these broadly defined banking services. These institutions include finance companies, investment companies, investment banks, insurance companies, pension funds, security brokers and dealers, mortgage companies, and real estate investment trusts.
BANKING HISTORY IN PAKISTANAt the time of partition the total number of Commercial Banks in Pakistan were 38 .Out of these Pakistan had 2 banks, India had 29 and there were 7 exchange banks. The total deposits of Pakistan banks stood at Rs. 880.0 millions where the advances were Rs 198.0 million. Before the partition of Sub Continent the entire banking business was almost controlled and managed by non-Muslims. The Muslims were deliberately kept cut of banking profession by the wealthy Hindu community. When Hindu capitalists became sure of the division of Sub Continent, they secretly began transferring their capital to the safe places in India.
The funds and the other valuables were transferred at an accelerated pace to India and there was a mass scale migration of non Muslims from West Pakistan to India which also caused the drain on the bank deposits. The Hindus in order to ruin the economy of the newly born State closed down most of the head offices and the branches of scheduled and non-scheduled banks in Pakistan. The number of scheduled bank's branches was reduced from 619 to 213 in both the wings of the country after independence.
The non-scheduled banks also suffered a severe jolt and their number was reduced from 411 to 106 over the same period. West Pakistan from where there was greater exodus of non-Muslims to India suffered a great deal, as a number of branches fell down (from 487 to 69).
In the east Pakistan though the number of branches were not closed in such a great number as in west Pakistan, large portion of the deposits were with drawn from the banks and transferred to India by the non Muslims. The mass scale closure of branches and withdrawal of the deposits caused a dead lock in the banking business in Pakistan.
The government of Pakistan was quite aware of the serious banking situation caused by the withdrawal of deposits and wholesale migration of banking staffs to India. It took up the challenge and started reorganizing the crippled banking immediately after partition.
A moratorium of free months was also allowed to banks that had financial difficulty due to sudden withdrawal of deposits.
In addition to above, the following arrangements were made for facilitating
Settlement of claims by the governments.
Each bank was to declare on to its offices both in India and Pakistan as
Clearing house for transfer of accounts.Each bank was open at least one central office in Pakistan where it could consolidate work of all its branches and start paying out to depositors.
The government took some effective measures for providing banking training facilities to Muslims. There were some complaints that Hindu banks were not honoring the cheques of Pakistani national and were also refusing to give securities kept in their custody. The government issued an ordinance, which empowered it to investigate all such complaints, and if satisfied of their bonafide, the payments should be realized. In case the bank insisted on non-payments, the government should realize the assets of the banks, which were sufficient to discharge such liabilities.
The government of Pakistan also allowed the removal of valuables kept in save deposits vaults and lockers by submitting an application and getting necessary approval from the custodian of evacuee property.
The government of Pakistan tried to provide all kinds of facilities with sincerity to the known Muslim bankers for restoring normal banking facilities in the country but the response was discouraging. An inter dominion agreement was reached between India and Pakistan in April 1949. The main provisions of the agreement was as under:
The inter dominion agreement could not be fully imported. India delayed the transfer of Muslim deposits to Pakistan. The non-devaluations decision of Pakistan government further led to the suspension of remittance facilities through normal banking channels.
Due to panicky withdrawal of deposits; some banks went into liquidation and the payments could not be made to the depositors.
In order to regulate both of the banking on sound footings, the following measures were taken to develop the banking system in Pakistan.
The State Bank of Pakistan, which is the central bank of the country, was established in July 1948.
The National Bank of Pakistan was established on 1949,to serve as an agent to the SBP.
The Industrial Development Bank of Pakistan was set up on August 1, 1961 with a Paid up Capital of Rs; five crore. The Agricultural Development Bank of Pakistan (ADBP) was set up in 1961. it provides short , medium and long term loans to the farmers. In Jan, 1974 the entire commercial banks were Nationalized. The weaker commercial banks were merged with the stronger once and in all Five major banking companies were formed. MCB and ABL have again been privatized.Pakistan banking council was set up for coordinating the activities of the nationalized commercial banks. The banking council formulates the policies and guidelines for the banks.
Interest has been eliminated from the banking transaction from July 1, 1985. The banks are now accepting saving deposits on Profit and Loss Sharing bases. Modaraba and Leasing Companies are also operating in Pakistan.
The banks nationalized, due to weaknesses such as over staffing, deterioration in customer services, raising bad debts, loan on political bases etc, are being gradually denationalized. MCB was privatized in April 1991. The shares of ABL have also been sold to its 7500 workers. Permission to open ten banks in the private sector has also been given.
The permission to open an Investment bank has also been given. It will go a long way is providing capital for the industrial projects.
The government of Pakistan has also liberalized the exchange and payment procedure. The Pakistani firms and companies can now maintain Foreign Currency accounts in Pakistan on the same bases as known Pakistanis.
HISTORY OF NATIONAL BANK OF PAKISTAN
The normal procedure of establishing a banking company under the Companies Law was set aside and the Bank was established through the promulgation of an Ordinance due to the crisis situation that had developed with regard to financing of jute
Trade. The Bank commenced its operations from November 20, 1949 at six important jute centers in the then east Pakistan and directed its resources in financing of jute crop. The Bank's Karachi and Lahore offices were subsequently opened in December 1949.
State bank of Pakistan after its formation demanded from the Indian Reserve Bank the assets against the Indian currency retired from Pakistan territory. Government of India refused to hand over the assets worth about five hundred million rupees. The dispute is still unsettled and these assets are still not delivered to Pakistan. Until June 1950, the Bank was engaged exclusively on jute operation. Thereafter, it was felt that it could expand its business to include other commodities as well. Bank took a
big stride in 1952, when it replaced the Imperial Bank of India, as an agent of State Bank of Pakistan.
With the passage of time its functioning diversified as they take over the function of different institution with the passage of time like in past they took over the function of Imperial bank of India and now of NDFC (national development finance corporation)
It is working as the agent of the state bank of Pakistan and performs its functions wherever state bank of Pakistan is not present.
The government floated its 10 % of the shares in the open market in past and the ratio became 60: 40 and in future they trying to make it 55: 45.
In 1999 national bank celebrated its golden jubilee during the last fifty years bank has made substantial strides in the financial services industry in Pakistan.
In 1999 its market share was around 22% and it remains the largest financial institution in Pakistan.
With the geographical development of its branches, the Bank has been able to extend its services to a much larger number of Pakistanis all over the country. Today it has more than 8.5 million accounts. Bank maintains its presence in all the major financial centers of the world through its 15 overseas branches and 5 representative offices. Of these, three representative offices have recently been set up at Tashkent (Uzbekistan), Baku (Azerbaijan) and Almaty (Kazakhstan) to take advantage of the emerging opportunities in CIS countries. Bank's role globally is well assisted by its network of correspondent banks located strategically in Asia, America, Europe and Africa.
Apart from having a vast branch network, Bank is at the forefront in the acquisition and application of new technologies in every aspect of its banking facilities. It has acquired leased telephone lines for on-line banking. The Bank has 12 Regional Computer Centers to cover various on-line and batch system requirements of branches and controlling
Branch Network: NBP has an extensive domestic branch network of over 1500 branches located all over Pakistan. The Bank also has a presence in 24 international locations including the USA, United Kingdom, Europe and the Far East.
BRANCHES ALL OVER THE COUNTRY
NBP is 100% owned by the Government of Pakistan (GoP).
NBP holds 24.6% share of time and demand deposits in the country. Local currency deposits comprise 67% of bank's total deposits while foreign currency deposits account for the rest.
NBP's total assets stood at PKR350 billion on December 2001. This included total earning assets of about PKR268 billion with gross loan portfolio of PKR140 billion. The bank also has an investment portfolio of PKR91 billion, which comprises treasury securities, corporate bonds, shares and other securities.
As of December 2001 NBP had a paid-up capital of PKR1.46 billion divided into 146 million shares of 10 rupees each. Total shareholders' equity was PKR10 billion, however, revaluation reserve has increased shareholders' funds to PKR16 billion. NBP has, however, increased its paid up capital from PKR Rs. 1.46 billion to Rs. 3.73 billion through issuance of bonus shares (subject to corporate and shareholder approvals).
Amounts in Million Year to December1998199920002001 Total Deposits235,932254,863273,391294,754 Total Assets274,117310,599325,320349,932 Total Equity9,03512,23215,41115,962 Total Loans85,854105,597109,524122,294 Total Investments108,207106,449102,96991,277 Net Profit(795)62529(178)
Mission statement of national bank of Pakistan
"To be recognized in the market place by Institutionalizing a merit & performance culture, Creating a powerful & distinctive brand identity, Achieving top-tier financial performance, and Adopting & living out our values"Corporate Philosophy At National Bank
We at NBP believe that our customers are our most important and 1st responsibility, we must, therefore, serve our present customers and promise to serve our potential customers to the best possible on-counter and behind-counter services. We should try to provide a total and integrate package of services to create satisfied clientele. Our braches, regional offices and head office should regard the customer as their most priority, serving them with maximum possible helpfulness and courtesy.
Our second most important responsibility is the employees who work for our great institution. They must have their security , stability and fair treatment in their jobs in recruitments and assignment, in training and development, in promotion and placement . till separation. They should be treated with dignity and should be made to rise to their highest potential working condition should be attended. Supervisor should be tough minded but fair in the pursuit of bank objectives.
Our third most important responsibility is our executives and officers. They should have talent, education, experience and ability with a premium, place on commitment, knowledge, leadership and orientation towards action, implementation, improvement and achievement of goals.
Our fourth responsibility is to the communities that r served by our great institution. Our 1stcommunity is the Pakistani nation whose service is the reason for our existence.
Our 5th responsibly is to our owners and stockholders. We must make a sound profit and protect our business by creating financial services.
Objectives of National BankObjectives are ends towards which an enterprise activity is aimed. The purpose of business is production and marketing of economic goods and services but to accomplish these objectives to a number of enterprise objectives may be necessary.
National bank of Pakistan has certain objectives. These objectives are
(1) Advancing loans
(2) Accept deposits
(3) Remitting of funds
(4) Sale of promissory notes
(5) Selling and realizing property of bank claims
(6) Investment or underwriting of stocks
(1) Advancing loans:one of the main objective of NBP is advancing loans to industrialists and traders against security of stock, debentures or other securities
(2) Accept deposits:Bank provides deposit facility to its customers. The types of deposits are
Profit and loss saving accounts
(3) Remitting of funds:The bank provides the facility to its customers remitting large amounts of money in the form of bank Drafts, Telegraphic Transfer, Mail Transfer to where ever the customers want.
(4) Sale of promissory notes:To sell and realize the proceeds of sale of any promissory notes, debentures, stock receipts, bounds, shares etc.
(5) Selling and realizing property of bank claims:To manage sell and realize all property whether moveable or immoveable which may come in any way of the bank in satisfaction of its claim.
(6)Investment or underwriting of stocks:
To invest the funds of the bank in or the underwriting of any of stocks, funds, shares securities, debentures, bonds or scripts or other securities for money issued by any public limited companies and to convert them into money when required.
Departments in National Bank Main Branch
Following departments are working in NBP main branch
- Import and Export
- Credit and Advances
- Remittances and Deposits
- Consumer retailing
- FOREIGN EXCHANGE DEPARTMENT
- Foreign exchange is an important department in bank system. In the foreign exchange department all the operations of the bank are done in the same way as in all other departments of the bank this department also involve in deposits, remittances and advances but the difference with other department that the foreign exchange department deals in foreign currency rather then in local currency. For opening of account in foreign exchange the minimum balance required is $100.This department is just like Cash Department in local currency. In this department, the dealing is made in foreign currency.
- US Dollar
- Pound Sterling
- Japanese Yen
The department performs the following functions:
- Account opening
- Account closing
- Inward/outward remittance
- Issuance of traveler cheques
- ACCOUNT OPENING
- Terms and conditions:
- Account opening requires two things
- 1) National id card of the customer and introducer
- 2) Introducer
- Customer is the person who comes with the purpose of opening the account
- Introducer is a person having the account in same branch and gives guarantee about the customer. If the introducer is not proper than state bank charges RS 5000/- per head from that employee of the bank who has opened the account of the customer on the request of the introducer.
First of all, the customer is required to fill an application form. Then he attaches the photocopy of his identity card and fills the signatory cards. Then he is allotted an account number by entering in the account opening register. Now he fills the pay-in slip and deposits money on the counter.
Following things are needed for opening of account:
Account opening form
Letter of kinship
Letter of thanks
Issuances of cheque bookAccount opening form:
Account opening form consist of
Category of account
Title of account
Authorized person in case of customer deathSignature card:
The signature card included the name and specimen signature of the customer
Letter of kinship:
In the latter of kinship the customer authorized the bank to pay the proceedings of his/her PLS/Current foreign currency account to the related person by describing the relationship of the person with the customer after the death of the customer.
Letter of thanks:
Letter of thanks is the latter issued by the bank to the customer for two purposes
1) 1st purpose is to say thanks to the customer for opening the account in their bank
2) 2nd purpose is to confirm the address provided by the customer while opening the account.Issuance of cheque book:
Cheque book is issued to the customer after sending the letter of thanks when the customer comes with the latter of thanks and requests for the issuance of the cheque book. A cheque book (usually having 25 leaves) is issued to the customer.
CLOSING OF ACCOUNT:
The customer can close the account. The customer is required to submit an application for closing the account. The account is closed out and his balance is paid to him after deducting the closing charges, i.e. $ 20 and the application is filed in account closing file.
There are many reasons for closing of account
Account holder Owen request
Death of account holder
Closing of account due to the bad manners of account holderINWARD/OUTWARD REMITTANCES
The remittances are of following types:
- Foreign Telegraphic Transfer (FTT)
- Foreign Demand Draft (FDD)
- Foreign mail transfer(FMT)
- Western union money transfer(WUMT)
- Foreign Exchange Bearer Certificates (FEBC)
- Special US Dollar Bond
This is telegraphic transfer just like ordinary local currency TT, but this is foreign currency. Its charges are fixed, i.e., if payment is in cash, charges are Rs. 1500. If payment is through account, Rs. 1200; if deposit is above Rs. 50,000 charges are Rs. 600.
NBP has its correspondent bank in New York . NBP gives credit to main office Karachi, which gives credit to NPB New York, which gives credit to NPB, which ultimately gives credit to required destined bank and account number.
Mode of payment can be cash or by debiting the account. When FTT is received from abroad, NBP debits Main Office Karachi account and gives credit to the account of beneficiary.
Foreign Demand Draft:
Foreign Demand draft is also known as FDD. A person who wishes to remit money to someone in another place may if he does not send his own cheque, obtain from his bank a draft on demand payable to the person who is to be paid the money. It may be drawn upon one of the banker's own branches, or upon some other bank where exists for draft to be drawn. Whenever a draft is drawn own advice is dispatches the same day. Advising the bank or branch as the case may be, of the particular of the draft of that banker on whom it is drawn may recognize the draft was it is presented.
When a person requires a draft, he should be asked to complete the prescribed application form in which he should state the amount of the draft, the name of the payee and the place of payment. The bank charges commission Rs. 500 flat, excise duty Rs. 4. for charges.
After receipt of money, the entry is passed in FDD register and a number is allotted to FDD. Then FDD is prepared and given to the customer. After this, they give credit to Main Office Karachi, and advice is also sent to Karachi.
Foreign Mail Transfer:
These are also known as FMT. Transfer by mail of an account of currency to another country. The Remitter sign auroras requesting the banker to transfer the amount by mail, giving the name and address of the payee.
Foreign Bills for Collection:
Under this head, all foreign cheques are included whose payments are to be received from abroad.
When a customer asks the bank for collection, the cheque is sent to the bank on which is drawn.Then on the receipt of advice from abroad, the customer's account is credited in the bank and debit the Main Office Karachi account. The bank charges $10 or the equivalent amount in rupees.
Foreign Exchange Bearer Certificates (FEBC):
Foreign Exchange Bearer Certificates can only be issued from Foreign Currency Account and not from deposit of local currency. The maturity period of these certificates are 5 years, 7 years and 9 years. It can be issued and enchased only in rupees. The customer account is debited and state bank of Pakistan (SBP) is credited.
Special US Dollar Bond:
The bonds have the maturity period of 3 years, 5 years and 7 years. The bank gives the interest at the rate of 5% + LIBOR, i.e. 2%, 3% and 4% respectively.
Issuance of Traveler Cheques
NBP issues the traveler cheques to those people who want to travel abroad. These are not drawn on any specified bank or banks, but payable at practically all banks throughout the world and guaranteed by some well-known institution. National bank purchases the traveler cheques from American Express Bank and makes the payment after selling it to the client.
A customer is required to submit the following things:
- Valid passport with visa
- Return ticket
- Currency to be deposited in Pak Rupees. Ticket is endorsed. It is converted on the selling rate of that day. Traveler cheques are issued. Their limit is $50 per day for private visit and maximum limit for the year is $2100.
- Limit for businessman is $200 per day and maximum limit is $6000. But approval from Chamber of Commerce & Industry is required and certificate of ticket issue for which the payment must be made through cheque. Pak rupee currency account is necessary, and he has to present cheque for the amount to the bank. Endorsement of the ticket is very essential. Issuing ticket authority should endorse its stamp on the passport.
The SWIFT system (Society for Worldwide Inter bank Financial Telecommunication) has been introduced for speedy services in the area of home remittances. The system has built-in features of computerized test keys, which eliminates the manual application of tests that often cause delay in the payment of home remittances. The SWIFT Center is operational at National Bank of Pakistan with a universal access number NBP-APKKA. All NBP overseas branches and overseas correspondents (over 450) are drawing remittances through SWIFT. In case of transfer of funds the introduction of S.W.I.F.T., an acronym for Society for Worldwide Inter-bank Financial Transactions, has made remittances faster and secure. The system works like Internet communication processes. All the banks in the world are registered for the service, which have the facility of online computers. Headquarter of S.W.I.F.T. is in Belgium. The message sent through this way does not require any code tests to confirm its authenticity. The sending process is more secure where two officers make the transmission of the message, one types the content with his code word and the other executes it with his password. There are different types of codes that are used for the messages interchanged on the basis of the type of the transaction.Using the NBP network of branches, you can safely and speedily transfer money for our business and personal needs.Swift is a soft wear .it is use for following purposes
Different codes are used in swift for different purposes
Latter of credit code is 700
Remittance code is 100
Bank to bank transaction code is 202.etc.
When any massage comes through swift 1st its received by head office then head office authority send that massages to different banks via mail to main branches of relative banks.
Western Union Money Transfer:
Western union money transfer is a fastest way to receive money worldwide. It is working in almost 200 countries. Different Govt and private organization are dealing with WUMT
Govt organization e.g banks
Private organizations e.g Zarco, Money changer, Dollar East, Master Currency
Main office of WUMT is situated in Dubai, it is a procedure of counter payment
Time required in only one hour and deduction on it is $50.
Procedure of payment
WUMT just needed identification, no need of a/c, its an counter payment
Procedure of payment is that the customer came to specific person who is dealing with WUMT tell him the
1) MTC NO
2) Receiver name
3) Sender name
Last name4) Telephone no
5) Photo copy of ID card
6) Expected amount (10% margin is acceptable)
7) Test question
After if the that related officer feed MTC # (mail transfer control) , it is unique number not less then 10 digits, receiver name , his/her 1st name and last name, and sender name to check whether amount is come or not . When all these things are correct then give a form to the receiver, he/she filled the specific form, after that office done his signature and give one copy to customer, other copy send to the cash counter for payment and the last copy for put in file for the purpose of record. Payment is made only in Pak rupees.
It form is divided into three sections
1st for receiver information, his name, address and telephone number
2nd section for sender, his name, address telephone number
3rd section is for expected amount, MTC number, test question, signatureThere are three copies of form 1st for counter payment, 2nd for customer and 3rd for branch record.
IMPORT AND EXPORT DEPARTMENAT
A term used for goods and articles commodities sent from the country to another. Exports in Pakistan are done by the following four modes. These modes are
DOCUMENT AGAINST ACCEPTANCE (D/A)
UNDER L.C.ADVANCE PAYMENT:
In this type of export the importer is making the payment in advance. This shows the height of confidence between importers after the shipment is completed then the bank sends and E-form to SBPstating the export being made.
DOCUMENT AGAINST ACCEPTANCE (D/A):
Consignment is given to the auction house with out any order. A trust receipt is being made issued. Amount is given to the exporter when the goods are being sold or if the auction houses are not able to give the exporter the required money then gave to return the goods in full to the exporter. This payment is made after a specific period of time on which both the parties had agreed i.e. 30, 60, 90, 120, 180, days. If neither the payment is made nor the goods are returned the importer (auction house) are treated as criminal under section 420 of criminal act in Pakistan.
Under this type of exports, bank has no liability, buyer and seller sets the rules for this type of export. Only documents are rooted through the bank and also payment is received through the bank. It is done with the prior arrangement between the buyer and seller firm order. Payment is made by the draft, when the bank received the documents through other bank the payment is made.
The exporter produces the following documents with the bank at the time of export.
Covering letter (document are received)
Airway bill or bill of lading
Certificate of chamber of commerce
Insurance of goods
E formIn this type of export payment can be made in parts.
Bank receives an L.C from the importer for exporter of goods. These export LC used in Pakistan are following two types.
1) SIGHT L.CS
2) USANCE OR D/A LCSSIGHT L.CS
The LC in which payment is made at sight basis after documents are delivered
USANCE OR DA L.CS:
In this class of LC the exporter with that listed in the l.c makes the payment after a specific period of time bank checks all the documents provided. if no error then payment is being made else vice verse. The payment in this type of export is made in full else specified, partly payment may be made when both the parties agrees. After receiving the LC and checking all the documents the officer is issuing an approval sheet. The bank provides the bill of exchange.
Exporters provide the following documents to the bank.
Bill of lading or air way bill
Certificate of chamber of commerce
E formThe bank informs SBP about current export uses the E form. It is issued in quadruplicate. The custom authorities retain first spy of E-form and returned SBP, .2nd copy is for SBP 3rd for exporter and 4th for the banks record. When full payment is being made the SBP's copy is returned to SBP. After receiving their copy SBP compares the two forms.
It describes the detail of the goods to be exported, the importer's particulars, the amount of foreign currency payment and the details of the importer as well .
TERMS OF SALE
CIF (cost, insurance and freight)
FOB (freight on board)
CFR (cost and freight)DOCUMENT OF EXPORT
Following documents are required for export
Original Invoices of the transaction for sale.
Bills of Exchange drawn on the importer by the exporter
Bills of Lading from the shipping company along with the details
Along with these documents the Bank certifies that:
Exporter is known to the Bank and is a bonafide businessman and customer in Pakistan. He has made arrangements with realization of the export proceeds, which
Must be made within 120 days from the date of the shipment of the goods;
The Bank shall receive export proceeds against shipment on firm contract within the prescribed period by the State Bank. Failure to make the receipts, the Bank shall inform the State Bank the circumstances and reasons shall comply with it; In case of non-realization of export proceed within the prescribed period Bank obtain from the exporter the circumstances and the reasons.
Banks certifies those firms for which:
Arrangements have been made for realizations of export proceeds
Bonafide of importer/consignee abroad and credentials have been checked and verified
Arrangements have been made for the receipt of export proceeds
Genuineness of the charter party where shipment is to be made against charter party bill of lading has verified.
After submission of all the related documents to the negotiating Bank, seller is bound to receive payment. The Bank on its part is also bound to make payment however it is only reasonable to allow the banks sufficient time to scrutinize the documents that exporter has submitted.
After these documents have been verified and found correct the bank makes the payment to the exporter, in addition confirming it from the issuing bank. All the documents of the export transaction are received by the exporter and then submitted to the Bank for negotiation. These documents are sent to the foreign bank for authentication. When the confirmation is received then a security sheet is prepared to check the amount of the LC as well as the amount of Bill of Exchange.
The advising bank certifies form-E after checking the invoice, LC and the contract attached with the Form-E. After certification from the banks the exporter then goes to the custom authorities and makes the shipment to the importer.IMPORT SECTION
LETTER OF CREDIT
A letter of credit is defined as under
"Undertaking by the importer's bank to exporter that the draw in accordance with terms and conditions of the credit, will be honored if presented with in the validity of the credit."
It is a conditional undertaking by the Bank to make payment to the exporter if he fulfills the terms of credit by presenting the required documents to the bank in his country. In fact LC is a legal document on behalf on which the payment made by the importer's bank to the exporter's bank.
National Bank of Pakistan is providing this service to its customers who have an account with the branch and other businessmen too. This facility has been recognized as a modern banking activity of all commercial banks that are included in the list of 6000 Banks internationally.
Information in LC document
The name of the local company, which is importing the goods
The name of foreign company, which is exporting the goods
The details of the goods to be transacted including the amount, quality, mode of packing etc.
The total amount of the LC
The number of days for which the LC is valid
The name of the banks, who are regulating all these dealings
The name of the carrier which will be used for the shipment of the goods to the importer
The bill of shipment number
Parties involved in a letter of credit
There are normally six parties involved in a letter of credit:
Buyer (known as the importer or consignee)
Buyer's Bank (known as opening, or paying bank)
Seller (known as the exporter, or beneficiary)
Seller's bank (known as advising, confirming, negotiating bank)
Carrier (known as the shipping company)
Insurance CompanyTYPES OF LC
There are two types of LCs
An irrevocable LC is one that is a definite undertaking by the issuing Bank that it cannot be cancelled or amended without the consent of all the parties to the credit. The exporter feels himself safe and assured that his payment will be met in time without delay.
This type of credit is one that can be cancelled at any time by the issuing bank giving any reason to the negotiating bank, meaning that the importer's bank shall not honor any cheques/drafts presented for payment. The importers do not so commonly use this type of LC, as most of the time there are instructions by the exporters to open and irrevocable LCs in their favor.Opening of LC
For opening of LC the following documents are required by the bank.
Application or bond
Order or invoice or indent
Insurance (mist according to Pakistan rules)
Liability endorsement of customer
Irrevocable documentary credit (LC)
Serenity formAn L.C is issued after opening of the letter of credit it is sent to the negotiating bank.
LC Opening Charges
LC OPENING CHARGES
When an LC is opened, the bank collects certain charges from importer these are:
Telex chargesBills Under LC
After receiving the L.C. the negotiation bank checks the documents, which are provided by the exporter with that are described in the L.C. if there is not discrepancy in that documents then the negotiating bank gives the payment to the exporter otherwise vice verse.
The negotiating bank sends the document provided by the exporter to the LC issuing bank with their covering letter known as bills under L.C. The negotiating bank sends these documents by two mails so that if one mail is not received then the set from second mail can be used for further transactions.
The negotiating bank sends following documents to the advising bank.
Covering letter to advising bank 1 copy
Bill of exchange 2 copies
Invoices 8 copies
Bill of lading or air way bill 3 copies
Packing list 3 copies
Shipping advice to insurance company 1 copy
Shipping certificate from vessel 1 copyThe advising bank chicks all the documents which they received from the negotiating bank finds any information which is not given in the L.C in this bill if the bank finds no thing then transaction is made and if there is any discrepancy then the advising bank may claim the return of amount from the negotiating bank.
Remittances Under LC
The advising bank gives the authority to the negotiating bank to get money from their account from of their branches. If the bank has no account with the negotiating bank or the currency of the amount in the LC is different from that of the official country currency. Then the advising bank issues a debit authority letter to the negotiating bank to get the money from that bank and authorize the bank make payment to the negotiating bank.
Reporting To The SBP
After an import transaction is completed then the officer uses an I form to report to the SBP for that import. This I form is issued in quadruplicate. One of its copies is sent to the SBP. Other copies are for bill of entry 2 national bank of Pakistan copies. This form contains the information about the import against an L.C i.e. description of goods their quantity amount of LC shipment date port of shipment vessel and etc.
Requirement For Imports
1. Annexure – A (request for opening LC)
2. Invoice Performa ( by beneficiary)
3. Limit sanction certificate.
4. Valid import license (not necessary)
5. NID Card of the importer.
6. Insurance Certificate
7. Bill of Exchange
8. Bill of LadingVouchers Made By NBP
CREDIT AND ADVACNECS DEPARTMENTCredit
It may be defined as
" The sale of goods and services and money claims in the present in exchange for a promise to pay in future. "The most important activity of the bank is the granting of credit to the customers. NBP provides short term long terms financing for domestic and international trade. The policies made by central office of the cash can be amended on the basis of the rules and regulation, economic risk of each country board of directors and committee of the NBP made this type of decisions and informed about these decisions to the branch managers.
Manager can grant the credit limit to each customer with in the declared limits approved by the controlling offices i.e., co, GHQ, circle and zonal. Banks grant credit to the customer for a certain period of time. The banks provided credit to the customers so that they can purchase ahead of their liability. By giving these facility to the customer's large scale production of commodity can be achieved and economic growth rate can be increased. The power to sanctioned loans had been delegated for controlling different offices, according to amount of loan. This department is also called as risk management group.
The following elements are used for credit selection.
It is based on the borrower willingness to repay the obligation. The loan officer sees the family background mode of living, business nature, habits, moral reputation and etc. before giving the loan.
The ability of borrower to repay the loan when due. The borrower ability to repay the loan is assessed by the office so that he will be able to repay the loan in future.
The officer assesses the capital of the borrower. If assets held by the borrower are liquid, they can be easily convertible in cash; but if non liquid is used then it is risky to given loan.
It is collateral security. It may consists of stocks bonds , bill of exchange, bills of lading, etc. the bank has protect him self from any discrepancy in the future. They increase the ability of the borrower to obtain the funds from the bank.
The economic condition of the borrower is determined. The economic conditions of the borrower in and out side the country effects the repayment of loan. If condition is favorable then loan is given otherwise vice versa.
Credit department has performed following functions.Advances
Advances provided by the bank are of the following two types.
In fund based bank contributes a large amount of the fund based on clarified as follows
TYPES OF ADVANCES
One time disbursement of the whole amount sanctioned, as the limit for the credit allows. Any person, individual, group, company, firm and all others can achieve this mode of financing. The mark-up or interest is calculated on the total amount disbursed and requires to be paid before the date of final adjustment. Regarding the amount, limit and period, it depends on the nature of the case in review.
In this mode of financing the borrower is allowed to make withdrawals of funds as he requires, but the total amount outstanding cannot exceed the limit sanctioned. The mark-up/interest is calculated on the amount outstanding on his account. The calculation of mark-up/interest is based on the number of days a specific amount is withdrawn. This finance if normally borrowed by small traders or individuals for their petty matters involving cash transactions up to rupees three hundred thousand maximum.
To assist a large-scale business operator to carry on his day to day requirements of liquid funds, this account is opened is made operation in his favor. Running finance is provided where the amount goes beyond rupees three hundred thousand. The mark-up/interest is calculated the same way as in case of cash finance.
Security against running finance is that which is easily convertible in to cash and bank kept 25% margins with it.Non-Fund
Bank provide non fund advance in the following form:
A guarantee is a promise between one person to another person or party to answerable for the debt of a third party. Bank issues guarantee after 100%cash collaterals are provided by the person i.e.50% in the form of the property.
Bank provides non-funded credit facility to the following basis.
- Import and Export
- Sight LC
Usance or DA LC.Sight LC
In this type of L.C when payment is made documents are released. A cash margin of 30% is relational by the bank.
Usance or DA L.C
The bank retains the payment after a period of days, which is given in the L.C a margin of 30%.
types of loans
TYPES OF LOANSThe credit department of NBP has providing the following types of loans
1. Short term loans
2. Long term loans
3. Working capital loan
4. Syndicate (project) loan
5. MonitoringDocumentation in short term financing
Demand promissory note
Mark up agreement
Letter of guarantee in personal capacity
Letter of authority
Letter of pledge
Memorandum of deposit of title deal
Status reportsA credit report is an assessment of borrower's character and capacity from a banker's point of view. Credit reports on borrowers called Status Reports, financial reports, banker's opinion or confidential reports. All these terms carry more or less the same meanings. The study of a borrower is a study of his character, capacity and capital, and collateral often known as the 4Cs to consider his credit worthiness and eligibility for the bank advance.
The purpose of compilation of credit report of the borrower is to assess their net worth. It must contain information about borrower's means, character, integrity, assets, liabilities, business and experience. Besides, borrowers own investment, details of properties, must be obtained. The borrower may be asked to give written clarification of their existing liabilities.
In the case of Limited Companies, their borrowing powers to be verified from their Memorandum & Articles of Association. Their certification of incorporation to be examined, exiting borrowings, prior charge on their fixed assets, paid-up capital, reserves, profit and loss position, detailed particulars of their directors and complete analysis of balance sheet must be incorporated in the credit report. Independent inquiries about the borrowers and opinions form their previous bankers must be made. As such a comprehensive credit report is compiled which serves as a constant guide to the banker about his borrower.
This report is prepared by the bank of the intending borrower with a view to considering his Credit Worthiness and Eligibility for the Bank Finance. Besides other things it contains the net worth of the borrower.
NET WORTH OF BORROWER
Net of the individual's worth is the total investment or equity of the sponsors/borrowers in the company through which they are asking for credit and in the other sister concerns.
Total investment in Business + Properties – liabilities
Paid-up-capital + Reserves + Profits (Losses)
The Investigation process
1. Knowing the market place
2. Risks inherent in lending
Earnings fluctuations risk
Criteria checked for loans
Major areas requiring focused attention of the analyst are:
Which is reflected in the trends of:
Net profits (at least for the last 3 years)
It refers to the extent of liquidity usually available in the business, or which is the routine requirement of the borrower based on the nature of his periodically maturing liabilities.
3.Industry/Business Of Operation
The banker has to check that in which industry or segment of market the loan is being given this is important because if there were a recession in that industry for decades then it would not be feasible to invest in such a business.
Certain traditionally stable industries are in Pakistan in which NBP feels satisfied while investing.
For example in they feel satisfied by investing in ICI.
4.Debt Equity Management
Excessive reliance on debt, rather than plough back of profits or injection of fresh equity, to maintain a healthy combination of debt and equity is thought with danger because ultimately the debt servicing requirements place a heavy burden on its liquidity thereby its survival.
Asset management involves the analysis of how productively the assets of the company are being used. Sales and profitability can be measured with this.
6.BORROWER'S CREDIT WORTHINESS
In order to get a complete picture of the borrower's credit worthiness, inquiries will have to be made about:
Assets and liabilities.
His account with bank or with other banks.
His financial statements and income tax returns.
An interview with him will be necessary to elucidate or supplement the information that may have been collected.
Before giving loan NBP also checks whether the management have the depth, skill and experience. If the management is aggressive and adoptive to the new changes then it is most likely that the banker may receive the loan back on due date
In case the borrower is not in a position to meet his obligations, there must be something else to call back upon. So bankers take securities to have a resource to them to guard liquidity, that is,security is an insurance against calamities.
In case of cash finance the customer have to give the same amount of money to the NBP as a security for which it takes loan.
Condition for security
The security must be liquid or radically convertible to cash with more then adequate margin of safety fully under the banks control, having high value, which can with stand volatile market condition.
Secured by acceptable immovable tangible collateral with necessary margin and fair degree of marketability under the forced sale situation (should have buyer).
The types of securities may vary from a piece of land or building to commercial papers or ornaments. Further, security has its own importance, not only as constituting the ultimate source of recovery in the event of failure of the borrower or his enterprise, but as providing a measure to the borrowers own stake in the enterprise and also placing the limitation on his future borrowings.
However, though security serves as a cushion to fall bank upon in case of need, but its adequacy alone should not form the sole consideration for judging the suitability of the loan. So the choice of security is not made in isolation, but keeping into consideration the customer and security offered together.Guarantees
A grantee is defined as
"An undertaking by a person to responsible for the debt of another person."
National bank of Pakistan issues guarantees to government agencies like atomic energy, high way department, and customs arthritis. Sui northern gas and others. It also issues guarantee to multinational organization like Siba gigay, Sandoz, PBS, and etc. for the purchase of pesticide or insecticide from any fertilizer company.
Bank accepts only long other bank guarantee but in some cases personnel guarantee is also accepted. The guarantee issued is treated as contingent liability. According to local rules and regulation the policy for issuance of guarantee can be changed. The expiry of the guarantee can be set by both bank and guarantor. The minimum period is one year and the guarantee can be reissue for extra period with paying charges.
The two officers whose signatures appears in the specimen signature book of bank and also counter sign by the zonal chief must sign each guarantee. Both officers must also sign any amendment. Am amendment in the guarantee can be made after giving written application to issuing branch. If the value of the guarantee is reduced by the amendment the liability amount will be reduced and if will value is increased additional liability entries will be passed.
The bank provides following types of guarantees to the customers.
Performance bondBid bond
The facility provided at the time of bed opening is called bid bond.
When the bid is accepted, the bank provides this type of facility to the customer.
When the project is completed, the contractor about the performance of the project provides a performance certificate for one year. During one year, if there is any mishap in the project the repair otherwise authorities claim the performance charges from the bank.
Bank charges commission on issuance of guarantee as per their schedule of charges. If the party did not pay the amount in the stipulated time period, bank puts this case for recovery. If some amount is recovering then it is good otherwise bank deduct the amount from its profit and starts the legal procedure against the property pledged by the customer to bank.
Bank assesses the demand of the customer and then writes letters to other banks to provide them confidential report of credibility about the customer this is one provided in the shape of CIB (credit information bureau) report provided by the SBP. In this report the credits of the customers with the bank operating in Pakistan are given. After checking this report the bank issues the guarantee to the customer. In case of death of his heir as given in the will be responsible for that guarantee.
It is an interest or right in the property gives to the creditor to convert it in cash in case of debtor fails to meet the principal and interest.
The bank provides the following securities to the customers.
Transfer of interest in movable property for securing the payment of money lend on existing or future liability. The bank provides the following two types of mortgage.
Equitable mortgageRegistered mortgage
Registered mortgage is provided on the residential property, commercial industrial property, raw plot, etc. A party can get registered mortgage if they provide the following documents to the bank.
Non encumbrance (NEC)
pit form (in case a constructed hose)
Personnel guarantee of mortgagor
Power of attorney
Legal opinion.Banks examine all these reports, and if they are correct then issue the mortgage to the party. The bank examines these reports to see that the property they want to mortgage is registered and is not already pledged. The bank also calculates the value of the property and the legal opinion of the customer in case of non-payment.
Equitable mortgage is provided on the residential property, commercial industrial property, raw plot, etc.
Non encumbrance certificate (nec)
Pti form (in case a constructed house)
Memorandum of deposit of title deed
Personal guarantee of mortgagor
Power of attorney
Legal opinionIn this mortgage a charge form bound the customer for any legal action in case of non-payment. In this type of mortgage hypothecation of stocks involves.
A pledge is an "a class security given to customers for stocks ware house, customs, and etc. it is defined as actual delivery of movable property to lender as security for a loan. When the customer makes the payment of the loan in full he can back his mortgage property from the bank i.e. when full payment is made the stock is released.Procedure of sanction of loan
In Credit department 1st step is to preparation of credit line proposal for the preparation of credit report. For this following information required by the bank from the party
Purpose of loan
Details of all firms or companies associated with business
Name of proprietor/ partner/directors
Accurate and up-to-date balance sheet and profit and loss statement of last two years of business
Market report of the borrower repute
Report from the bank if borrower has maintain his account with the bank
Full details of existing limit and actual liability against the business
Particular about the foreign exchange deposits and bills given by the borrower to the bank
Memorandum and article of association in case of limited company
Audited report of balance sheet and income statement of last two yearsAfter checking all the securities, customer verification the manager done the following tasks
1. Preparation of credit proposal
2. Prepare the about the customer
3. Sanction of loan
1) Preparation of credit proposalAfter formal application for the credit the party submits approval. For this purpose borrower can use coarse paper or the form provided by the bank. Along with the application borrower also submits the documents required by the bank. The bank manager evaluates the documents provided by the borrower. He gets the party's credibility report confidentially from the other commercial banks. He checks the balance sheet and income against the assets in the company. He also measures the percentage of owner's equity. Then he doses the ratios analysis of the company. If the party is involved in the export and import business then the data of the last three years of this business is considered. The manager of the bank also examine the project violability, the securities provided by the debtor to the bank are evaluated by measuring their worth. In the case of pledge is assessed by the manager while in case of new party manger checks from where the party is financing for their business
2) Prepare the Proposal about the customerAfter preparing the proposal manger prepare the report about the customer. Report contains the following information
Name of the company
Date of establishment
Nature of business
Worth of business
Head cashier opinion
Branch manger opinionIn case of partnership business following information are included in the report
Partner, their share in capital, profit and loss
Deed of partnership
Personal property of partners
Bank balance of partners
Advance payment of suppliers
Particular of machinery installed in the factory through financingIncase of corporation/limited companies the following information are included
Incorporation and commencement of company
Directors and their contribution to capital
Balance sheet with explanation and evaluation
Net worth of the company3) Sanction of loan
If the limit of the loan lies with in the power of manger then he sanction the loan otherwise manger with the covering letter along with all necessary documents sends it to the concerned sanctioning authority.
CONSUMER AND RETAIL BANKING
Accounts Department of the bank can be considered the most important department. This department is basically concerned with processes and activities of recovering, sorting, summarizing and reporting data resulting from the whole day transactions of all the departments. Actually the process of this activity starts from the preparation of all the required vouchers by different related departments. When these vouchers are prepared, these are posted into respective computer terminals by the relevant departments. Before merging, a batch list is printed out by Computer Department and duly checked by the respective departments. After this, merging stage comes, after which a proof list is printed out. This is the stage, where Accounts Department starts performing its function. Proof list is checked by the Accounts Department.
This section performs the following functions:
- Opening of Accounts
- Issuance of checque books
- Closing of accounts
- Payment of Cheques
Following types of accounts are open in NBP
Current or demand account
Fixed accountSaving account (PLS)
This type of account is designed to encourage the saving habit of the customer and lead to a long-term banking or investment relationship.
Bank saving accounts are in the nature of deposits accounts and are not normally available for drawings. Rates of interest are typically ahead, by a small margin. Saving accounts with the banking sector represent a very small proportion of total deposits. Customer can make any withdrawals from type of account. The cash reserve ratio is typically low them the current account because the withdrawals against this account is very low. The minimum balance for this account is Rs.100 and interest rate is
Current or demand account
These are those deposits, which can be drawn by the depositor at my time by presenting a cheque to the bank. People deposit their money in this account they gave a ready command on their account in developed and under developed countries of the world, a very significant part of money is kept under current or demand account. On this type of account of interest transfer of cash or by cheque takes place at sight. The cash reserve ratio for this account is very high. The operating cost for the handling of this type of account is very high because withdrawals are very regular.
Fixed accounts are those, which are deposited for a fixed period of time and are repayable after the expiry of stipulated time to the customers. Those people who have surplus funds and want to have save investments deposit the amount in the fixed account. The rate of interest given to depositor varies with the length of deposit, i.e. it is higher for longer period and lowers for shorter period. The rates on this type of deposits are higher than the saving bank accounts. The cash reserves against this deposit are very low because there is no fear of withdrawal of a month before the stipulated of time. No paying books or passes book or cheque book is issued to the customers against this deposit to the depositors.
The authorities of national bank of Pakistan have the right to revise all these rates of interest with out any notice to customers generally rates of interest are revised after six months. The amount deposited for 7 and 30 days short term notice and accumulated for the period exceeding the limit and the customers can get the interest of the extra days of deposit but in the case of months and years the customer did not get any additional interest for the exceeding period of deposit.
Procedure for Opening an Account
First of all, the customer gets an application from the bank, which requires all information necessary for opening account and also the documents required. An account can be opened as:
1) An individual account
2) Joint account
3) Proprietorship account
4) Limited company account
6) Club, society, association and trust
- Telephone No.
- Currency of Account
- Nature of Business
- Country of Residency
- Special instructions regarding the account
- Photocopy of National Identity Card of each director
- Application form
- Copy of company's memorandum and articles of association
- List of directors
- Copy of board resolution
- Certificate of incorporation
- Their signature cards
Certificate to commence businessDocumentation In case of Partnership Account
- Application form
- A copy of partnership deed
- Signature cards of partners
- Registration certificate copy
A copy of National Identity Card of each partnerDocumentation In case of Club, Society, Association or Trust
- Application form
- Copy of rules
- Certified copy of resolution
- Signature cards
Bank has the right not to open an account without assigning any reason or to close the account if it is not operated in a satisfactory manner by the instructions of the head office.
ISSUANCE OF CHEQUE BOOK
After opening the account, a cheque book is given to the customer to sign upon which the number of cheque book issued and the name of the customer is written. Bank issues a cheque book against requisition. A cheque book may be of 20 (PLS), 25, 50 or 100 leaves (current A/C). Rs. 4.50 per leaf as excise duty is charged to the customer.
A cheque book register is maintained by the office. In this register, the cheque book inventory, cheque books issue are recorded.
If any customer forgets or leaves his cheque book at his home, which is far away from the bank or whatever the case may be, the customer applies with the bank for the issuance of loose cheque by the bank as he does not has his cheque book with him and the money is urgently required, the this cheque is called the loose cheque.
Bank issues a loose cheque for Rs. 50 as charges for the issuance of the loose cheque plus Rs. 4.50 as excise duty.
PAYMENT OF CHEQUES
It is bank's primary function to repay the money required for its customer's account usually by honoring his cheques. It is a contractual obligation of a banker to honor its customer's cheque if the following essential are fulfilled
- Cheque should be in a proper form
- Cheque should not be mutilated
- Cheque should be drawn in this particular branch
- Cheque should not be damaged
- No unauthorized material alterations
- Funds must be sufficiently available
- Cheque should not be post date or stale
- Cheque should be presenting during the banking hours
The customer can close the account. Customer is required to submit an application for closing the account. Then the account is closed out and his balance is paid to him after deducting the closing charges, i.e., Rs. 200 and the application is filed in Account Closing File. Remaining leaves of cheques will also be collected from the customer.
The activities of Accounts Department can further be divided as:
Routing of expenses vouchers
Preparation of daily activity reports
Preparation of weekly and monthly statements
Preparation of statements for tax purpose.
Vouchers of all expenses and material purchases are routed out through this department. As far as the expenses are concerned, they include the heads of salaries paid to confirmed employees of bank, wages paid to employees that are on contractual basis, rent of the building, lease installment and insurance premium paid to insurance company for the insurance of vehicles and cash in safe and counter. Expenses also include the utility bill, which consists of courier, electricity, water and gas bills, medical expenses, which are reimbursed.
PREPARATION OF DAILY ACTIVITY REPORTS
As far as the daily activity reports of this department are concerned, these include the following heads:
Voucher collecting of
- Loan transactions
- General ledger transactions
- Foreign currency related transactions
- Fixed deposit related transactions
- Loan transactions
PREPARATION OF DAILY, WEEKLY MONTHLY AND ANNUAL STATEMENTS
These statements are sent daily to Main Office Karachi. These are:
Daily Affair Statement, which is same as Balance Sheet
Statement of Income and Expenditure, which includes the details of income generated and expenses incurred by the bank.
These statements are generated on weekly basis for the purpose of sending it to Head Office. These also include:
Statement of affair
Deposit and advances position of the bank
These statements are prepared on monthly basis and also sent to Head Office (Qatar). These include:
Provisional statement of income and expenses. This statement adjusted for accruals and pre-payments.
Monthly Balance Sheet and Income Statement
The department also prepares two statements for the purpose of paying tax on monthly and annual basis. These statements are generated for the purpose of submitting to Central Board of Revenue. These are:
Statement of deduction of income chargeable under the head salary under Section 53 (Tax deducted at source)
Withholding Tax from the payments made to vendors, suppliers and other parties providing various services. The rate of withholding tax is as follows:
Suppliers 2.5% For other parties 5%
REMITTANCES SECTIONRemittances can be made through:
- Instrumental transfer
Electronic transfera. Instrumental Transfer
Demand DraftIt is an instrument, which is payable on demand and it is only presentable in the city/country. When any draft, i.e., an order to pay money, drawn by an office of bank upon another office of the same bank for a sum of money payable to order on demand, purports to be issued by or on behalf of the payee, the bank is discharged by the payment in due course.
When a person requires a draft, he should be asked to complete the prescribed application form in which he should state the amount of the draft, the name of the payee, and the place of payment. The person to those persons, who have been duly authorized to act on his behalf, should sign this application form. An advice is prepared and two copies of this advice are sent to the Head Office. The bank charges 3% withholding tax and commission according to the rate list (minimum is Rs. 200).
Pay OrderIt is an instrument, which is payable in demand and only presentable in city.
Pay order is also called the banker's cheque drawn upon the issuing bank itself. It is not negotiable and therefore, bankers tend to cross the instrument "Payee's account only" to avoid the possibility of dealing with instruments with forged endorsement. The pay order is issued favoring individuals, commercial concerns, government departments. On the presentation of pay order, the bank is liable to pay the amount to the customer. Bank charges excise duty of Rs. 4 and service charges of Rs. 100.
Pay SlipIt is an instrument, which is issued by bank and used for expenditure purposes, i.e., electricity bills, maintenance bills, security bills, fixture and fitting, etc.
Call deposit are not actual deposits of bank. It is in fact the liability of the bank. Call deposit are ofently prepaid by the bank for contractors
Following steps are involved
1) Depositor fill the credit vouchers for call deposit. He writes the following information
- Name of company
Date2) He deposits the cash along with filled voucher in the cash department
Encashment of CD
For the encashment of call deposit needed
- 5 rupee stamp
- two signature of customer on the back side of CD
- token issued
accountant make entry in the CD register show that it has returnedb. Electronic Transfer
Telegraphic TransferIt is the message, which is sent from one branch to another on the order of payer to payee through wire. It is one of the quickest means to transfer fund through the use of telex/fax/internet or cable. Payment to the beneficiary is affected directly by the drawee office upon identification or through credit into beneficiary's bank account. As such remitting office is not required to issue any instrument payment to the remitter for delivery to the beneficiary.
Issuance and Payment of Telegraphic Transfer Outgoing
Application form is filled by the client in which the name and account number of the beneficiary, which is to be credited and name of customer is required. For telegraphic transfer, the payment can be made in case or by cheque or by debiting the customer's account if he is the account holder. The amount of Telegraphic Transfer should be written on the form. The amount is transferred to beneficiary's account in the other bank. An advice is given to the customer but application is filled in the record of the bank.
If the beneficiary is not the account holder of DBL, bank credits a Telegraphic Transfer payable account and when payment is made to the beneficiary, TT payable account is debited.
Issuance and Payment of Telegraphic Transfer Incoming
When a TT is received then an entry is passed in TT incoming register after verifying the test. When a person comes and wants to encash his TT, bank checks the statements of that person. If the bank finds any account credited to the person's account against TT, bank prepares a voucher for this payment against that TT. The customer then presents that certificate to the cash counter and collects money.
Mail TransferIt is the same like TT, but in this type, the message is sent through mail rather than telex. The procedure is same as TT, but the advice is sent through mail rather than wired.
Travelers cheques (TC)
These are also called TC. Traveler's cheques first came into use century ago. Form of travel currency giving to the holder .the security of a letter of credit and convenience of a local currency. In practice, they are acceptable in payments of accounts on board ship, at hotels and in stories. They are in form of a draft. They should be so signed immediately on issue and place is provided on the cheque for the signature of the beneficiary on its
National bank of Pakistan also provides lockers facility in the country. The lockers issued only to the depositors. No lockers are issued to any unknown person.
The dual control system is used for lockers. The officer has master key to apply on the locker but he cannot open the locker of any person. The locker holder provides the bank has specimen signature. Whenever the locker holders come to open the locker, his signatures are verified by the officer and then will be able to open his locker. If the key of the locker is lost company providing these lockers breaks the locker and new lock is fitted in its locker and lock is destroyed in the presence of the locker holder and bank charges RS 1200 for that. In case the locker holder dies, the court opens his locker in the presence of his heir as mentioned in his will or and his belongings are given to them and the locker is closed.
Billing And Government Receipt/Payment
This department is performing following functions
Collection of utility bills
Collection of dues of education institution
Payment of salaries
Payment of zakat
Payment of pensionCLEARING DEPARTMENT
The major function of Clearing Department is to receive the cheques, which are drawn on some other bank. The customer can get the money in his account at NBP, from the cheques drawn on another bank. The bank accepts these cheques and collects the amount from that bank on which cheque is drawn through the Clearing House. Bank charges some commission for this function.
Procedure for Clearing the Cheques
Pay-in SlipThe customer fills pay-in slip. This slip is just like deposit slip. The cheque number, date, amount and account number must be written on this slip.
Stamping and ScrutinizingThe officer on receipt of cheques and pay-in slip will stamp the pay-in slip with "cheque received" and give a portion of slip to customer and the remaining portion is attached with the original cheque.
The original cheque will be marked with two stamps.
- National bank of Pakistan
- Clearing Stamp
Through this department bank has make its way to enter in twenty first century. This department is playing a very important role in making the banking procedures faster and helping the bank for providing new services to its customers. This division provided the bank with online branches, systems to make the whole procedure foolproof.
Types of Branches
There are three types of Branches in all over Pakistan of NBP
1. Online branches:
The branches, which are directly, link with central computer AS-400, through wide area networking through fiber optics. These branches have dumb terminal directly linked with central computer. Yet only forty-four branches all over Pakistan are online. Of these forty-four, seventeen are located in Karachi, seven in Lahore, two in Islamabad and two in Multan and two each in other regional head offices.
2. Batch Branches:
The branches where all transactions are carried out with the computer base system but these branches are not connected to the central computer with wide area net working. Batch branches are using three type of system, Branch Back Office (BBO) based on FoxPro, Branch Automated System based (BAS) on UNIX, Branch Integrated System (BIS) based on FoxPro in Karachi mostly branches are facing this problem. BAS was establish in the beginning while BBO is currently implemented now efforts are under way to convert all branches into Electronic Banking System (EBS) which is used by online branches as this system does not require a person to remain sitting till the branch closed its daily operation but the system automatically close it self when the branch timing is over. The database in head office is also based on this system.
3. Manual Branches:
The branches where all transactions are carried out manually and records are maintained on registers usually stored in big wardrobes.
All branches in Pakistan report to there regional head office regarding there daily transaction. In the RHO through On Line, terminal data goes to head office central computer; Except for branches those are On Line as they transfer there daily data directly through there own terminal. As day-to-day, activities of all branches are recorded in a central computer.
Evening Data Receiving Center
Data form batch branches reach the main branch in floppy diskettes while form manual branches it is in form of hard copy. Data comprises of transactions in profit loss account, current account, advances etc termed as "Daily Transaction Report". Clerk in charge register all diskettes and manual in registers called "job booking register" one for each of two type of data. These floppies and manual are bring in by riders. There are fourteen riders in total who bring information form all branches located in Karachi region.Data Entry Department
The next task after receiving the data is to enter that data in to a computer. The floppy disk is directly inserted in the computer. The program in used is based on "COBOL" language. This program is designed in away that it demand "Hash Value" value before opening the floppy for further action this value serve the purpose of password or pin code send by the branch on entering that value the data enter in to the computer. This computer is attached with the terminal of central computer. The operator of that terminal takes the data from the computer and converted it in to a text file through that terminal the data finally goes to the central computer.
Defects and Error Handling
Errors of different origin occur when the data goes to central computer. Sometime retrieving data from the system (BAS, BBO, and BIS), other than used in HO (EBS) also caused errors. Other errors include Unmatched (This error occurs when document no matched with the previous one exists), no master (when opening of new account is not mentioned), Date in Valid, duplicate cheques (this error occur when the last objection is not removed). these and other such error are see by the person in charge.
In the end of day print out of the data enter in central computer is taken. Any
Incomplete information for any branch and any information require by that particular branch is sent to that branch. More over material is used to make a WST which is sent to State Bank of Pakistan.Consumer and retail banking section
Consumer and retail banking department is offering two facilities to their customers
1) NBP Advance Salary
2) NBP Ghar Ghar TelevisionNBP Advance salary
NBP advance salary facility allows you to draw three months salary in one go.
NBP advance salary offers you
Take up to three months advance salary take home
Fastest processing and immediate disbursement
Easiest facility for 1 to 36 months
This facility will be available to permanent employee of
Federal and provincial Govt.
Semi Govt, autonomous, semi autonomous, local bodies and Govt corporations
Other corporations and organizations approved by NBPThose who qualify for thius scheme should have:
Three years of service age remaining
Salary account at NBPLimit of Finance
Three net take home salary
Customer must have account with national bank which show last three months salary in his/her accountCalculation of limit
Average of three months and minimum salary which ever is less taken it as base and multiply it by three
Maximum duration of loan
Three years is max duration.
Three months salary certificate
Auto roll over form
Three undated cheques
Account opening formProcedure
After filling the application customer signed it with his salary-disbursing officer then under taking is officer approving it. Open the account that is calls separate loan account, which is once Debit and many time credit.
NBP Ghar Ghar Television
NBP offering the customer to get the television on lease base
Four categories are there
1) Lean of account
2) Lean of guarantor account
3) National saving certificates
4) Guarantor of NBPlean of account
Here the amount of customer account is pledge and customer can't DR it until the expiry of limit
Lean of guarantor account
The person who is taken the guarantee of that customer his account is marked as lean and pledges it until the expiry of installments
National saving certificates
Three types of certificates
a) Defense saving certificates
b) Special saving certificaties
c) Regular saving certificatesEvery certificate having their face value. The 75% of that valve is marked as lean.
Guarantor of NBP
The employee of national bank can give the guarantee of that customer.The procedure is same his or her account is marked as lean
Duration of scheme
Two types of duration
For one year
For two yearProduct supply
Product is supply by L.G electronic at the customer address
Different products are offered by L.G such as
Documents required by the banks are
a) Application form
c) NIC photocopy
d) Delivery order
f) Letter of hypothecation
g) Adamantly bound
h) Letter of acceptation and satisfaction
FOR NBP employees:
a) Authorization certificate
c) Salary certificateThis scheme is only for residential of Multan.
FINANCIAL ANALYSIS FOR BANK
The financial year of the Bank commences from the 1st day of January and ends on the 31st day of December every year.Non-performing loans
As on 31 December 2002, the Bank's non-performing loans (NPLs) amounted to Rs. 30,323 million, which was 19.11% of total advances as against 21.48% as on 31 December 1999, showing an improvement of 2.37%. Provision against non-performing advances was Rs 18,296 million as on 31 December 2000, which is 60.34% of NPLs.
This high ratio reflects prudence of the Bank's management while determining provisions. Remaining NPLs are covered by forced sales value of mortgaged property, Federal Government Guarantee or are in category other than loss.
The Special Assets Group at Head Office with full co-ordination between field functionaries and Head Office is monitoring NPLs and deals with the classified portfolio of the Bank along with Remedial Management, Legal framework, Statistical Analysis of classified accounts, Revival of Sick Industrial Units, Consortium Financing and Ex-Mehran Bank Limited affairs etc.Calculation Of Different Ratios
Earning assets to total assets
Earning assets to total assets = Earning assets / total assets
Earning assets to total assets = 286230528 / 17510437
Earning assets to total assets =319676497/23936263
Return on earning assets
Return on earning assets = profit after taxation / earning assets
Return on earning assets =1148529/286230528
Return on earning assets =2253385/319676497
Loan loss coverage ratio
Loan loss coverage ratio = provision against non-performance loans &advances/ profit or loss before taxation
Loan loss coverage ratio =2926554/3015629
Loan loss coverage ratio =1822154/6044811
Equity to total assets
Equity to total assets = total equity / total assets
Equity to total assets =11958673/17510437
Equity to total assets =14279303/23936263
Deposits time capital
Deposits time capital = deposits/ capital
Deposits time capital =33123726/3730384
Deposits time capital =13248569/3730384
Loans to deposits
Loans to deposits= loans/ deposits
Loans to deposits =170319096/33123726
Loans to deposits =140547374/13248569
Current ratio=current assets / current liabilities
Current ratio =79155081/2245349
Current ratio =55531453/3365744
STRENGTHS WEAKNESSES OPPORTUNITIES THREATS (SWOT) ANALYSIS
NBP one of the largest financial institutions of Pakistan with eight million of customer base NBP holds 24.6% share of time and demand deposits in the country. Local currency deposits comprise 67% of bank's total deposits while foreign currency deposits account for the rest.
NBP has an extensive domestic branch network of 1200 (according to the latest data) branches located all over Pakistan. The Bank also has a presence in 19 international locations including the USA, United Kingdom, Europe and the Far East.
NBP's total assets stood at Pak Rs.370 billion on December 2000. This included total earning assets of about Pak Rs.268 billion with gross loan portfolio of Pak Rs.140 billion. The bank also has an investment portfolio of Pak Rs.91 billion, which comprises treasury securities, corporate bonds, shares and other securities.
NBP cash provision as percentage of non performing loans equal to 60% this coverage factor for the non performing loans is the highest amongst the nationalized commercial bank.
NBP is working as right arm government of Pakistan as it is responsible for all claims of government for recovery as well as payment. All depositor of NBP are in relief that their money security is guaranteed by government of Pakistan.
It acts as an agent of the Central Bank wherever the State Bank does not have its own Branch.WEAKNESSES
NBP staff especially at lower considers their work as burden. They usually waste time in other task a part in performing their duty. Using government property for there own need. They are reluctant to accept change brought by latest restructuring efforts.
The general out look and interior layout of branches are not as required according to modern banking
NBP bearing up large burden in running those branches, which are not producing any income but keep on adding expenditure.
NBP is relying on its traditional sources of income it has not taken benefit from innovation in banking like introducing retail banking or consumer banking and using any type of scheme to generate more deposits and producing more advances. Further, more don't even continue its credit card due mismanagement and lack of control.
NBP is far behind in offering modern banking facility like automated teller machines then other commercial bank in Pakistan as only eighteen branches in all over country have this facility.
NBP has only forty-four on line branches. While from remaining branches data gathering is time consuming, and not fool proof. Quantum of settlement within different branches is pending because of this updating daily record is becoming very difficult.
Customers have to fallow long lengthy procedure for opening of account as well applying for debt. Which discourage most of the people to invest in NBP.
In NBP, most of the time merit not has importance in hiring of employees. Such practices are black spot on the face of bank and resulted big losses and fraudulent acts by NBP own employees.OPPORTUNITIES
Reorganizing efforts going on in the NBP has open many opportunities for NBP to grow. NBP current management has boarder vision. They have taken steps to improve customer services, streamline internal procedure and creating a delectating climate for technology initiative.
To achieve above mention objective they have created operation group
Starting of the retail banking initial working.
Setting of target for of making at least 300 branches country wide on line.
Closing of all those branches, which are burden on NBP.
Management to offer specialized services to major corporate including advisory and debt syndication introduces the concept of relationship manager.
Comprehensive training programs has been develop to up grade the core banking skills of the existing staff as well as integrate high quality hiring.
To improve the motivation of staff a merit-based culture is being promoted. Through overhauling the manpower recruitment preservation and performance appraisal system.
These actions taken by current management provide a great opportunity for NBP for making it future prosper and can make NBP not less than any modern commercialize bank in Pakistan.THREATS
Following are the major threats which national bank of Pakistan is facing:
Major threats NBP facing is from its competitor especially from denationalized commercial bank. In which MCB is on the top of the list, The Bank provides 24 hour banking convenience with the largest ATM network in Pakistan covering 15 cities with over 100 ATM locations.
Retail banking and consumer banking resulting in the products such as credit cards, housing finance and automobile finance lending to small individual consumers, and purchases of automobiles, housing, and consumer goods are generally made on a cash basis. These are causing another threat, if not counter will result in significance loss of customers
Recently banks and other financial institutions have introduced innovative schemes to attract deposits, like gift checque scheme by MCB. These schemes offer prizes on short and long term fixed deposits, through lucky draws.
Recently banks and other financial institutions have introduced innovative schemes to attract deposits, like gift checque scheme by MCB. These schemes offer prizes on short and long term fixed deposits, through lucky draws.
Now banks are using technology which covers the distance no matter how far away any one, through a satellite based, on-line real-time banking system and by offering telephone banking, electronic funds transfer, E-Banking and other modern facilities.
NBP major fault is that wasn't keep its pace with on going changing in banking industry unlike other bank. Now this bank combining all it power and trying to approach other banks.
Latest reorganizing efforts are necessary to make it cost effective also making its facility accordingly to modern banking. These must continue.
Bank management has to put its all effort to change the prevailing culture of the bank and to put the foundation stone of business oriented culture. In which employees give important to the bank and its customer.
To attract the customer in the future NBP have to make extensive effort to give facilities of retail and consumer banking. Plus the technology in the banking which will be necessary for future banking is another week area need to be stressed.
The outlook and interior lay out of the branches is another thing which needs to be improved.
The procedure of taking services from the bank must be made easier and straight forward not involving long difficult procedure for simple task.
To remain in the market bank need to be vigilant in the eyes of customer. One way is through promotion efforts, so that people aware about he services of the banking and any addition which the bank as made in the portfolio of its services.