A detail study on role and importance of commercial banks

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A detail study on role and importance ofCommercial banks


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POST MID Project of MONEY BANKING FINANCE

PRESENTED BY

TEAM A

TEAM MEMBERS:

NAME ROLL

No

1. SHAHRUKH KHAN (L)

8334

2. SHAHRUKH KHAN

8332

3. ABDUL RAUF

8335

4. NOMAN8354

5.ZEESHAN TARIQ

8306

COURSE B.B.A 3RD

SUBMISSION DATE

12th May 2009

PRESENTED TO

Miss Habiba

A D E T A I L S T U D I O N C O M M E R C I A L B A N K S A N D I T S I M P O R T A N C E

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Contents

1.executive summary

2.history of bank

3.primary and secondary functions

4. types of loans and their procedure

5. types of account the bank offers

6. references


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executive summary

The project is mainly about Commercial banks and their

importance in todays world. In order to work in detail upon this

project the information is obtained and collected by directly

going into field which includes a tour to commercial bank BANK

AL- HABIB . There interviews are conducted from the branch

managers and procedure and requirements for obtaining short

term and long term loans were known about, plus with that the

types of accounts they are offering with respective opening

amounts were obtained also .Types of short term loans and

there tenure in detail are discussed in project and forms

required to obtain all types of loan are attached at the end of

the data.


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History:

The Bank AL Habib Limited run by the Dawood Habib family

group of companies is one of the growing banks in Pakistan. It

was selected as one of the top 200 Best Under A Billion

companies by Forbes Asia in their annual review of 2005. Thebank's head office is located in the city ofMultan in Punjab, but

its principal office is located in Karachi. Presently, the Bank has

a network of more than 200 branches in all the major cities of

Pakistan. Habib Group were pioneers in introducing banking to

Pakistan. Their involvement in banking services dates back to

1930s. They successfully launched Habib Bank, which was

nationalized in 1971 and is still one of the largest banks inPakistan; since 2002 it has been jointly owned by the

government and with the Aga Khan Fund for Economic

Development. After the privatization scheme announced in 1991

by the Pakistani Government, Habib Group were the first to be

granted permission to start a private bank, the Bank AL Habib

Limited.

Currently:

Principally engaged in the business of commercial banking with

a network of 175 branches, including a wholesale branch in the

Kingdom of Bahrain and a branch in Karachi Export Processing

Zone. The Company also operates four Islamic Banking

branches. The Company offers Internet banking, consumer

banking and commercial banking.


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http://en.wikipedia.org/wiki/Pakistanhttp://en.wikipedia.org/wiki/Forbeshttp://en.wikipedia.org/wiki/Multanhttp://en.wikipedia.org/wiki/Punjab_(Pakistan)http://en.wikipedia.org/wiki/Karachihttp://en.wikipedia.org/wiki/Habib_Bankhttp://en.wikipedia.org/wiki/Aga_Khan_Fund_for_Economic_Developmenthttp://en.wikipedia.org/wiki/Aga_Khan_Fund_for_Economic_Developmenthttp://en.wikipedia.org/wiki/Pakistanhttp://en.wikipedia.org/wiki/Forbeshttp://en.wikipedia.org/wiki/Multanhttp://en.wikipedia.org/wiki/Punjab_(Pakistan)http://en.wikipedia.org/wiki/Karachihttp://en.wikipedia.org/wiki/Habib_Bankhttp://en.wikipedia.org/wiki/Aga_Khan_Fund_for_Economic_Developmenthttp://en.wikipedia.org/wiki/Aga_Khan_Fund_for_Economic_Development


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Primary and secondary functions of the bank

Primary functions:-

There common primary functions which are used by the bank

are as follows:-

1)To accept deposits at lower rates.2)Use these deposits by lending to people at high rates3)Earn from this lending

Example:The primary function can be further explained by an example.

Suppose the deposit is accepted by Mr. X in Bank Al-Habib for Rs

100,000 at 5% profit. The money taken from Mr. X by Bank Al-

Habib is landed to Mr. Y at 15% interest, from this 15%, 5% is

given to Mr. X as a profit and remaining 10% is earned by thebank.

4)The primary function of a bank is also that it acts as asubsidiary of central bank. In Pakistan, State bank ofPakistan act as the central bank.

Secondary functions:-

The secondary functions which are used by the bank are as

follows:-

1)Bank accepts all utility bills.2)It issues guarantees on behalf of a customer.3)Support in foreign trade.4)Support foreign exchange earnings/transfers.

5)Opening of letter of credit.6)Issuance and distribution of the currency to general public

on behalf of State bank of Pakistan.A D E T A I L S T U D I O N C O M M E R C I A L B A N K S A N D I T S I M P O R T A N C E

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Types of loans

Long term loans:

Long term loans are those type of loans which is for more than 1

year or it is repayable after 1 year. Bank Al-Habib provides Long

term loans in which the time duration is from 1 year to 20 years.

Basically Long term loans are granted for the purchase of

machinery etc it is done on capital expenditure. It is granted to

the limited companies and it is not granted to the individuals.

Mark up rate is linked with the KIBOR system and it is charged

basically at the rate of 6 months. It means that whatever the

KIBOR rate will be after 6 months the customer have to pay it to

the bank and it is done after the confirmation of the customer.

The Long term loans can be further explain by an example.

Suppose there is a company who takes Long term loan of about

10,00,000 Rs at 15% Mark up and agreed to pay all the money

after 5 years. As 15% of 10,00,000 Rs is 150,000 Rs so the total

repayable will be about 17,50,000 Rs. The bank divide this

amount in 60 installments and according to it the customer has

to pay about 29,166 Rs per month. The installments can be

based on monthly, quarterly, bi-annually or annually, it depends

on the customer what he choose.

Procedure for taking Long term loans:-

The procedure for taking Long term loans includes:-

1)Customer application2)Banks internal Formats which includes BORROWERS

BASIC FACTS SHEET3)After going through the above steps the branch forwards

the case to the higher authorities,4)Higher authorities approves the case and return it to the

branchA D E T A I L S T U D I O N C O M M E R C I A L B A N K S A N D I T S I M P O R T A N C E

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5)Upon receipt of approval branch disburses the Long termloan to the customer.


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short term loans:

Types of short term loans :

There are basically two types of Shortterm loans:-

I. Fund Based LoansII. Non-Fund Based Loans

Fund based loans:

Fund Based Loans are that types of loans which are directly

credited or put into the customers account.

Non fund based loans:

Non-fund Based Loans are that types of loans which are not

credited or put into the customers account.


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Procedure followed in giving away short term loans:

Bank basically provides various types of Short Term Loans in

Fund Based Loans and Non-Fund Based Loans.

In Fund Based Loans Banks provides:-

There are 6 types of Fund Based Loans which is provided by

Banks:-

I. Running Finance\Cash Line LoansII. Finance against Trust Receipt (FATR)

III. Finance against Imported Merchandise (FIM)IV. Term FinanceV. Staff LoanVI. Consumer Loans

Running Finance\Cash Line Loans

This is the most common type of Short Term Loans which is

provided by Bank. In term of giving Running Finance\Cash Line

Loans there is no actual limit. They do not have any minimum or

maximum terms of loans. In term of banking the loans is usually

known as LIMIT. Limit is usually based on security values. The

worth of the security counts the most, higher the value of the

security higher the limit is given by the bank and same in thecase of security having lower value.

Types of securities

The types of securities taken against giving the limit by

Banks are as follows:-

I. Hypothecation of Stock

II. Mortgage of Property


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Hypothecation of stock:

In this type of security, the customer who is in the

manufacturing\production business and the stock which is used

in the manufacturing\production is under the ownership of the

bank and the custody of the stock is with the customer, the limit

is given to the customer according to the value of the stock. The

customer uses the stock and with the help of the earnings, he

pay back the limit to the Bank.

Mortgage of property;

In this type of security, the limit is given to the customer against

having the right of Mortgage of the property. The property can

be Commercial, Residential and Industrial. If the customer is

unable to pay back the limit under the time period, the Bank has

the right to sell their property and cover up their loss.

Basically, Bank provides 70% limit against the value of the

security for e.g. the value of the property is 100,000 so the Bank

will give 70,000 limits, but 70% limit is only given to the trusted

customer. If the new customer wants to get limit the Bank give

50% limit against the value of the security.

Finance against Trust Receipt (FATR)

It is the type of limit which is given to the customer on the basisof the trust of a powerful body it can be any organization,

company, industry etc. They confirm the bank that the limit

taker will pay back the limit in the given time.

Finance against Imported Merchandise (FIM)

It is the type of limit which is given to the customer who is in the

import\export business. The Bank gives the limit to the customer


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on the value of the product which he is importing from the other

country.

Term finance:it is the type of limit which is given to the customer in the form

of installment. Installments can be paid in 1 year to 5 years. It

can be called Short term Loans and as well as Long Term Loans.

Staff loans:

There are 3 types of limits in Staff Loans:-

I. House LoanII. Motorcycle LoanIII. Staff Personal Loan

But only Staff Personal Loans is only the Short Term Loans.

Other two types are the Long Term Loans.

Staff personal loans:

It is the Loans which are given to the Staff members of the Bank

by Bank and the time duration of the limit is 1 year. So, the

employee has to pay it to the Bank within 1 year time.

Consumer loans

There are 3 types of limits in consumer Loans:-

I. Auto Loans\ Car LoansII. Personal LoansIII. Credit Cards

Auto loans:A D E T A I L S T U D I O N C O M M E R C I A L B A N K S A N D I T S I M P O R T A N C E

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It is some kind of a Short Term Loan because some of the

customer takes the limit to buy a Car for the time period of 1

year, but the time period can be exceeded to 5 years.

Personal laons:

It is also some kind of a Short Term Loan because some of the

customers take it for the time period of 1 year but it can also be

exceeded to 5 years.

Credit cards:

It is a type of a Short Term Loan by which customer uses the

money and pay back the cash after every monthly basis.


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In non fund based loans BANK AL-HABIB provides:

There are two types Non-Fund Based Loans:-

I. Letter of Credits (L\Cs)II. Letter of Guarantee (L\Gs)

Letter of credit (LCs):-

It is the type of Non-Fund Based Loans in which the customer

pays to the other customer through the Bank. It can be further

explain by the following example. Suppose, there is a buyer who

import products from the seller who live in the other country andto pay the seller the buyer involve the Bank to pay him and the

seller also involve the Bank of his country. The seller send a

letter which is known as LETTER OF CREDITS in which the

seller tells his condition to the buyer that at what rate he is

going to sell his product if the buyer accepts it. He shows it to

the bank and the bank send it to the seller Bank and the money

is transfer to the Seller account. There are two types of Letter ofCredit:-

I. Letter of Credit (sight)II. Letter of Credit (Usage)

Letter of guarantee (LGS):-

It is the type of limit in which some company giveTenders\Forbids to other agencies to do. If the company does

not have trust on the agencies they ask them to involve the

Bank in the matter. If the Bank gives the guarantee the deal is

done.

DOCUMENTATION FOR FUNDED\NON-FUNDED LOANS:-

I. Customer written request\applicationII. Letter of Authority to recover Mark Up


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III. Undertaking of STATE BANK OF PAKISTANIV. BBFS BORROWERS BASIC FACTS SHEETS


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Type

s

Fund

based

Non-

fund

based

Fund

money is

directly

involved

Fund

money is

not

directly

involved

Funds are

credited/p

ut into

customer

account

Funds are

not

credited/p

ut into

customer

account

Letter

of credit

Letter

of

guarant

ee


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Types of accounts offered by Bank Al-Habib

The types of accounts which are offered by Bank Al-Habib are

as follows:-

1)Young saver account2)PLS saving account3)Al-Habib treasures Call4)Al-Habib Growth certificates5)Super saving account6)Mahana munafa account7)Senior citizen account8)Salana account

Young Saver account:-

This is an account for Young Savers of up to 18 years.

Visit the nearest Bank AL Habib branch with your

parent/guardian to open your Young Savers Account. You

can open an account with as little as Rs. 5/=. Rate of return on

Young Savers Account is expected to be well above the returnon normal savings accounts. Currently indicative rate of return

on balances up to Rs. 500,000 is 10% P.A and for balances

over Rs. 500,000 is 5% P.A, payable six monthly. Young

Savers Account will have Internet Banking facility and ATM

Debit Card available to your parent/guardian. Young Savers

of 16 years and more will also be eligible to receive ATM Cards

and can withdraw money through ATMs, if specificallyauthorized by their parents/guardians (certain conditions

apply). Until you the Young Savers are a minor, i.e., below

18 years, the account will be operated by your

parent/guardian. When you attain majority, the balance in the

account will be transferred to a new account which you will

open and operate after completing required formalities,

including the concurrence of your parent/guardian. Bank


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officers will also visit your school to help you open Young

Savers Account and collect your deposit.

PLS saving account:-

features of PLS Savings Account:

Profit is paid out to your Account on six-monthly basis.

There is NO Minimum Balance requirement for PLS

Savings Account.

The indicative Return Payable on "PLS Savings Account"Free Life and Disability Insurance cover for

accountholders.

Features of Monthly Profit Plan :

This plan adds to the earning ability of your PLS Savings Account

with Bank AL Habib.Your profit is paid out / credited every month to your Account

instead of six-monthly as in case of PLS Savings Account. NO

Special forms or applications, NO Minimum Balance

requirement.The indicative Return Payable on "Monthly Profit

Plan" deposits with effect from July 01, 2008 is 5.00 % per

annum. Free Life and Disability Insurance cover for account

holders

Al-Habib treasures Call:-

Corporate societies, trusts and even individuals have large funds

which are generally idle. Such funds can be put to work to earn

handsome profits via the AL Habib Treasurer's Account. This

plan is open to Current Deposited Account. Access to such funds


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requires only a 24 hour notice. Profit is calculated on a daily

product basis and credited to your Account monthly.

Al-Habib Growth certificates:-

Bank AL Habib has now introduced 5 Years Growth Certificates

for its customers which are for a longer tenor at very attractive

rates. Receipts may be issued on PLS Term Deposit Receipts

clearly marked 5 Years Growth Certificates.

Tentative Profit rate: Profit Ra

Term Rate

1st 6 months 6.00%

2nd 6 months 6.50%

3rd 6 months 7.00%4th 6 months 7.50%

5th 6 months 8.00%

6th 6 months 8.50%

7th 6 months 9.00%

8th 6 months 9.50%

9th 6 months 10.00%

10th 6 months 10.50%

Super saving account:-

Profit is paid to your account on a quarterly basis. Minimum

Deposit in the Account must be 500,000 or above.A D E T A I L S T U D I O N C O M M E R C I A L B A N K S A N D I T S I M P O R T A N C E

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Mahana munafa account:-

Mahaha Munafa Account can be opened with an amount of Rs.

25,000/-. Profit will be paid on the 1st working day of each

month. 90% financing allowed against deposit. Free ATM Card

Deposit will be rolled over on maturity for same period at

prevailing rates unless otherwise requested by the customer.

Profit may be drawn through Cheque or ATM at any branch of

Bank AL Habib. Profit is subject to Zakat, Withholding Tax and

other Government Levies unless exempted. Premature

encashment will attract penalty as per rules.Transfer of old to

new deposit will only be allowed with penalty @ 2.00 flat as per

applicable Mahana Munafa Deposit Rules.

Senior citizen account:-

In case of a joint account the Senior Citizen will be the primary

account holder and other joint account holders must be between

18 and 60 years of age. Profit will be paid on the first working

day of the next month Up to 90% financing allowed against

deposit.. The indicative return payable on "Senior Citizen's

Account" deposit effective November 01, 2008 is 11% per

annum. Free ATM Card. Profit may be drawn through Cheque or

ATM from any branch of Bank AL Habib. Profit is subject to

Zakat, Withholding Tax and other Government Levies unless

exempted.

Salana account:-

AL Habib Salana Account is a deposit account and can be

opened with Rs, 25,000/-All other rules applicable to PLS Savings

account will also apply to AL Habib Salana Account inculding

Zakat, Withholding Tax and other Government Levies unless

exempted.If the deposit is encashed before maturity, profit willA D E T A I L S T U D I O N C O M M E R C I A L B A N K S A N D I T S I M P O R T A N C E

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be calculated and paid for the period held at the rate applicable

to Savings Account.AL Habib Salana Account profit is paid on

yearly basis.The indicative return payable on AL Habib Salana

Account deposit effective March 01, 2009 is 12% per annum.Up

to 90% financing allowed against deposit.


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Information collected from

BANK AL-HABIB Ltd

Branch: Bilal ganj, Lahore

Branch Manager: Mr. Khalid Javed Syal

Reference: Umer Farooq (officer grade -ii)

Date: 20th February 2009

Contact

Head office

2nd Floor Mackinnons Building I I Chundrigar RoadKarachi,Pakistan+92-21-2412986 (Phone)+92-21-2425423 (Fax)

A detail study on role and importance of commercial banks

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