NBP FINAL REPORT

7/29/2019 NBP FINAL REPORT

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MOHI UD DIN ISLAMIC UNIVERSITY, I-9,

ISLAMABAD

DEPARTMENT OF MANAGEMENT SCIENCES

INTERNSHIP REPORT

BANK ALFALAH LIMITED

Submitted BySaad Ur Rehman

MBA Finance

Session 2010-2012

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Chapter No.1

Objectives of studying the NBP

Here are the some important objectives of the is as follow

The main objective of studying the National bank of Pakistan is to know how to work

in the bank.

The objective of studying the National bank of Pakistan is to aware the different

working sectors of bank.

The objective of studying the National bank of Pakistan is to know that how to attract

the customer and who to behave.

The objective of studying the National bank of Pakistan is to make good relations

with the staff of bank and the other customers.

The objective of studying the National bank of Pakistan is to work and learn more and

more from the departments where I work which will be helpful for in the future.

The objective of studying the National bank of Pakistan is to build the basic concepts

about the banking sector.

The objective of studying the National bank of Pakistan is to learn who to apply

theories which I study in the books.

History of National Bank of Pakistan

The establishment of National bank of Pakistan came into being due to the reason when at

that time newly born country was facing the economic crises.

So, National bank of Pakistan established on November 8, 1948 through a

special ordinance in the National Assembly. National bank of Pakistan was established toprovide finance to suitable parties.

Thus it came about that National Bank of Pakistan stood behind the jute trade

and State Bank of Pakistan behind the National Bank, and government stood behind the State

Bank. It was all organized so rapidly (six branches came into being at once) that any doubt

that might have lurked in the minds of outsiders about Pakistans ability to tackle the

situation were dispelled once and or all.

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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.

National Bank of Pakistan, besides providing the general banking

services is also acting as an agent to State Bank of Pakistan, in areas where State Bank of

Pakistan does not has its own branches. National bank of Pakistan is working with the State

Bank of Pakistan in effective implementation of the credit policies that have been formulated

from time to time by the government and State Bank of Pakistan to control and monitor the

fiscal and monetary situation in the country.

In January 1964, the bank started its well-known peoples credit scheme. Thescheme was designed to provide financial assistance to the smaller businessmen on easy and

liberal terms. It was welcomed all aver the country and has been of considerable service ever

since. Its major objective was to build a strong middleclass, which is a powerful guarantee of

social stability in an otherwise uncertain world.

In the deposits area the bank is providing special accounts such as PLS Term

Deposits (Monthly Income account), which provides a monthly with draw able return on the

account. And there is a National Income Daily Account, carrying hybrid characteristics ofsaving and current accounts, distributes all profits on daily product basis to the account

holders. The bank is trying to revolutionize the services that are provided over the counter

and is working for an early change in all the branches of the bank.

The introduction of a new set of services in shape of foreign currency accounts

has further given a sharp rise in the banking field. This has made easy for the foreigners

residing in Pakistan to be encouraged and make the inflow of foreign exchange in the country

more stable. This new service, though shaken its importance after undue freezing of all

accounts in 1998 have spread a situation of non-confidence among the masses, still these

accounts are increasing in number.

The management is considering the fact and doing planning for the sake of getting it through

these unjustified pressures but still not been able to implement them in good manner. This is

a further disturbed by the demotivated and unqualified staff that is working with the bank.

To be able to regain the level of performance and profitability the bank has to take serious

measures to escape from the political influence, build a competent and qualified pool of

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employees, make all possible efforts to introduce the modern technology that is serving the

banks in the world and to enhance the confidence of the customer, are necessary steps be

taken by the bank.

Nature Of The Organization

National bank of Pakistan is working as a commercial bank and also providing specialized

services to the government and State Bank of Pakistan. The bank was nationalized with other

major banks in early seventies and since then being a government owned organization it has

not been able to gibe a remarkable performance. Further, the privatization of other banks has

also created a stiff environment in the banking industry.

National Bank of Pakistan, besides providing the general banking services is also

acting as an agent to State Bank of Pakistan, in areas where State Bank of Pakistan does not

has its own branches. National bank of Pakistan is working with the State Bank of Pakistan in

effective implementation of the credit policies that have been formulated from time to time

by the government and State Bank of Pakistan to control and monitor the fiscal and monetary

situation in the country.

National Bank of Pakistan currently has a wide network of branches inside the

country and in all commercial centers of the world as well. Through this huge network ofbranches the Bank is providing all sorts of services that have become part of the modern

banking. Nation Bank of Pakistan successfully adopts new innovations and new products,

which are rapidly adding up in the product mix of banking industry.

The Bank is providing deposits facilities to more than five hundred thousand customers in the

country and which is increasing by the time. The bank has been providing a service to the

government of making salary payments to all government employees on behalf of the

government. These payments are sent to the bank for distribution from the provincial

divisions of all concerning departments.

Product Lines Of The Organization

The product line of the National bank is as follow:

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Monthly income scheme

in the monthly income scheme the amount of investment required from Rs. 20,000/- to Rs.5,000,000 and the investment period is 5 years and the bank is offering free Demand Draft,

Pay Order and NBP Online Aasan Banking, Free Cheque Book / NBP Cash Card (ATM +

Debit) and financing facility available up to 90% of the deposit value.

PLS Saving Account

NBP offers to earn up to 7.25% p.a. on the minimum saving balance of Rs.

20,001/- & a maximum balance of Rs. 300,000/- Free NBP Cash Card (ATM + Debit). It

convenience of NBP Online Aasan Banking (for online banking customers) and two debit

withdrawals allowed in a month & no limit on number of deposit transactions and also profit

calculated on monthly and paid on half yearly basis.

Mera Apna Karobar

NBP offers the minimum down payment, 10% of asset price (5% for PCO &

Telecaster) with tenure of 1 to 5 years (for PCO 2 years) with grace period 3 month. The

maximum loan amount is Rs. 200,000. For the purpose of loan the age limit is 18-45 years.

Home Financing

NBP offers financing facilities for home purchase, for home construction, for

home renovation and for purchase of land + construction.

Personal Loan

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NBP offers personal loan facility on easy installments of 1 to 60 months at

your choice and no minimum income collateral & insurance charges required, quick

processing and fastest disbursement. The product is for permanent employees of

Government, Semi Government

and Autonomous bodies receiving salaries through NBP accounts

ATM + Debit Card

Use it as an ATM in any of the ATMs in Pakistan and alsi use it as Debit

Card in any of the outlets with ORIX POS machine and you can withdraw cash up to Rs.

20,000/- per day.

Financing Facility for Stock Investors

NBP offers a very comfortable environment for trading, no security

requirement, except for the customers equity, customers equity freely available for

investment and equity acceptable in cash or approved shares

Ready Cash Against Gold

NBP offers the facility of Rs. 10, 000/-against each 10 gms of net weight of

Gold Ornaments and no maximum limit of cash and repayment after one year.

Agriculture Farming Program

NBP offers a very competitive mark-up rate on agriculture farming program

and it has quick & easy processing, delivery at the farmers doorstep, technical guidance to

farmers, wide range of financing schemes for farmers and finance facility up to Rs. 500,000/-

for landless farmers against

personal guarantee.

Organizational Structure

Clerical Staff

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Assistant,

Sr. Assistant,

Godown Keeper,

Godown Inspectors,

Cashier,

SR. Cashier,

Head Cashier,

Where as the non-clerical staff can be categorized as follows:

Branch set up

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Structure of the NBP

The National bank of Pakistan is a well organized bank of the

Pakistan. In NBP there is a link between the employees of the bank. Every employee is

working under the senior employee. So in the NBP there is a branch hierarchy where there is

a Vice President which has a link with his assistant and the Assistant of Vice President has

three types of officers which have three grade officers which are OG-1, OG-2, OG-3, and

then there is messenger then peon and then sweeper in the branch hierarchy.

In the above category of NBP there is President, , Member of Board,

Senior Executive Vice President, Executive Vice President and then the Senior Vice

President.

Finance and Accounting Operations of NBP

The role of finance and the accounts department is to manage then

different account of customers and the employees of bank. Here are the following types of

accounts which bank manages on the behalf of customers and the employees.

Current account

In current account there is no interest on it. It is for only transaction purposes.

They are paid on demand. When a banker accepts a demand deposit, he incurs the obligation

of the paying all cheques drawn against him to the extent of the balance in the account. As

there is no profit paid on this account it is also called checking account because cheques can

be drawn on it. Current account is mostly opened for business. The minimum amount for

opening the account is Rs.100/-.

Saving account

The purpose of this account is to induce the habit of saving individuals in the

neighborhood. The profit on PLS saving Accounts in NBP is checking accounts paid on the

basis of profit and loss calculated after six month. The minimum deposit for opening the

account is Rs.100/-.

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Notice Deposits

Notice Deposits are kind of fixed deposits. The minimum balance requirement for

opening the account is Rs.5000/- and payment is drawn on maturity of the specific period.

Notice Deposit is of the two kinds:

One for which a prior notice of 7 days is required from the customer

before with drawing deposited amount and for which rate of return (ROR) is

the 7 days rate.

Second for which a prior notice of 30 days is required from the

customer before with drawing the deposited amount and for which rate of

return (ROR) is the 30 days rate.

These rates are more than the saving rate but less than the rate calculated after six month.

These are one-year deposits and the rate of return (ROR) is supposed 7%. If person withdraw

the amount before maturity, suppose 7th month then we charge him the saving rate, which is,

suppose 4% and the remaining 3% is our recovery.

Term deposits

A term deposit is a deposit that is made for a certain periods of time (not more

than 5 years). At the end of the specific period, the customer is allowed to with draw the

principle amount.

The term deposit account rate varies after six month and rate is depend upon the

period of term deposits, as period is increased the rate is also increased and the minimum

balance requirement is Rs.1000/- but no maximum limit. Prior A/C is not required for term

deposits.

Role of Financial Managers

Role of the financial managers in establishing or maintaining the

relationship with the other financial institutions in terms of accounts, cash management and

the credit management is very important. Because the dealing with the other financial

institutions is very important so that the relation with the other bank for the purpose of

solving the finance problems and for the purpose of making some of important decisions. So,

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that financial manager can take its intuitions on the peak by creating good relation with the

other financial intuitions.

The financial manger should manage the cash that he can use it for the

purpose of short term financing of for long term financing and in term of cash financing. In

this term 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 are

based on the number of days a specific amount is withdrawn. This finance is normally

borrowed by small traders or individuals for their petty matters involving cash transactions up

to rupees three hundred thousand maximum. These are normally for the seasonal business

like cotton, which have 6-8 month business.

Use of Electronic Data in Decision Making

National bank of Pakistan District Court Branch is using different types of

software for the purpose of getting control on the transactions of the bank and in making

decision making. In NBP there is use of Internet because of it the branch is online and can

make transactions and transfer or receive money from the every corner of the country.

National bank of Pakistan is using accounting software in the accounts

department to mange the accounts and it is locally build software by the local software

making company. National bank of Pakistan is also using remittance software in the

remittance department and it is also locally build software from Mahmood software company

S.P chock Multan. National bank of Pakistan is also using SWIFT which is very helpful for

the bank.

Sources, Generation and Allocation of funds for National bank of

Pakistan

Sources of funds for the National bank Of Pakistan is revenue, deposits, advances,

investments, lending to the financial institutors, net mark-up / interest income, fee,

commission and brokerage income, Income from dealing in foreign currencies, and gain on

sale of securities. These are the sources of funds and income of the bank.

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Chapter No.2

ACCOUNT OPENING DEPARTMENT

Borrowing funds from different sources has become an essential feature of todays business

enterprises. But in the case of a bank borrowing funds from outside parties is all more vital

because the entire banking system is based on it. The borrowed capital of a bank is much

greater their own capital. Banks borrowing is mostly in the form of deposits. These deposits

are lent out to different parties. Such deposit creation is done through opening an account in

the bank.

ACCOUNT OPENING PROCEDURE

For the checking accounts (C/A, S/A), there are different types of account

holders are required. The operation / procedure requirement that is needed for Individual

Account differ from Joint, Proprietorship, Partnership, and Limited Company A/C

as explained below.

INDIVIDUALS ACCOUNT

When a single man or woman opens an account in his/her own name and has

the right to operate it is called individual account.

Documentation

All the peoples are required to bring a copy of their NIC and Illiterate persons are

required to bring three passport size photos as well.

JOINT ACCOUNT

When two or more persons, neither partners, nor trustees, open an account in their

name is called joint account. Husband and wife or two persons of same sex can open joint

account.

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Documentation

For joint account copy of N-I-C Card of all the persons is obtained other things

remaining same as in individuals account.

OPERATION

The person checks the type of account and type of operation required in the

respective box on the form.

The persons fill in the Part-I and Part-II in the form.

Signatures of both persons are obtained on the form in the area specified for

signature and SS Cards.

In the title of account space names of all persons are maintained.

Accounts holder specified in the form that they would operate the account

singly or jointly.

PROPRIETORSHIP ACCOUNT

When the owner of the firm operating singly, opens an account in his firm name,

this account is called a proprietorship account proprietor himself liable for all his acts.

Documentation

For this kind of account, an application for opening the account on the firm letter

pad (having the firm name) is required along with the N-I-C Card of proprietor.

OPERTION

All operation remains the same except that the firm name is written in the Titleof the Account area and signature of the proprietor are affixed in the SS Card and the area

specified for signatures on the form.

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PARTNER SHIP ACCOUNT

The account is opened in the firm name and all partners designate one or two

persons to act on behalf of the partnership firm all acts on behalf of firm. The partners in thepartnership firm are liable for the acts of the firm jointly and severely.

Documentation

Application to open the account on the firm letter pad.

Copy of N.I.C. Card of all partners.

Partner ship deed in case registered partnership firm.

Letter showing the implied authority of one or more partners to act on behalfof the firm.

In case of non-registered partnership firm, undertaking on behalf of the firm to

remain liable for all acts of the firm.

Names, addresses of all partners are written on the pad.

OPERATION

All other requirement remain same except that the form is dully signed by allpartners cards are signed by all those partners who will act on behalf of the firm and along

filling Part-I, Part-IV is also filled.

LIMITED COMPANY ACCOUNT

These are normally operating only the current account not saving account.

Documentation

Memorandum of Associations.

Articles of Association.

Resolution of the Board of Directors.

Certificate of Incorporation.

Certificate of Commencement of business.

N.I.C.

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OPERATION

The person authorized in the resolution of the Board of Directors put their signature

on SS Cards. Annexure-A (Next to kin) requirement is not need in case of a limited company.

After completing all these formalities, introducers signature is verified. Customer signatures

are admitted by stamping Admitted near signatures and again signatures on SS card are

admitted in the same way. The same process of verification and admission of signature is

repeated on the F-559 and signature on next to kin area.

After completing each and every formality, signatures are taking by all those partners who

will act on behalf of the firm and along filling part-I, part-IV of the form.

LETTER OF THANKS

At the end, after opening the account, NBP issues letter of thanks to Account

opener and Account introducer for the trust they have on NBP at the same day. The

purpose of this letter is to check the address of both the parties for future contact.

STAMPING POSTED

After completing all this process, the forms are signed from managers of the

branch after which these forms are stamped across as POSTED on one corner of the front

side of the form. And these form are sent for posting in the computer, then they are posted in

the respective. Account Opening File.

PROCEDURE FOR OPENING OTHER ACCOUNT

Notice Deposit

The procedure for issuing Notice Deposit in NBP is as follows:

The customer comes to the bank and specifies the number of days for which

he wants to deposit his money in Notice Deposit.

The credit voucher is made for the amount of cash to be deposited the

presence of account is not necessary.

The officer then fills the notice/deposit form. The date of opening, the period,

the name of the customer, the signatures etc. are all written on the form.

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The Notice Deposit receipt is filled accordingly. All the requirements are

carried out the signature of the customer and the authorized officer, the stamp

of the bank etc.

The number of the Notice Deposit form and Notice Deposit is noted receipt is

then given to the customer.

The Notice Deposit receipt is then given to the customer.

The number of the Notice Deposit form and Notice Deposit receipt is noted in

the Notice Deposit register.

After completion of the form, it is posted in the Notice Deposit file.

A 0.2% tax on the principal amount is taken while issuing the receipt.

A credit voucher made and the amount is credited to the tax on ND.

Term deposit

Any person can open a term deposit. He needs not have an account in the bank.

The procedure is the same as that of the Notice Deposit.

Other responsibilities of account opening department

Account closing

Account is closed on the written request of the customer NBP debits Rs.100/- as

incidental charges for closing the customer account from the bank. The account holder with

draws the amount by writing a cheque and just leaves Rs.100/- in his account.

ProcedureProcedure

The customer for individuals account writes an application to the manager of thebank on a simple paper about the closing of his account with the bank (In case of

proprietor ship partnership and limited company account the application should be

written on firm or company letter-pad).

The individual or in case of other type-proprietor firm and company surrender the

cheque-book to the bank.

The cheque-book is then torn from one side and is attached with the application.

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In case of Ltd. Company Account resolution of the board of directors is also

obtained to attach it with the application.

The account opening form of the account holder is taken from the account-

opening file, and the application, cheque-book, and resolution of board of

directors in case of limited company account are attached with the form.

Lastly, it is written in Red Ink on the form that account closed and Date of

account closing.

Then the form is put in the account-closing file.

Receiving inward checks

Another responsibility and function of account opening department is to receive

inward cheques for collection from other banks as well as of NBP. Then these cheques are

sent to clearing official who clears these checks at SBP from other banks.

Cheque-book issuing

Check books are issued only for checking account such as current account, saving

account. They are not issued for other fixed and term deposits because of their long-term

accounts nature.

When an account is opened, cheque-book is usually issued the next day, however

they too are issued on the same day of opening the account keeping in view the energy

requirements the account holder.

Cheque-books leaves vary with the nature of the account. For example, 50 leaves

and 100 leaves cheque-book are issued for current accounts depending upon the energy of the

account holder. Where as 10 or 25 leaves cheque-book are for saving accounts. 10 leaves

cheque-books are handed over to easily individuals account, holder.There is Rs.2/- excise duty carried on cheque-book leave.

Issuing Procedure

Signatures on cheque-book requisition are verified by matching with signatures on

SS Cards.

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Cheque-book leaves number, account number, account holders name are

mentioned in the cheque-book issue register and take the signature of the account

holder.

The name of A/C holder and date of cheque-book issuance is written on cheque-

book requisition and the account opening officer puts his initials on requisition

leave.

A/C number is stamped over the leaves of cheque-book and finally authorized

person affix his signature over the debit voucher of the excise duty and he voucher

is attached from the cheque-book and is handed over to the customer.

Everyday postingAt the end of each day, posting of cheque-books is performed, the account

department makes credit vouchers of excise duty on cheque-book leaves, and posts it in the

company.

Govt. collections

NBP is also entitled for the govt. collections including the Sales Taxes, Income

Taxes, Property Taxes, Professional Taxes, and WAPDA Bills, PTCL Bills, Sui Gas Bills as

well. All the taxes and bills are collected on the cash counter, cashier count the money and

received the voucher and put the stamp Cash Received and break the voucher in to two

parts and give one portion to the customer and one keep in the counter. Each types of taxes or

bills have a certain lot size when the lot size is completed the cashier send the lot of bills or

taxes to the account opening dept. and now the responsibility of the account opening officer

to prepares the separate Scroll for each categories of bills or taxes and make correctly the

subtotal or grand total. Then after the 1.30PM the cashier matches the total amount of all thebills and taxes and then account-opening officer makes the credit vouchers to transfer the

amount in to the concerned accounts.

At the end of each week the account opening officer calculate the weekly

commission or exchange on the collection of the bills or taxes and pass the debit voucher to

the concerned accounts.

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Other then bills or taxes the NBP is also entitled to pay the Pension to the retired

govt. employees after each month. When a pentionist come to the bank they present their

pension book to the officer, he will check the monthly amount to be paid and

Then he sees whether the payment is of one month or more. He will writes the amount to be

paid along with the date on the pension form. And also enter in the pension register, from the

register he verify the signature and also the person because the bank has a photograph of

pensioner on the register and put the stamp Signature Verified branch stamp and the stamp

that pay cash. Then the amount is checked an other officer and counter signs it and then

pensioner present the form to the cash counter and received the cash.

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Chapter No.3

CREDIT DEPARTMENT

The earning of a commercial bank is chiefly derived from interest charges on loans and

discounts it. Now loans are recognized as advances or finances. The advances are made

through the deposits that are kept in the bank by the customers. The bank pays profit on the

deposited amount and receives mark up on the advances made of different amounts. NBP

introduced the mark up based advancing in Jan1, 1985 when the Islamization of the economy

was influence under this system of advancing the bank is entitled to receive a constant sum of

money on the amount that is outstanding on the account of the party.

LENDING POLICY

This policy statement sets out the principles for Board of Directors who will

determine credit activity of NBP. The Board of Directors delegates authority to Credit

Committee to approve, to direct, and to review commercial lending of NBP to ensure its

efficiency and effectiveness. The policies are defined under the following headings.

CREDIT PRINCIPLE

The following principles are to be adopted for lending authority, approval,

monitoring and control on a basis consistent with NBPs operational objectives and business

stages.

AdministrationAdministration

The administration of the loan process should insure compliance with all laws and

regulations of regulatory authorities and the credit policy of the NBP. Lending where

repayment and performance on mark up or profit servicing deteriorates are identified at early

stage and closely monitored by the branches to avoid loan losses.

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CREDIT PORTFOLIO LIMITS

The nature of the credit portfolio is governed by guidelines set down by the credit

committee from time to time, which are in keeping with local regulatory requirement. These

guidelines are consistent with overall NBPs limits.

Total FacilitiesTotal Facilities

The aggregates of all the facilities shall confirm to regulatory requirement as

specified from time to time.

Term FacilitiesTerm Facilities

Aggregate term facilities for more than one year should not exceed 30% of credit

portfolio. Any facility for more than one year shall require prior approval of the credit

committee.

Unsecured FacilitiesUnsecured Facilities

The aggregate of all advances to a single person should not exceed than the

guidelines stipulated by the regulatory authorities.

Financing Against ShareFinancing Against Share

Where as credit facility will not be extended towards floatation of share capital of

Public Listed Companies, facilities will not be considered against unlisted shares. Where

facilities are considered against quoted share. Which are freely marketable, such financing

are subject to the margin requirement of the regulatory authorities or as determined by the

credit committee whichever being the higher.

Borrower Liquidity/ Leverage RatiosBorrower Liquidity/ Leverage Ratios

The branches must also ensure that the current ratio of the borrowers is equal to or

more than one. The debt- equity ratio should not exceed 60:40 except in cases where a debt-

equity ratio has been specified by the regulatory authorities. This condition may be subject to

change by the regulatory authorities.

Credit ReviewsCredit Reviews

All limits are subject to at least an annual review and where necessary branch

managers will forward half- yearly reviews. This review function is the responsibility of the

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branches that will submit periodic reports to the credit division immediately notifying any

change in environmental factors. The changes are assessed on expiry of limits or reassessed

before the scheduled periodic review whenever necessary.

CREDIT APPROVAL

The primary individual factor determining the quality of the banks credit

portfolio is the ability of each individual, counter party to honor, on a timely basis, all credit

commitments made to the bank. This must be accurately determined by the authorizing credit

personal prior to credit approval.

The credit approval process must be as follows:

Authority

Credit are extended in accordance with the authority levels approved/ delegated

by the Board of Directors from time to time; provided credit approval is required at short

notice rather than that at normal span, the proposal may be referred directly to the credit

division. The credit division has authority with the agreement of a quorum of the members of

with the appropriate credit committee, to extend the loan.

DocumentationDocumentation

It is the essential that the proposal defines clearly the purpose of the facility, the

source of repayment, the agreed repayment schedule, the value of security and the customer

relationship consideration implicit in the credit division.

The security to be accepted as collateral for the facility and all documentation relating to the

security of the facilities must be in the approved form. All approval procedures and required

documentation must be completed and security is perfected, prior to the disbursement of the

facility.

Credit Risk AssessmentCredit Risk Assessment

It is necessary to have a detail and complete credit risk assessment for each

facility. Customer relationship must not be over emphasized. It is the absolute responsibility

of the proposing officers and the branch managers to ensure that all necessary proposal

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documentation is collected before the facility request is sent to the credit division or

committee.

Prevention of Criminal Use of Banking ChannelsThe branch manager shall ensure that all credit facilities being proposed, every

efforts has been made to determine the true identity of a customer and in case of each

transaction the source of funds is established. The relevant Prudential Regulations applicable

must be compiled with before forwarding credit applications to the approved authority.

CREDIT ADMINISTRATION

The principle elements of credit administration are as follows:

Credit File Maintenance

Facility Evidence Maintenance

Credit monitoring and review

Facility Evidence Maintenance

All legal documents and register of security must be maintained at branch such documents

may include:

Signed credit agreement

Signed guarantees or other evidence of credit security or collateral agreements.

All concerned documents are held in the secure location.

Credit Monitoring

Responsibility

Responsibility lies in branch manager to monitor the overall profile and risk

aspect of the credit portfolio in accordance with criteria setout in Banks Credit Policy. This

review is held to judge performance responsibility of the manager to ensure at each credit

extension the portfolio complies with all limits set. The branch manager must provide a

classification summary to the Credit Division which include following information:

Total Facilities

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Term Facilities

Exposure to customer group

Unsecured facilities

Industry exposures.

He will provide a commentary on any local development, which may impact upon limit

setting and the risk of the credit portfolio.

Assessment

A formal assessment of each customer is carried out on a regular basis. If facilities

to any customer groups are booked in number of locations, a designate officer shall be

responsible for management of the Banks exposure to that customer group. Any

development in the customers circumstances, which may adversely affect the management

of the facility, and in particular the credit rating assigned to the customer must be

documented and advised by the manager.

PRINCIPLES OF LENDING

Once a customer decides to get a loan his interview with banks lending

officer is necessary, because this gives the customer the opportunity to explain his credit

needs. The bank officer can make a guess to assess the customers character.

When a request for finance is received it has to be ascertained:

Borrower has the legal capacity to borrow.

Banker must inquire the purpose of the advance.

Duration of the advances.

Source of repayment of the advances.

Preparation of the credit report.

The banker considers the following points important.

Safety & Character

Character, capacity, capital and collateral are the three basic credit factors of the

borrower to discharge his obligation in accordance with the term of the loan agreement.

Integrity is considered of vital importance. Careful observation of business will assist in

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evaluating the integrity factor. Assessment of the character is very important. A banker must

have an ability to judge the character and credit worthiness of the borrower.

Purpose of advanceIt self evident that one needs to know the purpose for which banks money is used i.e.

for increasing fixed assets, current assets or for decreasing liabilities. The banker needs to

examine each of them. It is for branch manager to compile a complete credit proposal the

purpose must be one, which is satisfactory for the banker. The amount is likely to be

sufficient for the given purpose. A banker must ascertain the nature of borrowers business so

as to assess if he is competent person to repay the loan in this case of companies it is

necessary to check that the purpose is not out side the objective mentioned in the

Memorandum of association.

Productivity

As a matter of fact advances must be granted to such trade and industries, which

are capable of meeting the economic objectives of the country. Increasing gross

domestic/national product, encouraging growth of agriculture, cottage industry, small

business, local technology and talent to create more employment opportunities. The creditrepot should also depict that the proposal will be remunerative from bankers profit point of

view.

Security of advances

Bankers lend against repayment ability of the borrowers and not merely against

security. A proposal in which repayment is not reasonably demonstrated in not satisfactory

proposal. The security must be easy to evaluate and readily realizable. The banker acceptssecurities and keeps sufficient margin to secure the advances.

Securities can be the goods, stocks and shares.

Repayment of advances

Source of repayment of the borrower is required to be inquired. A banker must

see at the time of lending that the loan will be liquidated with in time and also without

restoring to a legal action against the borrowers assets. A banker is to see that his funds are

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not stuck and this is why he carefully investigates the borrowers assets. After the completion

of investigation a decision can be made for approving or declining a loan application.

RemunerationThe banker must see that the advances would prove highly remunerative. He must

know that the mark up on advances is the main source of banks earning and he must ensure

that the rate of markup is carefully maintained, recoveries are made from the borrowers along

with incidental charges as well as credited to banks account.

Credit report

The report is prepared by 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.

TYPES OF FINANCES

Finances can be classified into two categories:

Unsecured / Clean Finances.

Secured Finances.

UNSECURED FINANCES

Unsecured finances are those finances against which no security has been taken.

Unsecured advance include only the Clean Finances.

Clean Finances

Clean Finances are those finances, which are allowed to govt. employees, against

their salaries. The limits of the Clean Finances are up to three basic pay, and are required to

repay within one year.

Legal DocumentationLegal Documentation

Formal request for grant facility.

Authentic proof from the concerned department about his salary.

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N.I.C.

Undertaking from the employee that the salary for the applicant shall be

remitted to the branch and in case of clients inability to repay the finance the same

would be adjusted from his dues.

Sanctioning of the loan.

SECURED FINANCES

Secured finances are those finances against which security has been pledged.

Security can be the property, stocks, deposits, prize bonds, hypothecation charges, shares,

mortgages on tangible readily reliable unencumbered assets, and govt. securities.

Secured finances are of the following categories:

1. Running Finance.

2. Agri. Finance.

3. Demand Finance (Gold Finance).

4. Cash Finance.

5. Small Finance.

These are also known as the short-term finances.

Running Finance

Running Finance is a short-term finance, one year of payment, to assist a large-

scale business operator to carry on his day-to-day requirements of liquid funds. This account

is opened to made operations in his favor or course all disbursements are made under proper

consideration of the securities and 4 Cs of the borrower. Bank retain 25% margin on the

Running Finance, means that if security having a value of Rs.100000 then against it Rs.75000

has been financed by the bank. The mark up rate on the Running Finance is Rs.0.4384paisa/1000/day.

OperationOperation

Formal request for the finance.

N.I.C.

Application form for Running Finance has been properly filled.

Pledge original certificates of the security.

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Sanction for the loan convey to the customer.

Agri. Finance

Now a day Agri. Finance has been included under the category of the Running

Finance. Basically there are two types of Agri. Finances:

1. Agri. Finances for Crop.

2. Agri. Finances for Development.

For the development and expansion of the most participative sector of our economic

prosperity, the National Bank of Pakistan has been providing loans and finances to the

agricultural sector since its establishment. Agri. Finances for crop is called as short term

finance that is provided to carry on the operational requirements of the Agri-business such as

purchase of seeds, fertilizers, pesticides, and other seasonal requirements of the farmers till

the final activities to make the product reach to the market. This finance is provided to cover

a period of less then one year.

The other type is long term, which is provided, or the purchase of Agri-machinery and other

heavy equipment (tractor, harvester) that are used for the reclamation of the Agri-land. But

these equipments have registration joint with the bank. This finance is provided more than

one year.

Demand Finance (Gold Finance)

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. Demand Finance has 9 15 month

duration. The Demand Finance is a one transaction finance, means that once he withdraw theamount and after when submit the amount then he can never be withdraw again.

Cash Finance

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 is

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normally borrowed by small traders or individuals for their petty matters involving cash

transactions up to rupees three hundred thousand maximum. These are normally for the

seasonal business like cotton, which have 6-8 month business.

Small Finance

Small Finance is normally for the expansion of the business. In Small Finance

Hypothecation is in the custody of the owner. Where as if the security is pledge then it will in

the custody of bank.

SecuritySecurity

Hypothecation.

Pledge.

Stock.

Mortgage.

Vehicles.

LONG TERM FINANCES

There are some other categories of the long-term finances: Local Manufacturing Machinery (LMM).

International Borrowing for Regional Development (IBRD).

IBRD finances are usually granted for the development of the industries. Where as LMM

finances are granted to the person who want to import the machinery from any other country

and going to use that machinery for local production. In this case the bank has pledged

building or machinery, up till the person to the bank has remitted the whole amount. After

collecting the whole amount the bank will transfer the title of ownership to the person.

LEVEL OF LENDING

The structure for lending in NBP has three levels:

Credit Committee at Zonal Office.

Credit Committee at Head Office.

Board of Directors.

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CREDIT COMMITTEE at Zonal Office

There is no authority to the Branch credit committee, the branch credit

committee is only the responsible to make the case for the loan and forward it to the Zonal

Office for approval. The Credit Committee at Zonal Office gives first approval. It has

discretionary powers with in which it implements Credit Facility decisions. The credit

department in branch prepares credit line proposal (CLP) for each advance along with other

supporting documents. The supporting documents and CLP are presented to the Credit

Committee at Zonal Office for considerations. The credit committee at Zonal Office exercises

judgment individually and judiciously on accordance with Banks lending criteria.

If the proposal is within the discretional powers of the Credit Committee of

Zonal Office, the proposal may be approved after thorough evaluation of the credit risk. The

approval limit is returned to Credit Department of Branch for post approval administration.

After that disbursement authorization certificate are obtained from the committee, which are

signed by the Branch Committee and counter signed by the Resident Auditor to ensure that

support is perfected before release of funds.

Borrowers credit worthiness

In order to get a complete picture of the borrowers credit worthiness, inquiries will have to

be made about:

His business.

Trade experience.

Assets and liabilities.

His account with bank or 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.

There is hardly any credit agencies in Pakistan, which assist banks by giving reports on

parties. Even a report on borrower obtained through banks in Pakistan is usually brief and

does not give sufficient information that could be of practical use. It would appear that banks

could be in better position to serve the business community and themselves, if they evolve a

system by which detailed credit reports on customers are communicated to each other.

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Sources of information on borrowers

Banks get information on borrowers through various sources as ahead as follows:

Loan application / credit proposal / personal investigation.

Bazaar reports through friends or rivals mostly from the borrowers trade or

business line.

Borrowers account with the bank or statement of accounts with other banks.

Statement of assets and liabilities. In the case of companies, their balance

sheets and profits and loss accounts for say three years, records of the Registrar of

Joint Stock Companies.

Income tax statements.

Wealth tax statements.

Sales tax statements.

Trade and other reports in the press.

Reports about actions and decrees in Govt. Gazettes.

Registration, revenue, and/ or municipal records.

Other bankers and branches of the bank.

Operations by a customer on his safe custody account or locker

SBP credit information Bureau.

Personal Contacts including personal interviews.

Chamber of commerce / Trade Bodies.

LEGAL PROCEEDING IN DEFAULTNESS

NBP all limits should be sanctioned / renewed in such a way that expiry

date of all accounts fall either on June 30 or December 31 each year. The banker is required

to calculate the mark up on June 30 or December 31 each year for the purpose of distribution

among the depositors. This is under stood that client is advised to pay resale value, which is

marked up amount on or before the date of final adjustment and no withdrawals are allowed

after this date. NBP has decided that the date for final adjustment of the limit in respect of

working capital for trade and industry should 30 days after the expiry date. If during this

period the person dont adjust the bank issued one-month notice for adjustment. If there is no

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response, then another notice has been send. If still there is no response then the bank will

contact to the legal advisor, (advocate) he will send a legal notice for adjustment within 15

days other wise bank will register post (A.D). Then after that Bank will suit file proposal to

Zonal Office, which will further forwarded to Regional Head Quarter. After that they will file

the case in the banking court. The banking court makes Decree (degree) in favor of bank, and

stated that if there is no response your property has been auctioned.

Then banking court nominates an auction judge and takes the auction money as

charges. The judge then give the advertisement in the news regarding the auction of the

property along with the terms and conditions of the auction and a written notice to the

borrower and bank as well.

The auction judge will sale the property on maximum prices, and bank has todecide whether it is enough to collect its amount then auction will be end other wise objection

order is implemented by the court.

If the auction sale price is greater than the dues of the customer towards the bank

then the bank returned the difference to the client but if the auction sale price is less than the

dues of the customer towards the bank then his warrant for arresting him has been issued and

they try to find out his other property to satisfy the bank dues. In case if he prove himself as

insolvent in the court then the loan has been forgive to him.

Chapter No.4

FOREIGN EXCHANGE DEPARTMENT

To promote flow of foreign exchange in the country,

the Government of Pakistan started a new scheme of opening of bank accounts in foreign

currency. These accounts were entitled to receive profit percentage in shape of the currency

in which the account was kept (Dollar account shall be paid profit in dollars). This has

increased the flow of foreign currency especially from the Pakistani foreign residents, who

used to send money to their families at home. The State Bank of Pakistan was given special

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rights to control and monitor the performance of the Authorized Dealers in foreign

exchange accounts.

Authorized Dealer is a person or an institution, which can deal with the foreign exchange.

The authority is given by SBP to all those scheduled Banks who have adequate trained staff

and facilities. These scheduled banks are given license to deal in foreign currency

transactions. The license is of two types.

Limited LicenseLimited License

Authority to deal in certain foreign currencies/transactions

General LicenseGeneral License

Authority to deal in all currencies and transactions

The freezing of foreign currency accounts on May 28, 1998 have shaken the confidence

of the people and it has also put a bad effect on the flow of the foreign exchange as well.

Functions of Foreign Exchange Department

Foreign exchange department is controlled by OG-III. Different functions are performed by

this department such as:

1. Foreign Currency Deposits.

2. Imports.

3. Exports.

4. Foreign Remittance.

Previously another function was also performed by foreign exchanged department as Export

Finance Part-I and Part-IIbut due to some restrictions by SBP that function is not performed

now.

FOREIGN CURRENCY DEPOSITS

To earn foreign exchange NBP offers different types of account such as:

Types of Foreign Currency Account

The National Bank of Pakistan is currently providing foreign currency

accounts services in four currencies:

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1. US Dollars

2. Pound Sterling

3. Dutch Mark

4. Japanese Yen

Foreign currency accounts can be operated by Pakistani residents abroad and residents at

home, plus foreign nationals who are residents in Pakistan.

The opening of foreign currency goes through the same kind of process that is used for

opening of an ordinary deposit account. A prescribed form has to be filled as an application

for opening of account. Personal identification card and introducer is required who can be an

old account holder with the Bank or an officer of the Bank. Foreign Currency accounts can be

opened in following three types.1. Foreign Currency Current Account

2. Foreign Currency PLS Account

3. Foreign Currency Fixed Deposit Account

Foreign Currency Current AccountForeign Currency Current Account

Foreign currency current account can be opened with a minimum

balance of $500. This account is not entitled to any profit.

Foreign Currency PLS AccountForeign Currency PLS Account

Foreign currency PLS account require $100 for opening and this

account is eligible to share the profits and losses at the rate that is prescribed by the Head

office from time to time.

Foreign Currency Fixed Deposit AccountForeign Currency Fixed Deposit Account

In this type of account the deposits are accepted for a period of minimum

3 months and maximum up to 3 years. The profits are credited to the accounts after every six

months on a rate that is ascertained by the Treasury Division of the National Bank of Pakistan

Head Office Karachi. The profit is provided on daily product basis, which means that profit is

credited based on the balance in the account and the number of days it has remained in the

account.

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FOREIGN REMITTANCES

Remittance is transfer of funds from one place to the other by way of using

an intermediate dealer. These dealers are authorized agents who provide these services on

commission. Foreign remittances are the most significant type of transaction that is carried on

in case of a foreign currency accounts. The remittance can primarily of two types.

1. Inward Remittances

2. Outward Remittances

Inward Remittances

Funds coming into the country on account. The inward remittances are coming

through either Telegraphic Transfer (T.T) or in form of Demand Draft (D.D). Further these

remittances are coming in either in foreign currency or are in Pak Rupees. The remittances

coming into NBP City Branch, Multan cam be classified into the following types.

Case 1: Remittances where the beneficiary or the payee is an account holder in the City

Branch.

Case 2: Remittances where the beneficiary or the payee is an account holder of any NBP

branch other than City Br. Multan.

Case 3: Remittances where the beneficiary or the payee is an account holder in a Bank other

than NBP.

All the above-mentioned types of remittances are handled differently and the reimbursement

of the amount is done through separate recordings in the books. The instruments of inward

remittances carry instructions for the proper reimbursement of the amount to be credited to

the account holder on realization. The reimbursement on TTs is available as follows:

For Pak Rupee: Reimbursement is made from Nadir House Br. Karachi

For Foreign Currency: Reimbursement is made from NBP Head Off. Karachi

All TTs received from foreign bank are initially put on a test to verify the genuineness of the

massage received. This test confirms the amount, the beneficiary, the case and the sending

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branch of a bank. There are special codes that are used for testing the instrument. Once the

message is confirmed then its payees status is checked.

Case 1Case 1

If the payee is an account holder of the City Br. then it is recorded as following:

Dr. Account at Nadir House Br. Karachi (if remittance is in Pak Rupees)

OR

Dr. Account at NBP Head Office, Karachi (if remittance is in foreign currency)

Cr. Payees account

The responding branch is sent a debit advice along with copy of the message received.

Case 2Case 2

The case where T.T is addressed to another branch of NBP and has to be credited to the

account of the payee this requires the City Br. personnel, after the conformity of the message,

make a Mail Transfer (M.T) to that very branch. NBP City Br. provides the service of T.T for

its other branches, which do not have the facility of Telex or Fax.

Case 3Case 3

T.T that is addressing a branch other than of NBP, then the payment mode selected is

T.T Payment Order, which is sort of an instrument that is sent to the responding branch

ordering it to pay the beneficiary the sum mentioned on it. The same is presented for

reimbursement through the clearing process from the clearing-house.

Outward Remittances

Funds going out of the country on account. Sending amount outside the country is an

outward remittance. Again this remittance can be made by T.T or demand draft. The

condition for these remittances requires the sender to be the account holder of the Branch.

That account holder has to submit a written cheque along with the payees particulars and

responding bank. This procedure has charges that are higher in case of T.T and comparatively

lesser for demand draft. These charges can be deposited in cash or can be debited from the

account of the sender as the case may be.

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S.W.I.F.T

The increasing pace of technology has made the communication processes more easy,

faster, and reliable. 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. The head quarter

of S.W.I.F.T. is in Belgium. The messages sent through this way do not require any code tests

to confirm its authenticity. NBP City Br. Multan has this service that has special access rights

with only one officer who is responsible to check the lists of the sent transfer messages. 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. For example:

19909 for the message that is simply send for T.T

18808 for message that relates with the L.C. functionality

FOREIGN BILLS FOR COLLECTION

Demand draft is an instrument for claim of money from any party, in this case is

the issuing bank. These drafts are for collection of foreign currency. When a customer comes

in and presents a Demand Draft (D.D) for collection from a foreign bank, the entry in the

books of accounts is made as following:

Debit. DDP Account (Demand Draft Purchased)

Credit. Payees Account

For collection of the international DDs, NBP has maintained agency relations with followingBanks:

American Express for Americas, Europe and Asia

Bank Al-Jazeera or Saudi Arabia

National Exchange corp. for Emirates

These collections can be in form either Pak Rupees or in foreign currency. For collection

from abroad the cheque/draft is sent to American Express Karachi. On realization of the

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amounts the Bank receives a credit advice from the agent bank and the Bank makes a new

entry.

Debit. Account at Nadir House Br. Karachi (if remittance is in Pak rupees)

OR

Debit. Account at NBP Head Office, Karachi (if remittance is in foreign currency)

Credit. DP Account

This collection process requires some charges that have to be born by the customer who

deposits the cheque/draft for collection.

Local Bill for Collection

Local drafts are also handled in this department. When these drafts comes from

different banks for payments the bank made them advance payment and charges certain

commission and postage charges, then NBP sends these drafts to main branch Karachi for

collection. In main branch these drafts are credited to NBP account and debit that banks

account from where these drafts are issued.

IMPORT SECTION

Import is the basic function of the foreign exchange department and NBP earnmoney from imports. In order to import the goods abroad the party has to open a letter of

credit in favor of beneficiary (seller of goods).

LETTER OF CREDIT

As a credit instrument and as a mean of making security of the payment, the

documentary credit is essential these days for conducting safe and sound foreign trade. A

documentary credit represents a commitment of a Banks to value honor cheques and othermeans of obligation against his customer to the amount of value of goods traded, on the

presentation of the documents evidencing the bonafide conduct.

One mode of payment is Letter of Credit (LC). 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 importers bank to the exporters bank.

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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, which 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:

1. Buyer (known as the importer, account party or consignee)

2. Buyers Bank (known as opening, or paying bank)

3. Seller (known as the exporter, shipper, or beneficiary)

4. Sellers bank (known as advising, confirming, negotiating bank)

5. Carrier (known as the shipping company)

6. Insurance Company

TYPES OF LCS

Irrevocable LCIrrevocable LC

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. This

means that all the provisions for the payment, acceptance or negotiation contained in the

credit shall be fulfilled if the documents and drafts/cheques are presented that comply with

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the terms and conditions of the credit. This type of LC is the most commonly used LC for the

international trade purposes. The exporter feels himself safe and assured that his payment will

be met in time without delay.

Revocable LCRevocable LC

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 importers 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 an irrevocable LCs in

their favor.

Red Clause LCRed Clause LC

A special type of LC in which the issuing bank authorizes the exporters bank to

make an advance payment to the exporter up to the limit said there in. This type is used in

case of import of some goods for which exporter demands an advance payment before the

shipment is made.

Revolving LCRevolving LC

This type of LC is opened in case the importer is indulging in import of many goods

frequently and to avoid himself of opening a new LC for every transaction, he opens a

revolving LC. The main function of a revolving LC is that it is not binding to one transaction,

rather it is made useful for different amount that are to paid to the exporters. The maximum

amount is said on the LC and the bank accepts the responsibility to honor all cheques/drafts

with in this limit.

Requirement Before Opening LC

According to the international trade policy of the GOP it is prescribed that no

person or a company can import or export until it gets itself registered with the Export

Promotion Bureau (EPB) and gets a valid certificate of registration. On being granted the

certificate he is eligible to import or export from the country.

For an importer to open a LC for the first time has to make an application to the State Bank of

Pakistan, through a scheduled commercial bank for grant of the permission to open a LC.

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This importer on getting of the permission is also not bound to open the LC from the same

bank. He is free to go to any bank that suits him for the purpose.

All imports must be done under observance of all rules and regulations that are prescribed by

SBP and Government, which are subject to change from time to time.

EXPORT REGULATIONS

National Bank of Pakistan is an authorized dealer with respect to dealing in the

foreign currency affairs that are related with the export, import and foreign currency

accounts. The LC can be opened and negotiated through only from the list of 6000 banks

internationally. For export L.C. negotiations the bank has to follow prescribed rules and

regulations levied by SBP. For negotiation the Bank has to give in writing that it shall bear

the responsibility to honor all bill and cheques on behalf of the importer that shall be

presented for the payment by the foreign exporter.

Documentation For Export LC

For this purpose the Banks has to make sure that it has acquired the duly required

documents from the exporter that include the following:

E Form (which describes the detail of the goods to be exported, the importersparticulars, the amount of foreign currency payment and the details of the importer as

well.

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.

Insurance documents.

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.

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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.

IMPORT REGULATIONS

For the control of foreign exchange SBP and GOP discourage import of the

goods to the most important ones. Imported products are fulfilling still most of our daily

needs. The import procedure is also complicated that involves many dimensions to be looked

for. The Banks role in this regard is again indispensable for the importer and the exporter.

MINISTRY INVOLVED IN IMPORT

Ministry of commerce is for commodity movement whereas ministry of finance is

responsible for monetary transactions. These ministries have to be informed about all the

international transaction carried on by any businessman.

PAYMENT TO BANK

The requirement by the Banks is that the consignor must submit 30% of the total LC

value on opening of the LC and 70% is made after receiving the original documents. The

importer also pays any commission or mark-up changes. The charges are all possible to

change without any prior notice at the discretion of the bank.

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NATURE OF PAYMENT

The nature of payment can be of three types:

Sight: where the payment is made on the presentation of the documents

Usance: where payment is made after 30, 60, or 120 days of presentation of the documents

At Collection: Here high commission is charge and payment is made after 150 & 180 days.

The issue authority (in this case the bank) has to be confirmed about the bonafide of the

customer the same way as in case of export LC negotiations.

PROCEDURE OF OPENING LC

When the importer fulfill all the documentary requirement the bank verifies the

validity of these documents open LC. Two registers are maintained for LC opening records.

LC opening register.

Liability account register.

From LC open register the bank allow LC no. now for getting approval from manager

the officer fills three forms on behalf of importer.

Sanction slip.

Offering sheet for LC opening.

LC opens form.

Now importers account is checked for the balance that has to be retained as margin.

Previously import license was also required but now it is not necessary required to open LC.

The allowable rate for shipment is TWO WEEKS. But amendments can be made up till

three weeks. For that the exporter has to inform the bank and the importer. If importer accepts

it then bank allow these amendments other wise the bank sends the document back to the

beneficiary.

PAYMENT OF THE LC

The negotiating bank after receiving the documents from the exporter verifies for the

genuineness and confirms the conditions set in the LC makes payment to the exporter (if it is

a sight transaction). If the transaction is Usance then the bank makes the payment after

number of days mentioned in the LC document from the date of presentation of the

documents. These documents when checked are sent to the issuing bank for reimbursement of

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the amount paid to the exporter. The issuing bank once again checks and confirms the

genuineness and sends the amount to the negotiating bank through remittance instrument.

FOREIGN CURRENCY TRAVELERS CHEQUESTravelers Cheque is a credit instrument that is used for safe and easy mode of

carrying money. It is innovation of modern banking that has replaced carrying cash and being

at the risk of theft or robbery. Travelers cheque is piece of paper that gives the holder the

right to claim from the issuing bank to make payment up to the amount written on it. These

cheques have become widely used in all business trade transactions. NBP dont sell Dollars

by hand but they issue traveler cheques.

TRAVEL QUOTAS

Travel quotas are issued to the foreign travelers who are going abroad for visit, or

for Umrah and Haj. These expatriates require some amount of foreign currency that they

must carry along with them for the expenses. These quotas are not issued in form of foreign

currency but in shape of Travelers Cheque on which payment can be received from any

bank interested in purchase.

The State Bank of Pakistan has placed some restrictions on the amount of whichTCs can be issued. And these restrictions are subject to changes from time to time through

circulars sent by the SBP. The first circular was sent in 1982 and with the passage of time

many changes have been made through other circulars. The last circular in effect is number

23 dated June 24, 1996.

The quotas for personal travel purposes are prescribed by the SBP are as follows:

The quotas shall be issued in form of Travelers Cheque only.

There is restriction (subject to change) on the amount, which is US $ 2,100 or US $

50 per day whichever is less that can be issued in form of TCs in one calendar year to

one expatriate. The need for over this amount can be negotiated and permission can

be achieved from SBP.

Only US$ 100 can be issued in shape of hard cash that is to facilitate the most urgent

need of the traveler.

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ISSUANCE OF TRAVELERS CHEQUE

The documents required for issue of T.Cs includes:

A travel ticket issued by a registered travel agent.

A copy of passport that has a visa stamped and is still valid.

A copy of the national identity card of the applicant.

The Bank must also assure that the traveler has a confirmed flight at minimum 14 days from

the application for the T.Cs. A copy of all the documents must be sent to SBP along with T-I

Form (form on which the application for T.C is recorded)

There are different quotas for which T.Cs are issued:

FOREIGN CURRENCY BEARER CERTIFICATE (FCBC)

FCBCs are the tool for the SBP to increase foreign

exchange reserve in order to make balance of payment favorable for the countrys economy.

FCBCs are floated at the order of the President of Pakistan. When these are issued they are

recorded in the cheque-book register and in the register of cheque-book for collection.

Important characteristics of FCBCs

The profit on FCBCs is 14.5% annually.

No tax or Zakat is deducted on these certificates.

These are considered as white money.

Maturity period is 6 years.

PROCEDURE FOR ISSUANCE OF FCBC

Following are the requirements for the issuance of FCBC, which are imposed by

SBP to be followed by the banks, and are subject to change from time to time. Covering letter of sale of FCBC to the H.O. National Bank of Pakistan and C.C to

Chief Manager SBP Public Debt Office Karachi.

Secretary SBP, Karachi.

The SVP investment Division H.O. Karachi.

Precede realization/encashment certificate to senior deputy director SBP.

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Statement showing the sale of FCBC as on date of sale to the above mentioned three

persons.

Copy of the I.D card of the Buyer of FCBC.

Credit is send to SBP after three days of the issuance of FCBCs.

Chapter No.5

REMITTANCE DEPARTMENT

Remittance department provides services to the customer of the bank. The main function of

this department is transfer of funds. Remittance is a major function of the bank. It is the

transfer of money from one place to another place without directly involving cash. By

proving this service to the customers the National Bank earns a lot of income in the form of

Exchange

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INSTRUMENTS OF BILLS AND REMITTANCE

DEPARTMENT

The instruments that are handled in the Remittance department are as follow:

Demand Draft.

Mail transfer.

Telegraphic transfer.

Pay order.

Pay slip.

OBC (outward bill for collections).

IBC (inward bill for collections).

DEMAND DRAFT

A demand draft is an instrument, which is drawn by one bank upon another bank for a

specific sum of money payable on demand. It is made by the bank and given to the purchaser

against cash or cheque. If two banks are involved, then one banks sends a DD to anther bank.

But in customer Bank case the customer sends his DD to the receiver.

Issuance Procedure

A demand draft application is given to the customer; he fills the relevant information

and signs it.

The officer in charge then checks the information form.

The charges such as excise duty, postage is charged as per effective schedule of

Charges. Tax is exempted if he is taxpayer and knows his No.

In case of cash deposit the cashiers counts his amounts and signs the DD application

and enters it in the register.

The cash received equals the amount of remittance and the cheques there on.

Then the officer of the bills and remittance department signs it and operation manager

counter signs it.

The entry is the made in the DD issuing register.

It is given to the customer.

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Vouchers are passed.

The vouchers and the DD form given for posting at the computer.

The DD advises be printed at the computer and mailed to the respective branch.

Payment:Payment:

On the contrary, when a DD is received i.e. a customer comes to bank with the DD,

the procedure is as follow.

The DD credit advice is received through mail. The Nos are checked and signatures

are verified.

An entry is made on the DD payable register, and the voucher is made.

The DD credit is attached with the vouchers and given for the posting at the computer.

When DD is received, The test Nos are checked, and the payment is made.

The vouchers are given for posting.

The vouchers are given for posting. And the entry that was made in register is closed.

MAIL TRANSFER

ConceptConcept

A Mail Transfer is mode of remittance that is used for transfer of money in case the

responding branch is of the same bank, which is issuing the MT. Simply to say, all inter-

branch transfer are done through MTs. A MT does not need an advice to be sent because the

amount of MT is directly credited to the account of the payee. So it is an easy mean to

transfer the amount from one account to the other account with in the same bank but different

branches.

Issuance procedure

A voucher is filled with the information about the receiver his account number,

responding branch of the bank, date, and amount.

The amount to be sent is deposited in cash or a cheque is attached with the voucher.

Based on the information provide the MT leaf is filled.

It is recorded in the concerned register.

Send to the officer for signature and authentication.

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A signature is taken on the counter folio of MT from the customer.

The MT drawn is sent to the concerned branch with a fanfold by the bank itself.

PaymentsPayments

When a MT arrives, the test numbers are checked and the signatures are verified.

The entry is done in the MT payable register.

If there is no account then the MT receipt needs revenue stamps and then the payment

is made.

The MT receipt is strictly non-negotiable.

TELEGRAPHIC TRANSFER

ConceptConcept

It is said to be the fastest mean of transfer of funds from one place to the other. In

this method a Telex message is used to make an order of payment of the responding branch.

For issue of TT a request has to be made to the manager who gives the permission. It is a

costly mean and the charges are comparatively higher than other means.

Issuance procedure

After a request has been granted permission the applicant is asked to deposit the

amount and the charges of the transmission.

The manager on the basis of the amount desired for sending makes a TT message that

is gives information about the payee.

The amount is written and is made conditioned with help of codes that are allotted to

the manager.

PaymentPayment

On receipt of the message the officer of the responding branch will put his codes to

confirm the message.

The amount is credited to the account of the payee.

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Pay Order

ConceptConcept

It is a cheque drawn by a bank on itself. Pay order is an instrument in which three

parties are involved, the purchaser, the bank and the receiver. Any customer can purchase it.

It is usually made by govt. Bodies. A single bank is involved in this case.

Issuance

The standard form is given to the customer; he fills in the detail and signs it.

The concerned staff checks the form. Charges as per effective schedule are applied.

The cash of the pay order is received.

A cost memo is signed, stamped and handed over to the applicant as a receipt.

Then the pay order receipt is filled accordingly.

Counter foil is also filled.

An entry is made in the pay order issued register.

Then the authorized office after checking the pay order signs it.

The pay order is then handed over to the applicant after obtaining his signature on the

back of the counter foil P.O form.

A voucher is also made and posted at the computer Cr. bills payable account P.O

issued.

Payment:Payment:

On presentation of the pay order receipt the receipt is signed by two authorized

officers of the branch.

The P.O entry is made in the P.O issued register.

Then the amount is credited to the account of the customer or paid in cash.

The P.O is posted at the computer.

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PAY SLIP

ConceptConcept

It is an instrument used by the banks for its payment. The slips are issued to the

employee of the banks for their bills and invoices. The bills are transferred to pay slips. In

this case only one bank is involved and that is the issuer as well as the payer.

ProcedureProcedure

Procedure prescribed for P.O for issuance and payment is followed for pay slips

with the following exceptions.

Pay Slips are the issued by the bank for the settlements of this own payment

No excise duty is applicable on P.S.

Issuance

A credit voucher is sent from the account department to the remittance department.

The Pay Slips books is taken out and filled according to the credit voucher.

It is entered in the P.S. / P.O register.

An authorized officer, AVP, signs it.

The Pay slip is handed to the customer.

A voucher is made and posted payment.

The P.S. is received on the counter, clearing or transfer.

PaymentPayment

On receiving the P.S. if it is transferred in the P.S. register. The payment is made and

the P.O. is posted at the computer.

If branch is in that city, the OBC forwarding schedule in sent to that Branch.

Otherwise it is addressed to the particular Branch to whom the cheque belongs.

OUTWARD BILLS FOR COLLECTION

ConceptConcept

The bills, which are sent to, other city banks for the local clearing in that city are

called outward bills for collection.

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Procedure

The cheques that are banks in other cities are separated and called SC (short credit)

where as with in the city bank cheques are called LSC (local short credit).

NBP FINAL REPORT

Documents