Final Internship Report on NBP

8/9/2019 Final Internship Report on NBP

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Prepared by

Hashim Sanghi


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In The Name Of Allah, The Most Beneficial,

The Most Merciful.

All praise Is For Allah, The Lord Of The Universe.

The Most Beneficial, The Most Merciful.

The Master Of The Day Of Judgment.

( al-Fatiha; verse:1-4 )


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DDEDICATEDEDICATED TTOO MMYY

PPARENTSARENTS

WWHOHOAALWAYSLWAYS CCAREARE MMEE


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ACKNOWLEDGEMENT

I am very grateful to Almighty Allah who enabled me to complete this report

in a very limited time.

My thanks are also due to the young, dynamic, congenial, and qualified staff

of NBP who never let me alone in different situations related to my internship.

Without their humble help, it was not easy.

I cannot forget to pay my special thanks to Mr. Riaz Hussain, Muhammad

Asghar and Hashmat Khan for their cordial cooperation regarding my internship

report and for providing all sorts of information related to banking functions..


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OBJECTIVES OF STUDING THE ORGANIZATION

Objectives for studying the banking organization are,

To get practical knowledge about banking.

To improve my skills

To know how banking support economy.

HISTORY OF BANKING IN PAKISTANHISTORY OF BANKING IN PAKISTAN

The partition plan was announced on June 3, 1947 and August 14, 1947 wasfixed as the date on which independence was to take effect. It was decided that the


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Reserve bank of India should continue to function in the dominion of Pakistan until

September 30, 1948 due to administrative and technical difficulties involved in

immediately establishing and operating a Central Bank.

At the time of partition, total number of banks in Pakistan were 38 out of these

the commercial banks in Pakistan were 2, which were Habib Bank Limited and

Austrasia Bank of India. The total deposits in Pakistani banks stood at Rs.880 million

whereas the advances were Rs.198 million. The Governor General of Pakistan,

Muhammad Ali Jinnah issued the order for the establishment of State Bank of

Pakistan on 1st of July 1948.

In 1949, National Bank of Pakistan was established. It started with six officesin former East Pakistan. There were 14 Pakistani scheduled commercial banks

operating in the country on December 1973, the name of these were:

1. National Bank of Pakistan

2. Habib Bank Limited

3. Habib Bank (Overseas) Limited

4. United Bank Limited

5. Muslim Commercial Bank Limited6. Commerce Bank Limited

7. Australia Bank Limited

8. Standard Bank Limited

9. Bank of Bahawalpur Limited

10. Premier Bank Limited

11. Pak Bank Limited

12. Lahore Commercial Bank Limited

13. Sarhad Bank Limited

14. Punjab Provincial Co-operative Bank Limited

The Pakistan Banking Council prepared banks amalgamation schemes in 1974

for amalgamation of smaller banks with the five bigger banks of the country. These

five banks are as under:

1. National Bank of Pakistan2. Habib Bank Limited


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3. United Bank Limited

4. Muslim Commercial Bank Limited

5. Allied Bank Limited

So, through the Nationalization of Bank Act 1974, the State Bank of Pakistan,

all the commercial banks incorporated in Pakistan and carrying on business in or

outside the country were brought under the government ownership with effect from

Jan. 1, 1974. The ownership, management, and control of all banks in Pakistan stood

transferred to and vested in the Federal Government. The Finance Minister announced

plans to start Islamic Banking system in Pakistan in the budget speech on June 26,

1980, but it could not be possible till August, 2003.

EFFORTS TOWARDS ISLAMIC BANKING INEFFORTS TOWARDS ISLAMIC BANKING IN

PAKISTANPAKISTAN

Pakistan was created in the name of Islam on august 14, 1947. But since then, the

interest is paying the cardinal role in resource allocation of the economy. The banking

system in Pakistan based on interest divergences with Islamic ideology and is

forbidden by Almighty Allah and His Prophet Muhammad (PBUH).

Any government till now in the country except President Zia-ul-Haq did not dare

to change the well-digged system based on interest in banking in Pakistan.

The only step taken under this direction is starting of PLS Deposits from

January 1, 1982. Only PLS saving account and PLS term deposits shall be accepted

on profit and loss sharing basis. The banks were allowed to meet the working capital

requirements of their clients on the basis of Musharika, and Leasing, and Hire

Purchase. Beside it, different efforts are made time by time in this respect but could

not be acted upon at all.

Recently in June 2002, the Shariah Applet Bench of Pakistan issued an order to all

the banks in Pakistan to change the interest-based banking system to Islamic Modes

but the lawyer from the government of Pakistan challenged it by saying that if any

affair is in the favor of the public of the country and is also admired by the public thenit cannot be abandoned by the government. So this issue is still not resolved.


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NATIONAL BANK OF PAKISTANNATIONAL BANK OF PAKISTAN

National Bank of Pakistan (NBP) was established under the National Bank of

Pakistan Ordinance 1949. The primary objective of NBP was to purchase jute from

the growers in the former East Pakistan and also to perform the commercial banking

functions in the country.

National Bank of Pakistan is now the biggest financial institution with assets

totaling over Rs.310 billion with 1428 local and 23 foreign branches. The bank is thehigher financer in agriculture and commodity operation sector.

NATURE OF THE ORGANIZATIONNATURE OF THE ORGANIZATION

National Bank of Pakistan (the bank) was established under the National Bank of

Pakistan Ordinance, 1949 and is listed on all the stock exchanges in Pakistan. Its

registered and Head Office is situated at I.I. Chundrigar Road, Karachi. The bank is

engaged in providing commercial banking and related services in Pakistan and

overseas. The bank also handles treasury transactions for the Government of Pakistan

(GoP) as an agent to the State Bank of Pakistan (SBP). The bank operates

1,261branches in Pakistan and 16 overseas branches (including the Export Processing

Zone branch, Karachi). Under a Trust Deed, the bank also provides services as trustee

to National Investment Trust (NIT) including safe custody of securities on behalf of

NIT .

National Bank of Pakistan acts as a commercial bank and performs the following

functions:


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It acts as the agent of State Bank of Pakistan in handling treasury

functions, receipt of taxes and other revenues.

The places where the State Bank of Pakistan has no branch, it receives

money and makes payments on behalf of State Bank of Pakistan.

It provides credit for State Trading. It deals internal and external bills of

exchange and discounts them.

It keeps deposits of the people and provides lockers and agency services.

It invests in Government securities and bonds.

It provides loans to industry, import and export trade, Agriculture and

Commercial sector.

It handles salaries and pensions of Govt. employees.

Collects utility bills.

Makes Hajj arrangements.

Sale and encashment of Prize Bonds, Defense Saving Certificates.

BUSINESS VOLUMEBUSINESS VOLUME

Year 2007 has been an outstanding year with the bank recording the highest profit in

its history. Our wide range of product offering, large branch network and committed


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workforce are some of our fundamental strengths that enabled us to achieve

exceptional results in a very competitive market.

FIVE YEARS OF NATIONAL BANK OF PAKISTAN

Rs. In Million

YEARS 2003 2004 2005 2006 2007

TOTAL

ASSETS

468,697 553231 577719 635133 762194

DEPOSITS 395492 465572 463427 501872 591907

ADVANCES 161266 220794 268839 316110 340677EQUITY &

REVAUATION

SURPLUS

27584 42936 75818 81954 116338

PRE TAX

PROFIT

9009 11978 19056 26311 28061

AFTER TAX

PROFIT

4198 6195 12709 17022 19034

EARNING

PER SHARE

(Rs.)

8.53 10.48 17.92 24.01 23.34

RETYRN ON

ASSETS(PRE

TAX PROFIT)

2% 2.4% 3.4% 4.3% 4.1%

NUMBER OF

BRANCHES

1199 1226 1242 1250 1261

PROFILE OF EMPLOYEEPROFILE OF EMPLOYEE

PRESIDENTPRESIDENT

EXECUTIVE VICE PRESIDENTEXECUTIVE VICE PRESIDENT

VICE PRESIDENTVICE PRESIDENT

ASSISTANT VICE PRESIDENTASSISTANT VICE PRESIDENT

OFFICER GRADE IOFFICER GRADE I

OFFICER GRADE 2OFFICER GRADE 2

OFFICER GRADE 3OFFICER GRADE 3

MESSENGERMESSENGER

PEONPEON

SWEEPERSWEEPER

BRANCH

HIERARCH

Y

BRANCH

HIERARCH

Y

SENIOR VICE PRESIDENTSENIOR VICE PRESIDENT

MEMBER BOARDMEMBER BOARD

SENIOR EXECTIVE VICE-PRESIDENTSENIOR EXECTIVE VICE-PRESIDENT


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Official set upOfficial set upHead Office

Regional Headquarter

Zonal Office

Branches

General information about

Credit

Processing

Division

Credit

Processing

Division

Special

Assets

Managemen

t Division

Special

Assets

Managemen

t Division

Treasury

Management

Division

Treasury

Management

Division

Management

Support

Division

Management

Support

Division

Inspection

Audit

Division

Inspection

Audit

Division

Credit

Processing

Division

Credit

Processing

Division

Special

Assets

Managemen

t Division

Special

Assets

Managemen

t Division

TreasuryManagement

Division

Treasury

Management

Division

Management

Support

Division

Management

Support

Division

Inspection

Audit

Division

Inspection

Audit

Division

Credit

Processing

Division

Credit

Processing

Division

Special

Assets

Managemen

t Division

Special

Assets

Managemen

t Division

TreasuryManagement

Division

Treasury

Management

Division

Management

Support

Division

Management

Support

Division

Inspection

Audit

Division

Inspection

Audit

Division

Credit

Processing

Division

Credit

Processing

Division

Special

Assets

Managemen

t Division

SpecialAssets

Managemen

t Division

Treasury

Management

Division

Treasury

Management

Division

Management

Support

Division

Management

Support

Division

Inspection

Audit

Division

Inspection

Audit

Division


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INTRODUCTIONINTRODUCTION

A well-developed monetary sector is pre-requisite for the development of any

country. The banking system can contribute greatly to the realization of a nations

potentialities for development by helping to keep aggregate demand in proper balance

with the supply of those resources, which are responsive to monetary demand.

FORMAL DEFINITION of bankFORMAL DEFINITION of bank

Bank is an institution transacting the business of accepting for the purpose of money

from public, repayable on demand or otherwise and withdrawal by cheque, draft,

order and includes any post office saving bank.

Types of bankTypes of bank

These are the following types of banks

Central Bank

Commercial Bank

Exchange Bank

Saving Bank

Industrial Bank

Agriculture Bank

COMMERCIAL BANKSCOMMERCIAL BANKS

The most widely spread banks in any country with an objective to mobilize the saving

of the people and providing finance to the investors. These banks are in the ground for

profit earning motive and in competition with each other. These banks are providingthe basic services to the customers in the form of deposits, advances, remittances and

other.


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COMMERCIAL BANKING SCENARIO INCOMMERCIAL BANKING SCENARIO INPAKISTANPAKISTAN

At the time of independence in 1947, there were 38 scheduled banks with 195 offices

in Pakistan. But by December 31, 1973 there were 14 scheduled Pakistani

Commercial Banks with 3,233 offices all over Pakistan and 74 offices in the foreign

countries.

Nationalization of Banks was not done 1st January 1974 under the Nationalization Act

1974 due to certain objectives. But it had negative effects on the efficiency of the

banking sector. Afterwards, a Privatization Commission was set up on January 22,

1991. The commission transferred many banks to the private sector, i.e., MCB andABL. The government approved and permitted the establishment of 10 new private

banks in August 1991.

Functions of commercial banksFunctions of commercial banks

Borrowing of money from customer in shape of term deposits / PLS savings /

Current Deposits and Notice Deposits.

Lending of money to borrowers in shape of finances short-term finances, long-

term finances under various name, Demand Finance, Small Finance, Cash

Finance, and Running Finance.

Agency services.

Remitting of money.

Foreign exchange business foreign currency deposits, LCs, imports and exports

etc.

Role of commercial Banks in the economicRole of commercial Banks in the economicdevelopment of a country.development of a country.

Banks play an important role in the economic development of a country. If the

banking system is unorganized and inefficient, it creates mal-adjustments and

impediments in the process of development. In Pakistan, the banking system is

organized in a well manner. The State Bank of Pakistan since July 1, 1948 stands at

the apex and is responsible of the operation of the banking system. The other banks,

which form the banking structure in Pakistan, are playing role in the economic

development of the country.


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The role of the commercial bank in the growth and development of the economy on

sound and steady footings is discussed briefly as follows:

Mobilization Of ResourcesThe commercial banks are the most efficient organizations of the economy in the

mobilization the resources and making a profitable pool of these resources. Taking

then money from the savers and lending it to the investors is the most prominent job

of the bank.

Financing Development Projects

The banks and other financial institutions advance loans for the development projects

that enhance the pace of overall development of the country. These advances are

made in both public and private sectors for the purpose of achieving a good and

strong economic field to carry on the other activities of trade and business.

Creating Climate For Capital Formation

Capital formation is done by the act of accepting peoples money and putting into

profitable ventures. This money so accumulated, make possible the availability of the

needed capital by the investors. The investors on the other hand are able to get the

needed funds that shortfall their requirements.

Assisting In Planned Development

With the help of well-organized banking sector the government is able to make good

implementation of its economic planning and can execute the developmental activities

for the welfare of the society.

Promotion Of Saving Habit

There are persons who have money but cannot put them in profitable use. The banks

attract these persons by offering a variety of accounts. They provide them not only the

safety of the funds but also higher returns on them. The banks, in this way, promote

the habit of thrift among the people.

Effective Implementation Of Monetary Policy

With the help of a good banking system in the country the government and the

Central Bank regulate the monetary supply and demand of the money. A good system

helps in the implementation of the policies that are formulated by the government.


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Through these banks using different techniques of credit control makes credit

expansion and contraction.

Narrowing Regional Disparity

The banks help in bridging the regional disparities in the country. The surplus fund of

one region is sent to the centers of deficit. The less developed areas acquire funds, put

them into productive channels and increase production. The banks this help in a

balanced growth the economy.


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Executive summary of NBPExecutive summary of NBP

National bank of Pakistan since its establishment in 1949 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 of branches the Bank is providing all sort of services that have become part

of the modern banking. Nation Bank of Pakistan successfully adopts new innovationsand 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.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 of saving 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.


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In the advances side the bank has been successful in deploying its resources in the

best way in all commercial, industrial and agricultural sectors of the country. These

advances have been increasing with the increasing trade and commerce, and bank has

been able to meet the requirements up to the maximum extent.

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 financing process of all international trade, which modern banking made less

complicated and more secure, have increased with the global-village concept in the

world. For banks it is an opportunity to grasp the maximum share as possible through

being more efficient to reach the customer. National Bank of Pakistan has been

providing these financing services with great esteem and devotion to public and

private enterprises. Nation Bank of Pakistan up till 1995 has shown good performance

in the banking field with earning good profits and financing bigger projects. But after

that year with the privatization of three nationalized commercial banks, the bank has

not been able to sustain its good ranking in the industry. Further due to being under

the political influence the bank has been forced to make unprofitable commitments

too.

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 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.


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Account opening departmentAccount 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.

Types of accountsTypes of accounts

In NBP, there are the following types of accounts: Current Account.

Saving Account.

Term Deposit.

Notice Deposit.

Current accountCurrent 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 accountSaving 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 DepositsNotice 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 depositsTerm 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 theprinciple 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.

The amount of profit is given to deposits in three ways:

By cash.

By sending a bank draft to depositors home address or office or whichever is

specified as mailing address.

The amount is credited in any one of the checking accounts of the depositor.


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Distribution of profit on pls deposits forDistribution of profit on pls deposits forthe half year ended June, 30, 2001the half year ended June, 30, 2001

Nature of Account Time Period Rates of Profits

PLS Special Notice Account7 to 29 days Notice 4.00%

30 days & over Notice 5.00%

PLS savings On monthly min balance 4.10%

PLS Term Deposits Account

Three months 6.50%

Six months 7.50%

One year 8.00%

Two years 8.50%

Three years 9.00%

Four years 9.20%

Five years & above 9.50%

Account opening procedureAccount 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 accountIndividuals 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.

DocumentationDocumentation

All the peoples are required to bring a copy of their NIC and come with the person

who already has an account in the same branch along with the copy of his NIC.

Illiterate persons are required to bring three passport size photos as well.


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OPERATIONOPERATION

The person place a Check Mark in the type of account and type of operation

required.

He/she fills in part-1 of the form, affix his/her either two or four similar signature

(or thumb expression in the signature space and get it introduced and signed by a

person who already has an account with the bank and write his account no in the

specific rows in a specific space.

The person fills Annexure-A (next to kin) form where he/shes father, mother,

husband/wife or any other relatives name, his/her address, phone no and affix

his/her signature to certify this requirement. This requirement is needed because in

his/her absence bank can have correspondence with the specific person.

The person put her/his signature (or thumb expression) on the Signature Specimen

Card (SS CARD) similar in the area on the form.

The person deposits the initial amount for opening account to the cash counter.

The person put his signature on lower part of the form-559 (check book

requisition) on two places in authorized signature and fills in the Title of

Account space by writing his name.

If the person put his signature in Urdu or any language other than English, he

signed a Vernacular Form where he undertakes that affixed signature are

original and his own.

The next day is the opening of account.

Joint accountJoint 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.


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

remaining same as in individuals account.


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OPERATIONOPERATION

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 accountProprietorship 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.


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.

OPERTIONOPERTION

All operation remains the same except that the firm name is written in the Title of the

Account area and signature of the proprietor are affixed in the SS Card and the area

specified for signatures on the form.

Partner ship accountPartner 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 the

partnership firm are liable for the acts of the firm jointly and severely.


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 behalf of

the firm.


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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.

OPERATIONOPERATION

All other requirement remain same except that the form is dully signed by all partners

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 accountLimited company account

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


Memorandum of Associations.

Articles of Association.

Resolution of the Board of Directors.

Certificate of Incorporation.

Certificate of Commencement of business.

N.I.C.

OPERATIONOPERATION

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 thanksLetter 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.


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Stamping PostedStamping 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 accountProcedure for opening other account

Notice DepositNotice 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.

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 depositTerm 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.


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Other responsibilities of account openingOther responsibilities of account opening

departmentdepartment

Account closingAccount 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.

Procedure

The customer for individuals account writes an application to the manager of the

bank 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.

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


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Cheque-book issuingCheque-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.

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

Everyday postingEveryday posting

At 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.


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LockersLockers

Locker services are provided by the banks in order to provide the customer a safe

place where they can kept their precious documents, things, like jewelry which can be

dangerous for robbery and theft to keep in the house. Against these locker service the

bank take certain charges. NBP also has a great number of lockers in most of its

branches.

NBP has three main types of lockers.

Small Size Lockers.

Medium Size Lockers.

Large Size Lockers.

Locker charges vary with the size of the lockers. Locker charges are half for the

employees of the National Bank to the normal charges charged to the customers.

Recently locker charges have been reduced by 25% as previous.

Govt. collectionsGovt. 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 the bills 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.

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


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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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CREDIT DEPARTMENTCREDIT DEPARTMENT

The earning of a commercial bank are 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 POLICYLENDING 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 PRINCIPLECREDIT 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.

Objectives

Providing suitable credit services and products.

Not compromising NBPs standards in extending credit.

Transactions, which dont apparently exhibit adequate commercial consideration,

will not be undertaken accept when authorized by the credit committee/president

Structure

The authority structure should enable effective adoption to changes in the economical,

technological regulatory and competitive environment.

Performance

The education and admission of the loan portfolio should conclude with in defined

and acceptable risk limitation toward attaining satisfactory return on the banks


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capital. Credit advancement shall focus on the development and enhancement of

customer relationship and are measured on the basis of the net yield for each customer

relationship where individual transaction should also be profitable

Administration

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.

CREDIT PORTFOLIO LIMITSCREDIT PORTFOLIO LIMITS

The nature of the credit portfolio are 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 Facilities

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

from time to time.

Term 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 Facilities

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

stipulated by the regulatory authorities.

Security

Security accepted as collateral for credit facilities are properly valued by approved

surveyors. Appropriate margins of security are taken in accordance with not only

local regulations and practice but such margins should also reflect disposal costs and

potential price movement of the underlying assets.


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Financing Against Share

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

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

facilities are considered against quoted share. Which are freely marketable, suchfinancing are subject to the margin requirement of the regulatory authorities or as

determined by the credit committee whichever being the higher.

Borrower 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 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 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 APPROVALCREDIT 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.


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Documentation

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

division or committee.

Prevention Of Criminal Use of Banking Channels

The 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 ADMINISTRATIONCREDIT ADMINISTRATION

The principle elements of credit administration are as follows:

Credit File Maintenance

Facility Evidence Maintenance

Credit monitoring and review

Credit File Maintenance

The credit file on each facility must contain all information necessary to facilitate

immediate monitoring of that facility. The primary items will include:

Credit Application is received from the customer and Credit Report is received

from the credit information Bureau of the SBP whenever necessary.


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Credit approval documentation, summarizing the details of the borrower; credit

request, purpose of credit repayment sources, collateral description, valuation and

guarantors.

Evidence of the credit approval and date upon which approval was granted

together with any comment and maintained by the credit division.

Details if all related facilities to the same customer group are to the credit by the

branches and maintained by the credit division.

An assessment of the competence and quality of the borrowers management, the

general economic and competitive environment of the borrowers industry and any

other pertinent factor which may affect the borrowers ability to repay the facility.

All supporting data such as financial statements and analysis therefore references,

credit investigation, results and notes of all discussions with the borrower and

other relevant parties.

Written instructions for the disbursement schedule of funds.

Summary sheet containing information regarding, amount dates for mark up

/profit charges and commitment fees, identification of industry risk and

classification/ rating of the borrower, guarantor and security details of overdue

payments.

Each credit file must be maintained in saved in fireproof location at branches and

access restricted to authorized personal.

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


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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

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 LENDINGPRINCIPLES 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 & CharacterSafety & 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


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agreement. Integrity is considered of vital importance. Careful observation of business

will assist in 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 advancePurpose of advance

It 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 thiscase of companies it is necessary to check that the purpose is not out side the

objective mentioned in the Memorandum of association.

ProductivityProductivity

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

credit repot should also depict that the proposal will be remunerative from bankers

profit point of view.

Security of advancesSecurity 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 accepts securities and keeps sufficient margin to secure the advances.

Securities can be the goods, stocks and shares.

Repayment of advancesRepayment 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 not stuck and this is why he carefully investigates the borrowers assets.


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After the completion of investigation a decision can be made for approving or

declining a loan application.

RemunerationRemuneration

The 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 reportCredit 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 FINANCESTYPES OF FINANCES

Finances can be classified into two categories:

Unsecured / Clean Finances.

Secured Finances.

UNSECURED FINANCESUNSECURED FINANCES

Unsecured finances are those finances against which no security has been taken.Unsecured advance include only the Clean Finances.

Clean FinancesClean 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 Documentation

Formal request for grant facility.

Authentic proof from the concerned department about his salary.

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.


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SECURED FINANCESSECURED 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 FinanceRunning 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.0.4384 paisa/1000/day.

Security

Running Finance can be against the following securities:

Banks Deposits.

National Defense Saving Certificate.

National Investment Trust Units.

Life Insurance Policy.

Shares of Joint Stock Companies on Banks approved list.

Prize Bond.

Operation

Formal request for the finance.

N.I.C.

Application form for Running Finance has been properly filled.


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Pledge original certificates of the security.

Sanction for the loan convey to the customer.

Documentation

IB 28 / 31.

Pledge letter.

IB 6 (Revised)

F 200 (Dated)

Security description.

Agreement for the finance.

F 200 (Transfer Deed Dated)

Security delivery letter (F 198).

IB 12 (Demand Promissory Note).

Surrender value certificate from insurance Co.

Then the opening of the Running Finance (F 53).

Life Insurance Policy duly signed in favor of Bank.

Certificate from the Joint Stock Co. confirming Banks lien.

Confirmation of the genuineness of the security instruments.

In of saving deposit, mark up lien of the bank at saving center book.

Authority letter from the Client to debit account for the premium.

A certificate from the Insurance Co. that the age of the insured is admitted.

NIT Units Certificates with its relative surrender and Transfer Letter / Forms.

Letter addressed to the Joint Stock Company to mark lien against Bank Finance.

Under taking that pledge letter is original and that the client has sign it with out

any pressure.

Letter from the client to National Saving Center / Post Office to pay proceeds of

the NDSC to the Bank.

Letter from NSC/PO confirming the instructions of beneficiary with regarding the

payment of proceeds of the National Defense Saving Certificates to the Bank.

Agri. FinanceAgri. 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.


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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.

Security

Personal guarantee (personal identity).

Third party guarantee.

Against third party guarantee.

Mortgage of immovable property.

Against Agri. Pass Book.

Documentation

Formal request

IB 6C / 12 / 21 / 22 / 26 / 29.

F 198 (Security Delivery letter)

Term deposit Receipt duly discharged by the client.

Letter of undertaking. Mark Lien by the Patwari and verified.

Property Valuation Certificate issued by the Bank Engineer.

Copy of extracts of form City Survey or maturation record.

Certificate of Title Clearance issued by the Banks law Officer.

Non-Encumbrance Certificate.

Search Certificate issued by the Registrar Joint Stock Companies.

Insurance Policy Premium paid with Bank Mortgage Clause.

Original sale deed.


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On Objection Certificate issued by form co-operative Society to the effect that the

borrower is not indebted to the society.

Short term Agri. Loans has different financing limit and depend of the nature of the

crop and area covered by the crop. In case if some crop is destroyed by rain or some

other reason then the payment of the loan may post pone and the repayment may be

extended by the concerned authority. Or in some special case the loan may be

forgiven to the farmer.

Demand Finance (Gold Finance)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 disbursedand 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 the amount and after when submit the amount then he can never be

withdraw again.

Security

Demand Finance are given against Gold ornaments. Bank make their self secure by

taking 50% margin, because of mark-up (18%), default risk, impurities, and in case of

auction sale of the gold sales tax (18%).

Operation

Request for the loan.

Assessment.

Sanction of the loan.

Documentation

IB 6A / 12 / 26.

Letter of introduction (F 344)

Gold loan insurance letter.

Delivery letter for Gold ornaments cum evaluation certificate (F 205).

Gold smiths weight (net weight) quantity and quality valuation certificate.


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Cash FinanceCash 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 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.

Security

Pledge of stock.

Third party guarantee and Hypothecation of stock.

Pledge of stock & collaterally secured by third partys guarantee.

Documentation

Formal request for the facility.

Insurance policy.

IB 6 / 12 / 23 / 25 / 26 / 29.

F 53 along with Partnership letter partner deed.

F 219 Letter handling over physical possession of the godown by the borrower.

F 218 Letter acknowledging Banks Lien in the stock stored (taken from

godown owners).

Letter from client authorizing the Bank to Debit salaries of Godown staff to his

account.

F 138 Resolution to be obtained from the limited co. covering operations on an

account.

F 184 Resolution to be obtained from the limited co. covering authority to

Directors to execute documents.

Certified copy of Memorandum and Articles of Association.

Certificate of Incorporation.

Certificate of Commencement of business (in case of public limited).

Resolution passed by the board of Directors for the grant of Cash Finance facility.

Balance sheet (audited).


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Operation

Formal request for the finance.

Assessments.

Sanctioning of the finance.

Small FinanceSmall 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.

Security

Hypothecation. Pledge.

Stock.

Mortgage.

Vehicles.

Documentation

IB 6B / 12 / 25 / 26.

Formal request for the facility.

F 53 along with partnership letter.

Partnership deed.

Letterform client authorizing the bank to debit salaries of Godown staff to his

account.

Letter signed by the client authorizing the bank to debit his for the payment made

in respect of insurance premium.

Insurance policy in favor of bank.

Registration in the Joint names of the bank and the borrower.

Long term financesLong 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


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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 LENDINGLEVEL OF LENDING

The structure for lending in NBP has three levels:

Credit Committee at Zonal Office.

Credit Committee at Head Office.

Board of Directors.

CREDIT COMMITTEE at Zonal OfficeCREDIT 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 ResidentAuditor to ensure that support is perfected before release of funds.

The Branch Credit Committee shall prepare minutes of its meetings, and send copy of

the minutes, copy of CLP (approved), and security details sheet to Credit Division of

Head Office within 7 days of the sanctioning for post factor review.

In case the CLP is beyond the powers of Branch Committee, the proposal is forward

for approval of the Head Office Credit Division with the recommendation by the

Branch Committee.


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e.g. the lending authority in case of Agri. Loan up to 2500000 or less, Zonal Office

has authority to grant the loan.

HEAD OFFICE CREDIT COMMITTEEHEAD OFFICE CREDIT COMMITTEE

The 2nd approval level in lending organization is Head Office Credit Committee.

When the CLP is beyond the discretionary power of the Branch Credit Committee, the

CLP is sent to Credit Division at Head Office along with all supporting documents

and recommendation of Branch Credit Committee.

The Head Office Credit Division processes the proposal is handed over to Head

Office Credit Committee for their decision. The CLP is reviewed by Head Office

Credit Committee and decided upon as per the policies of the Bank if the proposal is

within its powers. The Head Office Credit Committee conveyed the proposal to theBranch Credit Department, which maintain all relevant records for approval either by

Credit Committee/Executive Committee or the Board.

e.g. the lending authority in case of Agri. Loan up to 2500000 or more, Regional

Head Quarter has authority to grant the loan.

BOARDBOARD

The highest authority of Credit Approval is the Board of Directors. All CLPs beyond

the power of the Executive Committee of Head Office referred to the Board by the

Secretariat Division along with the form.

Borrowers credit worthinessBorrowers 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.


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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.

Sources of information on borrowersSources 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 defaultnessLegal 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


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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 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 to decide

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.


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Foreign exchange departmentForeign 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 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 License

Authority to deal in certain foreign currencies/transactions

General 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 ExchangeFunctions of Foreign Exchange

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

performed by this department such as:

( Foreign Currency Deposits.

( Imports.

( Exports.

( Foreign Remittance.


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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 DepositsForeign Currency Deposits

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

Types of Foreign Currency AccountTypes of Foreign Currency Account

The National Bank of Pakistan is currently providing foreign currency accountsservices in four currencies:

( US Dollars

( Pound Sterling

( Dutch Mark

( 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.

( Foreign Currency Current Account

( Foreign Currency PLS Account

( Foreign Currency Fixed Deposit Account

Foreign Currency Current Account

Foreign currency current account can be opened with a minimum balance of $500.

This account is not entitled to any profit.


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Foreign 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 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.

Profit On Foreign Currency Accounts

The profit on foreign currency accounts is paid only on the US Dollar account and

Pound Sterling account. The other two currencies are not entitled to receive profit on

the balances. The profit for the half-year ended June 30, 2001 has been declared at the

following rates:

Currency name New Account Old Account

US Dollar @ 1.250% @ 2.2350%

Pound Sterling @ 1.175% @ 1.878%

The Bank maintains separate ledgers for every type of currency account. The most

significant accounts with the Bank, in number and frequency of transactions, are US

Dollar and Pound Sterling. That is the reason these accounts are made eligible to

share the profits.


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FOREIGN REMITTANCESFOREIGN 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.

( Inward Remittances

( Outward Remittances

Inward RemittancesInward 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 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.


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Case 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)

ORDr. 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 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 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 RemittancesOutward 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.

S.W.I.F.TS.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


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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 COLLECTIONFOREIGN 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

following Banks:

( 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 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

Documents

Final Internship Report on NBP