Internship Report Mcb

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HISTORY OF BANKING Evolution of Banking It has not so far been decided as to how the word ‘Bank’ originated. The explanation of this origin is attributed to the fact that the jews in Lombardy transacted the business of money exchange on banches in the market place and when the business failed, the people destroyed the Bank. Incidentally, the word ‘bankrupt’ is said to have been evolved from this practice. The opponents of this opinion argue that it was so, then how is that the Italian moneychangers were never called ‘Banchierei’ in the Middle Ages? Other authorities hold the opinion that the word ‘Bank’ is derived from the German word back which means joined stock fund. Then ‘Back’ was Italianize into ‘Bank’.

Early Growth Banking in fact is as primitive as human society for eversince man came to realise the importance of money as a medium of exchange. Perhaps it was the Babylonians who developed banking system as early as 2000 B.C. It is evident that the Temples of Babylon were used as ‘Banks’ because of the prevalent respect and confidence in the clergy.

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King Hamurabi ( 1728 – 1686 B.C ), the founder of the Babylonian empire, drew up accede where in he laid down standard rules of procedure for banking operations by temples and great landlords. He got his code inscribed on the block of diorite about 8 feet tall, containing about 150 paragraphs which deals with nearly all aspects of loans, interest, pledges, guarantees, natural accidents, loss, theft etc.

Later

on

Sumerians,

Babylonians,

Hitties

and

Assyrians standardised the values of the goods in silver, copper and bronze. It is not certain as to whom invented money but history recess that king of Lydia castled electrum ingots of identical shapes and of uniform weights with a triple emblem engraved on it as an official guarantee of value in 687 B.C. In 1401 a German public bank was framed comprising the operations of discounting and transferring of money. By the 16th century, some more public banks were formed in Venice, Milan, Amsterdam, Hamburg and Nuremburg. In order to streamline Banking organisations and techniques, conferences were held in Nuremburg from 1548 to 1551 and it was agreed that the commercial interest of the time needed a bank with facilities of growth and transfer but it should not be a bank run by private individuals. Ultimately in 1587, a State Bank under the name of banco DI rialto was formed in Genoa. Later the bank of Amsterdam was also formed in 1609. This Bank had a guarantee by the State and rendered valuable services to the Netherlands traders upto the year 1795. 63

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Similarly in 1690, the Bank of Hamburg came into existence in Hamburg with the business of accepting deposits of fine silver or of foreign money and to run accounts on these deposits. This Bank rendered great service to the merchants as well as countries it dealt with until 1873, when it was merged with the Reich bank. By the year 1700, the bank of England was not only issuing notes but also conducting accounts for customers. Its directors were conducting the business like that of limited companies. The bank had the monopoly of issuing banking notes. Upto 1813 or there about in England, the main profit of bank was derived from the circulation of notes.

Development of Modern Banking In 1918 came into being eleven clearing banks of today. The effect of this historical development of banking in England has been fairly wide. First, emergence of a small number of large banks with wide network of branches. Second, increase in the popularity of bank accounts and a large-scale use of cheques. In 1946, the labour government nationalised the bank of England and transferred the existing stock to the nominee of British treasury. In 1955, the British Banks made a departure from traditional banking by undertaking hirepurchase finance for companies buying industrial plants and machinery and took interest on hire-purchase finance.

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Banking In Pakistan At the time of independence, there were 631 offices of scheduled banks in Pakistan, of which 487 were located in West Pakistan alone. As a new country without resources it was very difficult for Pakistan to run its own banking system immediately. Therefore, the expert committee recommended that the Reserve Bank of India should continue to function in Pakistan until 30th September 1948, so that problems of time and demand liability, coinage currencies, exchange etc. be settled between India and Pakistan. The non-Muslims started transferring their funds and accounts to India.

By the end of June 1948 the

number of officers of scheduled banks in Pakistan declined from 631 to 225. There were 19 foreign banks with the status of small branch offices that were engaged solely in export of crop from Pakistan, while there were only two Pakistani institutions, Habib Bank of Pakistan and the Australasia Bank. The customers of the bank are not satisfied with the uncertain condition of banking. Similarly the Reserve Bank of India was not in the favour of Govt. of Pakistan. The Govt. of Pakistan decided to establish a fullfledge central bank. Consequently the Governor-general of Pakistan Quaid-I-Azam inaugurated the State Bank of Pakistan on July 1, 1948. Thus a landmark was made in the history of banking when the state bank of Pakistan assumed full control of banking and currency in Pakistan. The banking structure in Pakistan comprises of the following types. 63

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1) State Bank of Pakistan. 2) Commercial Bank of Pakistan. 3) Saving banks. 4) Co-operative banks 5) Specialised credit institutions.

Up to December 31, 1973, there were 14 Pakistan commercial banks that functioned all over the country and in some foreign countries through a network of branches. All these commercial banks were nationalised in January 1, 1974, and were recognised and merged into the following five banks: 1) National Bank of Pakistan 2) Muslim commercial bank limited 3) Habib Bank Limited 4) United Bank Limited 5) Allied Bank of Pakistan

The state bank of Pakistan is the Central bank of the country

and

was

established

on

July

1,

1948.The

separation of East Pakistan and its repercussion in the form of economic depression has caused a lot of difficulties to the banking system in Pakistan. The network of bank branches now covers a very large segment of national economy.

The numbers of branches have increased

appreciably and there is now on branch of bank for every 3000 heads of population approximately.

There is done

reasonable growth in deposits from the establishment of

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Pakistan.

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Besides this growth, specialised credit and

financial institutions have also developed over the years. The Government of Pakistan in the late 90’s introducing the need for the privatisation of state owned banks and companies. The private sector has accepted the challenge and most of the banks are privatised today. The State Bank of Pakistan issues the shares of these periodically. Bank employees and other common peoples can also purchase these shares and earn profit.

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MUSLIM COMMERCIAL BANK LIMITED History of Muslim Commercial Bank Muslim Commercial Bank (MCB) unfolds 52 years of growth. MCB is not an overnight success story. The bank started corporate life in Calcutta on July 9, 1947. After the partition of the Indo-Pak Subcontinent, the bank moved to Dhaka from where it commenced business in August 1948. In 1956, the Bank transferred its Registered office to Karachi, where the Head Office is presently located. Thus, the bank inherits a 52-year legacy of trust in its customers and the citizens of Pakistan.

Nationalization In January 1974, the Government of Pakistan nationalized MCB following the banks (Nationalization) Act 1947, Premier Bank Limited merged with MCB.

Privatization A wave of economic reforms swept Pakistan in the late 1990, introducing the need for privatization of state owned banks companies. In April 1991, MCB became Pakistan’s first privatized bank.

The government of Pakistan

transferred the management of the Bank to National Group, a group of leading industrialists of the country by selling 26% shares of the bank.

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In terms of agreement between the Government of Pakistan and the National Group, the group, making their holding 50% has purchased additional 24% shares. Now, 25% is purchased by the Government, which shall be sold in the near future.

Board of Directors The board of directors has the authority in guiding Bank affairs and in making general policies. Some directors are the personnel of the MCB Bank and others are successful businessperson organization.

and

executives

of

other

major

Ten members are included in board of

directors, see in a list. ♦

Mian Muhammad Mansha Executive.

♦

Mr. Tariq Rafi

Chairman

Vice Chairman

Directors Ten directors are: 1) Mr. S. M. Muneer. 2) Sh. Mukhtar Ahmed 3) Mr. Muhammad Arshad 4) Mr. Shahzad Saleem 5) Mr. Raza Mansha 6) Mr. Sarmad Amin 7) Mr. Umar Mansha 8) Dr. Aleem Mehmood

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and

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9) Mr. Tanveer Ali Agha 10) Dr. Najeeb Samie

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Structure of MCB PRESIDENT AND CEO

EXECUTIVE DIRECTOR

INT DIV

SAMG & FRAUD FORGERY

EXECUTIVE DIRECTOR

INSPECTION

CONSUMER BANKING GROUP

OPERATION

CORPORATE BANKING GROUP

GSD

HRD

(continued)

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CONSUMER BANKING GROUP

CORPORATE BANKING GROUP

GENERAL MANAGER

REGIONAL MANAGER CHIEF MANAGER MANAGER

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Structure of MCB – General Bus Stand Branch (1412)

B ra n c h M a n a g e r A s s is t a n t M anager A c c o u n ta n t O ffic e r s C a s h ie r M essenger G u a rd

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Overall performance Of MCB in 1998 Net Profit Profit after taxation in 1998 was Rs. 399.2 million, an increase of 67% from Rs. 238.8 million in 1997. Since a complete provision for non-performing assets has been made, the balance of the bank now reflects its true strength. For the first time after MCB’s privatization in 1991, a dividend of 15% was declared last year. It gives me great pleasure to state that for the year 1998 it has been decided to announce an increased dividend of 17.5%.

Reserve Fund/Equity A sum of Rs. 79.8 million has been transferred to Statutory Reserve this year, raising the total Reserves to Rs. 1,796.6 million at the end of 1998, from Rs. 1,716.8 million as last year.

Deposits Deposits with the Bank at the end of year 1998 stood at Rs. 123.8 billion as compared to Rs. 124.4 billion in 1997. The reason for this slight decrease of 0.4% was the withdrawal of Foreign Currency Accounts as a result of Deposits 130000 125000

124391

123822

1997

1998

120000 115000

113005

110000 1996

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Government’s

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decision

to

freeze

Foreign

Currency

Accounts in May 1998. Let me assure you with confidence that the depositors have complete faith in MCB, which is evident from the fact that in the very first month of launching the MCB Maal-a-Maal Rupee Deposit Certificates Scheme attracted Rs. 7.6 billion.

Advances Total Advances at the end of 1998 were Rs. 62.9 billion as compared to Rs. 64.4 billion in 1997 showing a fall of 2.3%. This is mainly due to the slowing down of economy following the events described above, as well as, in keeping with our policy of prudent lending.

Advances 70000 64365

65000

62920 60407

60000

55000

50000 1996

1997

1998

Investments Investments slightly declined by 0.2%. The current policy of the management is to dispose off Investment in shares of listed and unlisted companies at the best possible prices.

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Investments 60000

58095

57981

1997

1998

55000

50000 47553

45000 1996

Recoveries The recovery position in the year 1998 was most encouraging. Bank recovered Rs. 1.04 billion in cash. The bank also disposed off properties which were acquired in settlement of accounts. The recovery of loans shall remain a priority in 1999.

Foreign Trade The bank conducted Import business during the year amounting to Rs. 54.0 billion as compared to Rs. 56.4 billion in 1997. The export business slightly improved to Rs. 36.9 billion from Rs. 35.1 billion in 1997. Home remittances declined to Rs. 16.7 billion from 30.6 billion. The decline in home remittances business was due to Exports

Imports

40000

65000

63523

36918 35123

35000

60000

30000

55000

56418 54037

27321

50000

25000 1996

1997

1996

1998

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1997

1998

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freezing of Foreign Currency Accounts, which has effected the confidence of the Pakistanis working overseas.

Rupee Travellers Cheques Muslim Commercial Bank who are pioneers of Rupee Travellers Cheque in Pakistan maintained their leadership position and sales recovered during the year 1998 were Rs. 67 billion an increase of 57% over the previous year.

Human Resources To induct fresh blood in the bank and cater for future needs, a new batch of management trainees was selected strictly on merit. After thorough training these offices have been inducted in various divisions and branches. Attention was paid to upgrade operational and managerial skills of staff and a number of professional courses were conducted at MCB Staff and Training Institutes during the year. We have continued our programme of hiring of some senior level Banking Executives from the market, wherever necessary.

Year 2000 Compliance The management and the staff of relevant divisions are fully aware about the Millenium issues. All the core computer systems operating in MCB are in full compliance. All the necessary steps had been taken and MCB was very much aware about the Y2K bug.

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Automation The progress is as per plan. At the end of 1998, 75 branches were online and 241 branches have been computerized with multi terminal systems. 66 ATMs were in operation and over 50,000 ATM Cards had been issued. The commercial cities of Faisalabad and Multan were added on the MCB ATM Network. Plans are in hand for expanding the online network to major cities and covering all the four provinces thereby providing the ATM network true national coverage and maintaining our in this service.

Social Sector The bank had been actively participating in ex-Prime Minister’s

Self

Employment

Scheme

(SES).

The

applications received from various applicants were being processed on merit and disposed off as quickly as possible. Nowadays, no new loans are being granted as per the order of Chief Executive of Pakistan.

Foreign Operations Our bank’s foreign operations in Bangladesh and Sri Lanka continue to remain profitable. In April 1999, the bank opened its third branch in Sri Lanka at Maradana a suburb of Colombo. Our country is passing through a critical phase of its history. Pakistan’s economy continues to remain under pressure as it adjusts to new economic challenges and realities.

The

performance

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of

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influences the performance of the financial sector. MCB is cognizance of its role in the national economy, and will continue to play its role as a lead bank.

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Chairman’s Review 1998 was an eventful year for our country. Pakistan joined the polity of nuclear powers and strategic imbalance created in the region due to a nuclear test by a neighboring country was restored. The May 1998 Nuclear Test led to the imposition of sanctions and suspension of multilateral assistance by the leading

Western

Aid

giving

countries,

putting

the

Pakistan’s economy and balance of payment position under severe pressure. The Government of Pakistan took a number of far reaching decisions in the wake of the Nuclear Test which included freezing of Foreign Currency Accounts, introduction of three Foreign Exchange rates and increase in Petrol prices and Sales Tax. Overall 1998 was difficult and challenging year for the nation especially for trade and commerce and industrial sectors. However, as a result of various corrective measures taken by the Government, the economy is now slowly coming back to normal. According to a recent statement of the Federal Finance Minister, the inflation rate has been brought down to around 6% and the Foreign Exchange Reserves which had touched US$ 440 Million in 1998, were at US$ 1.8 Billion by the end of April 1999.

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In keeping with the W.T.O. requirement, the Government also had to reduce the custom duty on Imports. There has been a small drop in electricity tariff for industrial and commercial consumers. The State Bank of Pakistan reduced the Repo rates from 16.5% to 15.5% and then to 14%. This resulted in reduction in mark up rates by the large commercial banks in April 1999, which is bound to encourage higher credit growth. The economy still faces major challenges. The growth rate of economy has gone down to around 4% from 6%. The Export target of US$10 billion for the current financial year ending June 30, 1999, has been reduced to US$8 billion (this figure is static for the last few years now). However, there is likely to be significant reduction in the Trade Deficit during 1998-99. A very significant achievement of 1998 was holding of population census after 17 years, which was necessary to formulate

various

socio-economic

policies

by

the

Government. Keeping with the above economic scenario in view, the over-all performance of Muslim Commercial Bank, during 1998 can be termed as very satisfactory

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ADVANCES DEPARTMENT MCB provides the facility to the people who need advance money to meet their requirements. For getting the advance the following steps are there: 1) Information required by the bank 2) Preparation of credit proposals 3) Sanction advice

1. Initial Information Following information is required to be submitted to bank. ♦

Nature & structure of borrower business.

♦

Names of proprietors, partners or directors.

♦

Detail of all firms or companies associated with borrower.

♦

Financial condition of borrower business.

♦

An assessment of his business abilities.

♦

Accurate and upto date financial statements of last two years for comparison purposes.

♦

Market report on the borrower where borrower has maintained an account with another bank, a report from his bank should also be obtained.

♦

A report from credit standing bureau of State Bank of Pakistan.

2. Preparation of Credit Proposal At first a formal application for credit approval is obtained from the party along with complete group position. The 63

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party’s credibility report is obtained from the bank with which the bank is doing its business. The party’s credibility report is also taken from the Head office of Trade Information Division. For obtaining credit, party has to submit the last two years Balance Sheet and Profit & Loss statement duly attested by authorised auditors. If the party is also involved in export or import business then the bank also considers the data of three years about import & export. Current debt and equity ratio is also calculated by the bank. The type of data required to prepare the credit proposal is to be gathered from the different departments. Some data is obtained from the foreign Exchange department. Some data is available in Advance Department. The purpose of obtaining Credit should be explained clearly. The securities offered by the party to the bank are also evaluated. In case of pledging of property in shape of land or building the complete evaluation of the property should also be attached. After all the necessary documents for applying for advance is fulfilled by the party then the case is sent to Manager for approval. If the credit limit is in his range then he can decide over it otherwise the case is forwarded to seniors. If there is any discrepancy then the party is informed of it.

3. Sanction Advice When the documents required are complete and there is no ambiguity then the party is advised that their credit or 63

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loan is approved and will be available to you soon. There is a separate form for every annual approval or in case of a new facility (See Annex -

).

The form contains following information: ♦

Nature and amount of limit.

♦

Purpose

♦

Security/ Collateral

♦

Margin (%).

♦

Mark up/ Charges

♦

Validity

Other Terms and Conditions 1) The bank reserves the rights to revise / amend / modify

the rates of mark-up commission or any other conditions of the liabilities within the period so decided by the Bank. 2) The bank shall have full authority to cancel the facilities

allowed without assigning any reason and to call for adjustment of the liabilities within the period decided by the bank. 3) The facilities granted are subject to SBP’s Prudential

regulations. 4) The hypothecationed goods, building and machinery

must be insured at all times against the risk of fire, riots, strike, burglary, malicious damage risks withthe bank as the mortgage and yourself as a mortgager, and the relevent policy held by us. 5) Assets hypothecated to the bank will have to be insured

at all times for full market value. The insurance policy will be made in the joint name of the company and the

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bank. The relevent insurance policy will be held by the bank along with the premium payment receipt. 6) Stock statements together with a list of book debts are

to be submitted at the end of each month to reach us by the first week of the following month. 7) The bank would undertake the inspection of stocks from

time to time and in any case atleast once in the calendar year. 8) SBP has imposed Prudential regulations on all the

banks. These facilities are being offered withthe understanding that your company’s financial condition will comply with these regulations. 9) Audited accounts should be submitted to the bank

within six months of date from the date of your financial year end. 10)All levies and taxes now or at any time hereafter levied

and payable in respect of the financial accommodation and banking facilities set out in this letter will be exclusively borne by you. 11)All requisites charge forms to be submitted duly filled in

and signed by the authorised persons. 12)For any change in any ownership, prior permission of

bank shall be obtained otherwise existing owners shall also continue to be liable. 13)In normal banking practice the facility is repayable on

demand and we reserve to ourselves the right to vary the terms and condition or ask for repayment if circumstances arrive which in our opinion justify our doing so.

Types of Advances MCB provides advances, which are of two types. These are as following: ♦

Fund Based Advances 63

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♦

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Non Fund Based Advances

1. Fund Based Advances Funds

are

given

to

customer

according

to

their

requirement against securities. These loan are given specially to traders, business, small industrial units, including cottage industries, agriculturists, thus ensuring an equitable distribution of bank credit among various sectors of the country’s economy. There are following types of advances, which are given to customer on fund basis. 1) Industrial loan 2) Commercial loan 3) Agricultural loan

Industrial Loan Loans are given to industrial units including cottage industries up to or less than RS. 20 million.

Loans and

advances shall not exceed amount specified by marginal restriction on the type of securities offered.

Industrial

loans are granted to the manufacturing section of the economy including finance for fixed investments and working capital requirements of small industries. Loan Period Loans are allowed for a maximum period of 5 years including a maximum grace period of 1 year.

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In special

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case up to 10 years also, depending upon the merit of the case.

Commercial Loan Total

principal

amount

of

loans

to

a

single

enterprise/borrower shall not exceed RS. 0.5 million. Maximum maturity is 3 years, depending upon the nature and type of advances, decided upon case to case basis. Mark-up Both for commercial and industrial loan, mark-up will be charges as per existing rate, subject to changes from time to time. Presently it is 0.51 RS per day per RS. 1000/-. Mode of Repayment Equal monthly, quarterly or half-yearly, repayment of principal and interest or as per term of approval. Securities and Margin Loans can be made against any or more of the following securities mortgages of immovable property (land and building), pledge of stocks, raw materials, and finished goods, hypothecation of stocks, raw material, and finished goods, State bank of Pakistan guarantee.

Types Of Advances by MCB 1. Fund based Advances Following are the Fund based Advances: ♦

Running Finance(RF) 63

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♦

Cash Finance(CF)

♦

Finance against imported goods(FIM)

♦

Export Refinance part-I (Pre-shipment)

♦

Export Refinance Part-II

♦

Finance against purchase collection(FAPC)

♦

Finance against foreign bills(FAFB)

♦

Foreign bill purchases(FBP)

♦

Local Manufacturing Machinery(LMM)

♦

Payment Against Document(PAD)

♦

Demand Finance(DF)

♦

Khud Rozgar Scheme

The detail of above-mentioned items are given below:

a. Running Finance (RF) The max time of repayment is one year. It is according to will of customer. This type of advances are given to Trade, Commerce and manufacturing general purposes. These finances as evident by the name are given to meet their daily needs. The mark up is charged on daily balances. Normally 0.54 paisa per thousand is charged on daily basis. It is drawn through cheque.

b. Demand Finance (DF) The duration of DF is more than running or Cash Finance. These are made in Lump sum and are there is a permission to repay the amount in periodic instalment. Upon receipt of documents negotiated by the seller bank,

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the opening bank makes sure that documents are according to terms and conditions of the credit. Bank makes the payment to the party against document and upon expire date, bank receives back money with mark up rate.

c. Payment Against Document (PAD) LMM funds are provided by the SBP. The bank provides the facility to the businessman who wants to buy the local manufactured machinery.

d. Local Manufacturing Machinery (LMM) It is a long term financing. MCB also gives loan under the head of demand finance to individuals, industrial units and commercial business etc. This is a type of secured loan and demand loan is never allowed without security.

e. Foreign Bills Purchases (FBP) The exporters, which are under L/C are also provided with the facility of loan. Amount is given to the exporter after the approval of L/C by the issuing bank.

f. Cash Finance (CF) MCB gives the facility of cash credit to the business. The borrower gives a specific reason for the need of cash. The amount is passed through voucher and credited to party’s account. Normally 0.52 paisa per thousand is charged on daily basis to customers.

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g. Finance against Imported Goods (FIM) These types of advances are granted against the pledge of imported goods. These goods are pledged by the bank. Bank pays all the charges to customs and keeps the goods in its control. The bank releases the good on payment from the client to bank.

h. Export Refinance Part-1 (Pre-Shipment) The government pursues the banks to provide the loanto the exporters to promote the export. The bank provides this type of advance facility to only those exporters who have not enough money to make shipment. Bank provides the loans to the customer at the rate of specific % for period of 150 days.

i. Export Refinance Part-1 (Post Shipment) This means that the customer has enough amount to make first shipment but not more. So the bank issues a loan to the exporter. This financing is for period of 150 days. Finance is provided by the SBP to the exporters for purchase of raw material, its processing, Packing and shipment. In case, if the party is unable to make the shipment within 150 days of financing. The party has to pay certain amount of finance as asked by the SBP and after 150 days the rate of mark up also goes up @ 51 paisa per thousand per day. So usually exporters try to make the shipment within the fixed period set by the SBP which is usually 150 days.

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j. Export Refinance Part-11 In this case the bank after receiving the performance of years in export business of party sets the limit for the period of one year. Here the limit cannot be set by the terms pledged of the permission of the bank.

k. Finance Against Purchase Collection (FAPC) A bill may be purchased by the bank. If a client is in urgent need of money and he has a bill whose clearance may take a few days then he sells it to bank. Bank pays the amount to the client after deducting its commission.

l. Finance Against Foreign Bills (FAFB) Bank also provides finance against the foreign bills. This facility is given to the exporter, if he needs an urgent money. He gives bill of exchange to the bank as security and bank sends these bills for collection and gives money to exporter.

m.Khud Rozgar Scheme Limit for loan The limit of this loan is from Rs 10,000 to Rs 500,000 Security/Pledge ♦

A personal security is required to obtain loan otherwise anyother security will be required.

♦

Total business assets will have to be hypothecated.

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Mark up & return of loan ♦

Mark up will be at the rate of 15 % for timely return of loan otherwise rate of mark up will be 16 % per annum.

♦

The payment of mark up on loan will start after 12 months of payment of principal amount.

Eligibility of Applicant 1) The age of applicant should not be less than 19 years

and he has not applied for any type of loan from any bank. 2) Applicant has been living in the residence shown as

address for atleast one year. 3) Applicant is not the student nor the employee of any

govt organisation. Eligibility of Guarantor 1) He has been living at the given address atleast for one

year. 2) He is not the employee nor the family member of MCB. 3) He is not the officer of any Govt organisation.

Fees for Loan A fee of Rs 100 will have to be submitted which will be non-refundable. Important documents required ♦

Two copies of application form (one original & one photocopy).

♦

Original Identity card will have to be shown. Similarly two photo copies of ID card will also be required.

♦

Two passport size snaps of both applicant & guarantor.

♦

Original & attested documents of asset of guarantor.

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Conditions The application of loan can be rejected in case of incomplete or wrong information. Approved loan can be cancelled. It should be informed that the rejection and acceptance of loan are sole right of bank. If the rent of loan is not paid for more than 3 months then the remaining amount will be required to refund immediately with 16 % mark up.

Agricultural Loan Bank provides the agriculture advances in order to enhance and support the agriculture sector of the country. Bank’s Agriculture division deals with the agriculture advances. These advances are of following types: 1) Farm Credit 2) Non Farm Credit

Farm Credit These are the credits provided by the MCB or purchases of inputs for development of agriculture sector. Following are two main Sub classes of Farm credit: Production Finance These are short term loans. These laons are provided to farmers for purchases of different types of input, for example seeds, fertiliser, and pesticides.

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Development Finance These are medium or long term loans. These loans are provided for the development of agricultural sector. Main Purposes of these loans are as under: ♦

To purchase tractors

♦

To purchase implements (Trolley, Threshers, Drill etc).

♦

For installation of tube wells

♦

For planting of gardens

Non Farm Credit The second major form of agriculture advance is Non Farm credit. These loans are provided to boost up agriculture sector to provide the sources of earning of foreign exchange as well as to provide employment opportunities to people. These loans are provide against mortgage of land as security or pledge of equipment as collateral security. These are long term or medium term investment depending upon the project. Following are the different types of small industries for which loans are provided to improve the economy of the country. ♦

Fish Farm

♦

Cattle Farm

♦

Poultry Farm

♦

Dairy Farm

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2. Non Fund Based Advances When an applicant for an advance cannot offer any tangible security the banker may rely on personal guarantees, letters of credit to protect himself against loss on advance or loan. There are two type of advances which come under Non Fund Advances. ♦

Guarantees.

♦

Letter Of Credit.

Letter

Of

Credit

is

explained

in

Foreign

Exchange

Department while Guarantees are elaborated below.

Guarantees Introduction Bank examines customer’s relation with the bank 7 the nature of the business. Bank also sees his past business with the bank. Sometimes bank issues Guarantee on the behalf of the customer by getting some margin from him. This margin may vary from customer to customer. Requirements for Guarantee Banks issue guarantee on the behalf of customers. Limit proposals covering

transactions should be submitted

with full detailsfor the approval of appropriate sanctioning authority. Generally Guarantees are issued in favouring of Shipping companies,

Govt

Departments

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guaranteeing

specific

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payments at future dates by customer on whose behalf the guarantees are issued. While executing a guarantee, the terms and conditions of the guarantee are closely examined in order to determine the extent of bank obligations and financial liability under the guarantee and the type of guarantee, all condition are contained in the guarantee. Procedure Bank charges a commission on the amount for which guarantee is issued. Normally the validity period of guarantee does not exceed one year. After the guarantee has been issued, a copy of same is issued to the counter guarantee issued to the customer.

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DEPOSIT DEPARTMENT Account Opening The general banking performs various functions among them the first and most important function is A/C opening. The process of opening an account is very simple and any body who would like to open his account could do it easily without any difficulty.

Types of Accounts There are three types of accounts ♦

CURRENT ACCOUNT

♦

SAVING ACCOUNT

♦

TERM DEPOSITS ACCOUNT

Procedure for Account Opening 1) Application Form The customer would like to open his account is required to meet with the manager or second officer, who will give him an “APPLICATION FORM” specifically used for account opening.

Separate colour-coded Application Form is

available for each type of account.

So that a particular

coloured form is given to the customer to fill in for opening a related account.

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2) Specimen Card As I have already mentioned about “SIGNATURE SPECIMEN CARD”.

This card contains three signatures of an

applicant, applicant A/c no, A/c type, branch code, title of A/c, it will be attached with an application form. Banker uses this card at the time when he receives the cheque; he compares customer’s signature with the signature on the cheque for avoiding fraud. Manager has every right not to accept this contract if he is not satisfied by the details provided by the customer.

3) Account Opening Register The manager records the necessary details into this register and allots an a/c number from this a/c opening register.

This register is maintained for each type of

account and the a/c numbers are allotted serially.

After

opening a saving and current account every applicant’s data is entered into the computer to maintain a safe record and application form is properly filled so that it can be available when necessary. For fixed deposit only that application form is needed which is prepared manually, because most of the procedure of fixed deposit is done manually.

4) Cheque Book Cheque book is issued to the customer when the bank accepts the A/C opening application form.

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Types Of Customers 1) Individual Only one person can operate this a/c. We can call it a personnel or individual a/c.

2) Joint In case of joint A/c, applicant mentions that how much person will operate the A/c. Instruction are given for joint A/c such that the account shall be operated by

a) Any one of us or survivor. In first case if one of the a/c holders died then the other can operate the a/c individually.

b) Any two/All of us jointly. In second case if one of the a/c holders died then the other partner can’t operate this a/c individually without having permission from the court.

3) Partnership A/C For partnership a/c, along with the application form signature card. Other documents are also needed such as ♦

Registration Certificate

♦

Agreement among partners

♦

Commencement of business

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4) Company Account For company accounts following documents are required: ♦

Private registration

♦

Resolution of board of directors

♦

Commencement of business

♦

Memorandum and Articles of Association

♦

Balance sheet

Letter of Thanks Bank prepares two ‘LETTER OF THANKS’ one for the new customer and the other for his introducer. This act promotes

good

will

among

the

customer

and

the

introducer.

Closing of an Account There are no. of reasons of closing an account. Some are listed below: 1) If customer desires to close his account 2) In case of death of one account holder. 3) Bankruptcy of the account holder. 4) If an account contain nil balance or not up to the

requirement of rules. Before closing any account, bank send letter to the account hold for informing him that his account is going to be closed. There is need an approval form higher authority to close any account.

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Importance of Deposits for Bank The primary economic function of the commercial bank is to receive surplus income of individuals, firms, public houses, institutions, companies and to honour cheque drawn upon it. Deposits are to bank as a backbone is to the body of a man.

It is the lifeblood of a bank.

The

deposits of a bank are useful in many ways. The bank borrows money from the general public by accepting deposits by offering suitable rates of interest to them or simply promise to repay on demand.

Types Of Accounts in MCB The fund deposited in the MCB bank can be classified under the main heads: ♦

CURRENT OR DEMAND DEPOSITS

♦

SAVIGN DEPIOSITS

♦

FIXED OR TERM DEPOSITS

♦

CALL DEPOSITS

1) Current Deposits (Or) Demand Deposits ♦

Current deposits are those which are payable to bank whenever demanded by the customer.

♦

Bank does not pay any profit on current deposits.

♦

There are of different scheme of saving deposits, which are classified under different duration purpose and rate of interest.

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Rules for Current Account Current a/c holder opens Current Accounts on proper introduction only. However, introduction of a PLS Saving Account holder of repute may be accepted at the discretion of the manager. A) Minimum Balance A sum not less then RS. 1,000/- in cash as initial deposit is required for opening a current account and the same may be

maintained

as

minimum

average

running

credit

balance. B) Profit ♦

No profit will be paid on credit balances held in current accounts.

♦

The bank reserves the right to allow opening of current a/c at its description.

♦

All deposits and withdrawal from a current a/c will take place only at the branch where the account is being maintained.

♦

Current a/c cannot be overdrawn, except by prior agreed agreements with the bank.

♦

The correspondence relating to current A/Cs should be addressed to manager of the branch where the account is being maintained.A

♦

A distinctive number will be allotted to each current account and shall be quoted on all correspondence relating to the respective account and at the time of making deposits and withdraws

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C) Issuance of Cheque Book The Cheque book is issued against the valid requisition slip signed by the account holder as per signature provided by the bank.

The account holder can draw sums from his

account by means of cheque supplied to him by the bank for that particular account.

In drawing cheques the

amount in words and figures should be written distinctively and the cheque should be drawn in such a way as to prevent the insertion of any other word or figure. Account holder should take well care of the cheque books issued to them. The account holder will pay excise duty of Rs.4 per leaf to the government.

2) Saving Account Saving accounts are opened on proper introduction with sums of credit balance within certain limit for individual (single,

joint)

institutions,

companies,

educational

institutions etc. MCB has introduced various schemes under saving a/c, ♦

PLS ACCOUNT

♦

CAPITAL GROWTH SCHEME

♦

MAHANA KHUSHALI SCHEME

♦

KHANM BACHAT SCHEME

♦

KHUSHALI BACHAT ACCOUNT

♦

MALA MAAL SCHEME

♦

SAVING 365 ACCOUNT

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1. Profit and Loss Sharing Account PLS saving account having a running minimum credit balance of RS. 1,000/- would be eligible for sharing profit/loss of the bank. The bank would be within its rights to make investment of credit balances in the PLS saving accounts in any manner at its sole discretion and to make use of the fund to the best of its judgement in the banking business under the PLS system. Withdrawals Withdrawals from PLS saving account are allowed not more than 8 times in a calendar month and for a total amount not exceeding RS. 15000/- without the approval of bank manager. For withdrawal of larger amount, 7 days notice in writing is required to be given. Profit/Loss The profit/loss will be credited/debited on the basis of its net

working

results

at

the

end

of

each

half-year.

Calculation of products on PLS saving A/c will be made for each calendar month on the lowest credit balance of an account between the close of business on the 6th day and the last day of the month.

If the balance is less than

Rs.100/- the product will be nil. Rules for PLS ♦

Account holder can only withdraw sums from his account by means of cheques supplied to him by the bank for that particular account.

♦

Post dated and stale cheques shall not be paid. 63

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♦

The bank reserve to itself the rights to close any account without previous notice any account which has not satisfactory account credit balance.

♦

If the account holder withdrawals the money under 7 days notice, the profit loss earning products will be computed on the monthly minimum balance. Zakat is deducted every year on non-exempted accounts.

2. Khanam Bachat Scheme Target Market ♦

Individuals planning to save funds for education & marriages of their young sons /daughters.

♦

Individuals interested in long term deposits.

♦

Individuals in low class middle group.

♦

Individuals showing confidence in Bank’s long term schemes than schemes of similar maturities offered by others.

♦

The loving parents that want best for their children.

Deposit Amount We will have to deposit Rs 1000 on monthly basis t the time birth of your baby or at later stage. It will continue for upto 10 years without making any withdrawal. Conditions ♦

The account can be opened singly or jointly.

♦

Account in the name of miner can be operated by mother, father or jointly as guardian.

♦

No advance can be extended against a minor account.

♦

If anybody withdraws prematurely then profit will be calculated on prevailing PLS account.

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♦

The bank reserves the right to refuse any depositor in the scheme without giving any reason.

♦

This account can be opened in any MCB branch.

Interest ♦

The interest is given on yearly basis.

♦

Tax & Zakat will be deducted according to rule at the time of maturity and payment.

3. Mahana Khush-hali Scheme Target Market ♦

Individual interested investing for five years saving schemes.

♦

Individuals who want monthly return on investment.

♦

Middle class income group.

♦

For the persons residing abroad and family in Pakistan.

♦

For retired persons who want regular monthly return on investment.

Conditions ♦

Minimum amount required is Rs 25000 and Maximum is Rs 1 million.

♦

This scheme can be adopted by individuals ( Single or Joint) in their names.

♦

This certificate will mature after 5 years.

Interest ♦

The bank will give profit on monthly basis.

♦

Zakat is deducted on payments and profit according to government rules.

♦

Services

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♦

We 7 our nominee can collect cross pay order.

♦

Profit amount can be send to you by postal money order & demand draft.

♦

Profit will be paid from that branch where you have opened Khush-hali Account.

♦

If a customer has a saving or current account in this bank then profit can be deposited in that account.

The following table gives the monthly returns on various amounts, based method of calculation.

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AMOUNT (Rupees)

MONTHLY PROFIT (Rupees)

1,000,000

10,830

500,000

5,416

100,000

1,083

50,000

541

25,000

270

In Case of Premature Encashment The following rates of profit will apply: ♦

If the certificate is held for less then 90 days No profit

♦

If the Certificate is held for 3 months but less than 6 months PLS rate

♦

If the Certificate is held for 6 months but less than 1 year PLS rate

♦

If the Certificate is held for 1 year but less than 2 year PLS rate

♦

If the Certificate is held for 2 year but less than 3 year PLS rate

♦

If the Certificate is held for 3 year but less than 4 year PLS rate

♦

If the Certificate is held for 4 year but less than 5 year PLS rate

4. Khush-hali Bachat Account Target Market ♦

Individuals who want to pay dues of insurance, HBFC& instalment.

♦

Individuals living abroad but their families are in Pakistan.

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♦

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Busy individuals who don’t have time to pay their dues monthly.

Special Incentives ♦

Return is calculated on daily average balance.

♦

Profit is paid half yearly.

♦

It can be operated at mostly all the branches of MCB.

5. Capital Growth Certificate MCB has a risk-free return scheme by which your capital can grow to nearly double the amount in just a few year time. All that is required is a minimum amount of deposit. At the end of the stipulated period, the bank returns close to twice as much. Target Market ♦

Individuals interested in medium term saving schemes.

♦

Individuals of middle income class group.

♦

Individuals accounts.

♦

Individuals interested to save fund for lump sum, education & marriages.

♦

Individuals seeking inflation rate.

keeping

excessive

protection

balance

against

in

current

increasing

Conditions ♦

Minimum deposit will be Rs 10,000 with no limit for maximum.

♦

Time span is minimum five years can be expanded to 5 years.

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Interest Initial Deposit (Rupees)

Payment upto maturity (approx.) (Rupees)

10,000/-

20,000/-

50,000/-

100,000/-

100,000/-

200,000/-

1,000,000/-

2,000,000/-

♦

In case of premature encashment of certificates, the depositor will be given “PLS Saving Accounts “ profit rates declared by the bank for that particular period.

♦

Depositors will be required to fill in Account Opening Forms.

6. Fixed deposits Fixed deposits are those deposits which are by the bank under the conditions that they will not be payable on demand but will be payable under fixed or determinable future time date.

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FOREIGN EXCHANGE DEPARTMENT Import This department provides the facility to their customers to import machinery or products from other countries. It is necessary for the importers to have the licenses, which is issued by the chief controller of imports and exports. Before obtaining an import license the license must be registered with the chief controller of import and export. For having the license, an individual or firm submits the application through his bank.

Documents Required ♦

Filled application form for Register

♦

The National Identity Card of the applicant

♦

National Tax Certificate issued by the Income Tax department

♦

In case of firm or company, the Memorandum and the Article of Association.

Banker issues the letter of credit normally in the response of the Performa Invoice. The seller sends this invoice to the buyer and it contains seller name, product quality. Rate, mode of shipment, and other terms and conditions.

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Letter of Credit Definition of letter of credit A letter of credit is a written instrument issued by a bank authorising the seller to draw in accordance with certain terms and stipulating legal forms, that all such bills will be honoured.

Explanatory Definition A letter of credit consist of an undertaking by an issuing bank that bills drawn by the exporter will be duly owner provided the comply with the terms of credit.

Reasons For L/C 1) The exporters are uncertain of the importer capacity to

pay. 2) The importers are unwilling to pay the amount unless

the goods are actually shipped and the documents received by the bank. 3) In case of non-payment the seller should be assured to

legal rights in foreign country. 4) There should be an agency, which should meet the

seller’s need of finance when the goods are shipped. 5) The commercial banks come to the help of exporters

and importers. 6) The importers can undertake the obligation to pay to

the exporter for the purchase made by the importer and this is usually done through a letter of credit.

Explanation A letter of credit is a:

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1) Written undertaking by importers bank to a third party

i.e. the exporter. 2) That it will be pay or accept draft (letter of credit)

drawn upon it up to a started sum of money within a specified time. 3) That the payment will only be made to the exporter if

he complies with the specified terms of credit.

Parties Involved in a Letter of Credit There are four parties involved in a letter of credit ♦

Account party

♦

Issuing party

♦

Exporter

♦

Paying or negotiating bank

Account party or Importer The buyer or the importer on whose account and request the letter of credit is opened is known as account party.

Issuing party The bank, which issues or opens a letter of credit at the request of importer, it is called the issuing bank.

Exporter The seller or the party in whose favour the letter of credit is draw is the third party and it is also known as beneficiary.

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Paying or negotiating bank The paying bank in the exporter’s country on which the draft is drawn is called the paying bank.

Operation of a letter of credit 1) The importer of buyer contacts the seller in foreign

country for the purchase of a particular good or goods. 2) He settles with the seller the quantity and quality of the

goods to be importer. 3) The sale contract also includes the method of payment. 4) The importer then submits an application to his bank

for the issuing of an individual letter of credit. 5) The form on which the importer employees for a letter

of credit is supplied by the bank. 6) This form contains all the necessary details discussed

between the importer and exporter for the shipment of goods which include the description of merchandise, port of shipment, port of unloading, the documents against which the bank is the honour the draft, the total value of the goods etc. 7) If the documents supplied by the seller conform to the

terms of contract the exporter will be paid. 8) The issuing bank will not be responsible if there is any

fraud or the merchandise does not conform to the sales contract. 9) The obligation of the buyers bank is,

To issue letter of credit on agreed terms and condition with the buyer. To have a proper examination of the documents. To honour draft documents..

when

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Types of Letter of Credit 1) Irrevocable letter of credit 2) Revocable letter of credit 3) Confirmed letter of credit 4) Unconfirmed letter of credit 5) Documentary letter of credit

1. Irrevocable letter of credit It is the one in which the issuing bank gives a lasting undertaking to accept and in due course to pay bills drawn upon it provided the exporter fulfils the terms and conditions. It gives a complete protection to the exporter.

2. Revocable letter of credit It is the one in which can be modified or cancelled by the issuing bank at any time without any obligation on its part. They are not acceptable to the businessman.

3. Confirmed letter of credit It is that which has the protection of the credit standing of the importers as well as the exporter’s bank. The exporter bank, which confirms the letter of credit, takes the liability of paying in case the issuing bank fails to make payment to the exporter.

4. Unconfirmed letter of credit It is one under which the exporter’s bank does not give any guarantee to the exporter that the bills drawn will be honoured by the issuing bank. It is the commitment of the

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issuing bank to honour the draft. From the exporter’s point of view, the confirm irrevocable letter of credit is the best form of receiving payment.

5. Documentary letter of credit It is the one of which provides for bills to be accompanied by documents of title to goods such as the bills of landing, invoice, the policy of insurance etc.

How a letter of credit is opened? 1) Application for a letter of credit 2) Line of credit 3) Opening of the letter of credit 4) Handling of the documents 5) Payment by the importer to the bank 6) Liability of the issuing bank

1. Application for a letter of credit An importer prepares an application on the prescribed form available from the bank. The information which are supplied in the application are based on the contract of sale and include only the importer feature of contract such as the value of the merchandise, port of shipment, port of unloading, expiry date of the papers and brief description of the goods. If the bank is satisfied with the applications, it will signed and acceptance agreement with the importer.

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2. Line of credit Before issuing a letter of credit, bank takes all necessary precautions for securing its credit.

The bank first

examines the customers credit standing, the type of goods to be imported, the market demand for the goods, the collateral offered to cover the credit. Then it establishes the amount i.e. the line of credit.

3. Opening of letter of credit The letter of credit can be opened by mail or by cable. When it is opened by mail, the issuing bank sends letter of credit and to carbon copies to the importer. The importer then dispatches the letter of credit to the exporter in foreign country by mail. One carbon copy is kept for the record. The second carbon copy after signing is sent to the bank by the importer. If an importer directs the bank to open letter of credit by cable, the importer’s bank sends a cable to the corresponding bank in the foreign country with a request to notify the exporter.

4. Handling of the documents When the exporter receives a letter of credit, he presents the required documents and the draft to the bank in his own country after shipping of documents. If the bank is satisfied with the documents in the importing country and pays the exporter at official rate in the currency of his own country.

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5. Payment by importer to the bank When a bank approves the application of a customer for opening letter of credit, it does not lend money to the importer.

The bank only lends the importer to use the

credit standing of the bank to the exporter in the foreign country. The bank makes a contract with the importer that when the draft if send by the negotiating bank for payment the importer will make the payment to the bank not later then the day only the bank is to honour the obligation. In case of a sight letter of credit the payment to the corresponding bank is to be made on the day the draft and documents are received. When the time of letter of credit is used the importer is to arrange the payment not later than the day on which the draft is to mature.

6. Liability of the issuing bank The liability of the issuing bank is to examine the documents in order to confirm their validity.

If the

documents on the face appear to be in order the payment should be released.

If any defect is found in the

documents and the issuing bank honours the draft, the importer

can

claim

damages.

The

banker

is

not

responsible to see whether the merchandise conform the sale of contract or they physically exist. The issuing bank is only responsible for the completeness and regularity of the documents relating to the letter of credit.

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Importance of Letter of Credit The bank charges nominal commission on financing the import and export shipment.

Benefits to the Banks ♦

Increased balances

♦

Commission

♦

New business opportunities

Increased balances ♦

The balances are the lifeblood of every commercial bank.

♦

The banks get mark up on the credit and this mark up increases the money of the bank

Commission The commission charged by the banks varies with the kinds of letters issued by them. Though the commissions are small, yet when counted on the whole, they form an important part of earning of the banks.

New Business Opportunity The letter of credit provides new business opportunity to the bank. The firms, which are engaged in the export and import of merchandise, are introduced to the banks, which by serving them develop profitable relationship.

Opening of Letter Of Credit In MCB Before opening of L/C certain requirements are necessary that are

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♦

The applicant must has import registration #

♦

He must has account in that bank

♦

He must pledges his security against the L/C amount

♦

He must have IB-8 form, indent or agent form, and performance invoice.

Bank Charges ♦

The bank takes commission @ 0.40 % of amount of L/C for one quarter and 0.25% for two or more quarters.

♦

If L/C amount is low then minimum bank commission is RS 500/-

♦

Postal charges are RS. 1200/-.

♦

Stamp duty is calculated @ 0.50% of L/C amount.

♦

Mark up is calculated at RS 0.50 per day per 1000.

For Collection ♦

In case of sight payment service charges are calculated @ 0.10 % of bill amount and minimum charges are RS. 500/-and handling commission is RS. 500

♦

In case of D/A L/C, commission is calculated @ 0.10 % per month

Advantages of Letter of Credit Advantages Of letter of credit to the importer and exporter ♦

Provision of finance

♦

Credit standing

♦

Legal right

♦

Risk covered

♦

Business expansion

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♦

Bridges credit gulf

♦

Payment in domestic currency

Shipping Terms The following shipping terms are used in international trade. ♦

EX-works

♦

FCA ( free carrier)

♦

FAS(free along side)

♦

FOB( free on board)

♦

CFR(cost & freight)

♦

CIF(cost insurance freight)

♦

DAF(delivered at frontier)

♦

DES(delivered EX-ship)

♦

DEQ(delivered EX-quay)

♦

DDU(delivered duty unpaid)

♦

DDP(delivered duty paid)

Documents Documents are the most important part of international trade.

Without

them

trade

Documents are of five types. 1) Commercial documents 2) Transport documents 3) Insurance documents 4) Financial documents

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5) Official documents

1. Commercial Documents Commercial documents consist of following forms. ♦

Invoice form

♦

Certificate of origin

♦

Weight note

♦

Packing list

♦

Quality or insurance certificate

2. Transport Documents These documents are related with transfer of goods. These documents consist of following forms, ♦

Airway bill

♦

Bill of lading

♦

Rail consignment note

♦

Roadway bill

♦

Combined transport bill of lading

3. Insurance Documents Insurance documents consist of following forms. ♦

Letter of insurance

♦

Insurance policy

4. Financial Documents These documents are concerned with the payments of goods. These documents consist of following forms.

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♦

Bill of exchange

♦

Clean bill

♦

Short bill

♦

Documentary bill

♦

Bank bill

♦

Delivery against acceptance

♦

Delivery against payment

♦

Promissory note

5. Official Documents These documents consist of following forms. ♦

Black listed certificate

♦

Consular invoice

♦

Health, Vetenary, Sanitation certificate

Export Usually the exporter does not rely on the credit of a banker in the country of importer, and insist on a confirmation from a banker carrying on business in his own country. Thus this department of a bank helps the exporters to settle down their financial affairs.

For exporting it is

necessary for exporter to get export license from the chief controller of import and export after registration. Documents are required for the registration such as N. I. C. Card, income tax certificate, bank certificate which shows that the exporter is his account holder and have a good dealing with them.

In response to the letter of credit

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exporter

submit

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the

following

documents

to

the

negotiating bank. ♦

Bill of exchange

♦

Invoice

♦

Bill of lading or Airway bill/railway receipt/truck receipt

♦

Insurance documents

♦

Packing list

♦

Any other documents, if so required.

The negotiating bank will send the same documents to the issuing bank. In accordance with the terms and condition laid down in letter of credit.

Security of Documents Whether documents received are meant for the opening bank and specifically for the branch which established the letter of credit. The documents would be negotiated within the validity of L/C. The goods have been shipped within the time allowed under L/C. The goods are mentioned in invoice and other documents (e.g. bill of lading, packing list etc) are in accordance with merchandise clause L/C. Whether the documents received pertains to L/C , established by the opening bank and the documents negotiated are within or equal to L/C amount.

In case

where the value of documents exceeds the L/C amount, the foreign bank may negotiate the documents for amount being marginally excess or sends them on collection,

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remittance may be allowed in excess subject to the following conditions ♦

The amount does not exceed 5% of the amount of L/C subject to the maximum of US$ 500/-

♦

The importers holds a valid import license against which the excess amount is adjusted-provided remittance is effected within 1.5 year from the date of issue of import license.

The name of the importer on the Bill of Exchange does not differ from that on the import license. The tenor of the bill should be valid. See that the goods are not shipped prior to the date of opening of L/C or the documents are not stated. The goods are consigned or endorsed in the favor of the bank only opening the letter of credit, and in no case it should be consigned to the importer directly.

Retirement of Documents When the opening bank against a letter of credit receives documents.

The customer retires the documents under

different arrangements e.g. ♦

Retirement against payment by the importer

♦

Retirement of documents in case of None-payment by the importer

♦

Retirement of documents under trust receipt

Retirement Against Payment by the Importer The importer approaches the bank for retirement of the shipping documents. Mark is calculated and recovered on 63

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the bill amount for 230 days @ 12.55% for each RS. 100/or part thereof on payment against documents (PAD) for intimation purpose only.

Entries Passed by the Bank ♦

Debit

importer a/c

♦

Credit

PLS-payment against documents A/C

♦

Credit: PAD

PLS-income a/c mark-up recovered on

♦

Credit:

telegram/telex/postage charges a/c.

Retirement of Documents under Trust Receipt Shipping documents are released to the importer on trust, that he may get the goods cleared from the custom authority by himself, sell the good, and later pay back the bank.

Trust receipt financing is limited to first class

customers only as the bank reposed fullest confidence on the importer. Documents are obtained from the customer. The finance is provided for the period of 45 days only. Calculation of Amount of Finance Rupee value of bill plus foreign bank charges plus taxes, less SBP margin restriction = Amount of finance Mark up is calculated @ 0.43 RS. Per 1000 per day on the amount of finance utilized. After the retirement of documents the opening bank then transmit the funds to the negotiating bank. The exporter will receive the payment from the negotiating bank.

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Export Re–Financing It is most important features of export. Export refinancing is used to enhance the export of the country. It was firstly started in 1977 and re-established in 1994.

Here the

exporting companies can get advances at a very low mark up i.e. lower then inflation rate. Banks get advances from State bank at 6% and provide advances to the exporting companies at 8% and 2% is spread of the bank i.e. is the income of the bank. This export-refinancing advance can only be used for export and not for other purposes, state bank gets information about export through E – form. There are two parts of export refinancing. ♦

P-1

♦

P-II

P-1 Two forms of P-1 are pre-shipment and port shipment

P-1 Pre-shipment In P-1 pre-shipment companies make an agreement with foreign companies and get loan from the bank to make products and shipping them to foreign countries i.e. they get advance before shipping the products.

P-1 Post-shipment In P-1 the post-shipment companies make an agreement with foreign countries and produce some of the products and ship them and get advance from the bank to complete the shipment. 63

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P-II In P-II pre-shipment companies get lumpsum for the whole next year and the entire amount can be used to export the products. The companies have to export double than the advance gets through P-II shipment. In P-II pre-shipment the lumpsum amount can be calculated on the basis of performance of the last year. If a company is unable to make double export than the advance, then bank makes some penalty in the forms of amount against the company.

Special Products Export refinancing cannot be applied for exporting all types of products. Some products are ♦

Cotton cloth

♦

Cotton products

♦

Finished leather

♦

Refined sugar

♦

High quality yarn i.e. more than thirty count

Each company has different limit at a time and bank has to make a report at the end of each month and one copy of that report is sent to state bank and one copy to head office at Karachi. Different limits are, ♦

Cash finance

♦

Running finance

♦

Demand finance

♦

Export refinancing I

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♦

Export refinancing II

♦

FAFB

♦

FBP

Internship Report

Forms of Export Re Financing Different forms are required for export refinancing. These forms are ♦

Undertaking as per Annexe UT-DE-1

♦

Form DE-1

♦

Form DE-2

♦

Original contract

♦

Undertaking as per Annexe A

♦

Certificate of non-availment of loan.

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CLEARING DEPARTMENT Cheques When we talk of cheques then there are two types of cheques

1) Open Cheque Open cheque has following properties: ♦

The word Bearer is not crossed.

♦

Cross stamp is not there

♦

Cheque is not of limited companies.

♦

Self or name should be written on the cheque.

Token A token is given on open cheques when presented to bank for payment. In this case payment is made at the spot to the cheque holder. First of all cheque is presented to bank for payment. The name of holder, no of cheque and amount is written on the register by the bank employee & token is given to cheque holder. Then Cheque reaches the computer

department.

There

it

is

again

feeded

in

computer & it is stamped after checking the holder has enough amount in his account or not. After feeding in computer ( debiting holder’s A/C ) , the cheque reaches the cash department where the holder can receives his cash by giving token to the cashier provided that he has enough amount in his A/C.

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2) Crossed cheque When the cheque does not fulfil the requirement of open cheque then it is known as crossed cheque.

A) Transfer Delivery When cheque has following properties then it is proceeded as Transfer Delivery. ♦

Cheque is crossed.

♦

Cheque is of MCB.

♦

Cheque is from local branch.

In this situation cheques are collected separately as transfer Delivery. Procedure In Transfer Delivery following process is done. First of all cheques are noted in Transfer Delivery Ledger with the date in advance because it takes one day to reach cheque issuing branch in the same city. In T.D Ledger Name of account holder, Number & amount of Cheque are written and two copies , one original and one carbon copy of voucher SF-73 B are prepared. Original copy of voucher along with cheque is send to issuing branch while carbon copy and Pay-In-Slip is with the bank. The cheque with voucher goes to Main branch then to issuing branch and then reverse from issuing branch to main branch and then to our branch.

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B) Clearing In clearing the cheques which are ♦

crossed

♦

limited company

♦

different bank in the same city

Procedure Such cheques are collected as clearing cheques and are noted in Clearing Ledger. Two copies of voucher SF-37 are prepared (See Annexe

) . Original voucher with the

cheques are send to Main branch which then send to S.B.P in advance date. The payment is not given at hand but it is transferred to account of account holder. In case if cheque is returned due to number of reasons then the objection is finished and again send to main branch but this time a credit voucher along with original cheque is send to main branch instead of any Pay-In-Slip.

Advance Clearing When cheque is sorted for clearing because of different branch in the same city then we note these cheques in two days advance date because it takes more time to reach that faraway

branch . For example HBL of Baha-ud-Din

Zakariya University Multan.

Procedure of Payment of Cheque of Foreign Currency When cheques are denominated in foreign currency then procedure is not like that of ordinary cheques of Rs. First of 63

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all cheques are issued and the person give cheque to another person. When any party receives cheque in foreign currency to deposit in his account then it gives it to the ban where he has his bank account. The Bank sends this cheque to its Head Office. Head Office send it to the country where transaction is done over that currency. Then cheque goes to New York. From there it is send to that issuing bank (domestic) from where party has received cheque whose bank whose cheque it is. N.Y is credited and that bank is debited by that amount. N.Y send it to head office of our Bank. Then H.O is credited and N.Y is debited. Amount of Foreign currency is then send to main or local branch where the party has its account. Now the account of that person is credited and the H.O is debited Now there may be two cases: 1) Either account is in Pak Rs. 2) Or account is in that country 3) Or account is in Foreign Currency other than the

currency in cheque.

C) Cheque Collection When cheque is from another city then it is grouped as C.C. Procedure SF-37 form is used in Cheque collection (See Annexe

)

Original voucher with cheque is send to main branch.

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Carbon copy with Pay-In-Slip is taken by bank for record purposes.

Pay-In-Slip Here it is very necessary to have knowledge about Pay-InSlip Purpose It is used for two purposes ♦

Whenever we want to deposit cash in our account then pay-in-slip is used by writing amount on it and depositing it to cashier along with money.

♦

Whenever we have cheque from any party to be collected in our account we fill pay-in-slip . One part is attached with cheque and another is given to cheque holder as a receipt.

Types It is of two types depending upon the type of account. ♦

Green Pay-In-Slip is used for Saving Account (See Annexe )

♦

Blue Pay-In-Slip is used for Current Account (See Annexe )

Stamps Used In Bank (MCB) Following stamps are used in for different purposes.

(1)Cross Stamp This stamp is used to cross the cheque. Crossing can be done by 3 ways.

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a) General Crossing Sometimes the cheque is crossed by the drawing two lines on the upper left corner of the cheque without writing any sentence on the cheque. b) Written Crossing Cheque can also be crossed by stamping it with sentence “Pays Account Only” c) Special Crossing Crossing can also be done by stamping a cheque with the words “MCB GBS Branch”. This means that now cheque is in use of bank only. If it is lost or dropped then it is of no use to anybody because now it is a cheque of bank. This cheque will not be cashed any where else.

(2) “Payees Account Will be Credited on Realisation” This is used to stamp on the back of following instruments. Cheque (simple). 2) Travellers Cheque. 3) Pay Order. 4) Speed Cash. This means that the account of the payee will be credited provided that cheque is accepted by Drawer’s bank otherwise not.

(3) Disbursement Guaranteed; Payees Account will be credited on Realisation It is used to stamp on the back of following instruments 1) Demand Draft . 2) Foreign Remittance

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(4) Payees Account Credited This stamp is used on back of those cheques which are of the same branch. It is of guarantee that if there is no problem with the cheque or A/C then Payees account will be credited.

(5) Clearing Stamp This stamp is placed in front of clearing voucher on the same day in which clearing was made (one day advance date). Or the date in which it is presented by Main branch in State Bank Of Pakistan. (6) Round Stamp MCB It is used in two places. ♦

When we are dealing with C.C then we write the number of C.C which is written inside the stamp. One stamp is on cheque and other on Pays-In-Slip.

♦

When we fill Pay-In-Slip and give it to along with cheque then he places this the face of one part of Pay-In-Slip signature on it and give it to the evidence.

the bank officer round stamp on and marks his customer as a

(7) Pay Cash This stamp is used when cheque is not crossed, it is open cheque. The officer places this stamp on the front of cheque and writes token number on it. This means that payment in cash will be made of this cheque on presentation of token to cashier. This is like indication for cashier to pay cash.

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Reasons for Cheque returned unpaid in Cross Cheques Following are the reasons for the cheque return. ♦

Cheque incomplete

♦

Clearing stamp Required.

♦

Drawer’s sign incomplete

♦

Drawer’s sign different from specimen

♦

Post Dated

♦

Payment stopped by drawer.

♦

Amount in words and figures differ.

Report of Lost or Stolen cheque In case of lost or stolen incidents following procedure is performed. ♦

Cheque no of lost cheque

♦

Whether it was single or double signed.

♦

Whether it was crossed or related to someone

♦

Phone / Fax of reporter.

♦

NIC no of reporter.

♦

Signature of reporter.

♦

How cheque was lost.

♦

FIR Lodged or not.

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Green Sheet At the end of banking time ( 1:30 o’ clock), three Green sheets are prepared for clearing , cash and account side. One Green Sheet is also prepared by clearing department.

Heads in Green Sheet Green Sheet has following Heads:

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1) Current A/C(2) Saving or PLS A/C (3) Other A/C(4) General A/C M.T Payable T.T Payable Pay order D.D Payable

H.O A/C Other than 3,2 &1

Sides of Green sheet There are two sides of green sheet:

Debit Side

&

Credit side. Both sides should tally in figure amount. If Credit total

Debit total =

then sheet is balanced and there is no

mistake. It should be taken care that cheques are always debit and pay-in-slip is always credit. If voucher is of Pink colour then it will be on credit side and if it is of blue colour then it is debit side.

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RTC DEPARTMENT This department deals in RTC. It stands for Rupees Travellers Cheques. MCB RTC has the largest share of the total RTC Market. Over 1.5 Million satisfied customers have made MCB RTCs. These are printed in the UK and carry a thread watermark- a feature that prevent counterfeiting.

Important Features As good as cash The most convenient substitute for cash for all kinds of transactions(property, trade, personal etc).

Denominations Cheques are available in the denomination of Rs 1,000 Rs 10,000 Rs 50,000.

Easily Encashed They can be encashed at any MCB branch.

Easily refundable In case of Loss Or Theft we can get the full amount back.

Exclusive Security Features MCB RTCs can’t be duplicated. Various security features both in design and materials make counterfeiting or fraudulent alteration extremely difficult.

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Valid Until Used Validity of Cheque is indefinite. We can use them for a week, a year or more after the date of purchase.

Televerification System It enables us to check the validity of cheque 24 hours a day . Televerification UAN (021) 111-000-456.

Procedure First of all RTC-10 is given to customer. It is filled and then cash is deposited to cash department . One copy is for office and one copy is given to the customer and RTC are issued at that time. When RTCs are sold then H.O A/C is credited by using form no RTC-20. It has five copies: A,B,C,D,E. A= H.O copy, B= RTC Dept, C& D= Branch. When RTCs are returned or purchased by the MCB then H.O is debited by that amount by using form RTC-30. Summary of al RTC purchased by branch is made on form RTC-40.

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REMITTANCE DEPARTMENT Remittance Transfer of money or equivalent to money from one branch to another branch of the same bank is called remittance.

Important Terms Originating branch It is the branch from which money is send to another branch or the point of origin of remittance.

Responding branch The branch which receives the instrument or money for remittance is known as Responding Branch.

Types of Remittance Remittance is classified into following four types: ♦

INWARD REMITTANCE

♦

OUTWARD REMITTANCE

♦

INLAND REMITTANCE

♦

FOREIGN REMITTANCE

a) Inward Remittance The branch which receives the instrument(T.T, D.D etc) directly from the customer or from the originating branch and is responsible to pay to party is called inward

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remittance. For example if some D.D is drawn on our bank and we have to pay the party( to whom it was send).

b) Outward Remittance The branch which issues or sold the instrument to the responding branch is called outward remittance. In this case we are sending remittance to another branch of the same bank in any location.

c) Inland Remittance Transfer of money from one branch to another branch of the same bank within the same country is called inland remittance.

In this case both originating branch and

responding branch will be situated in the same country.

d) Foreign Remittance Transfer of money from one country to another country is called foreign remittance.

Modes of payment MCB uses following four types of modes of payment 1) DEMAND DRAFT (DD). 2) PAY ORDER (PO0. 3) MAIL TRANSFER (MT). 4) TELEGRAPHIC TRANSFER (TT).

1. Demand Draft ♦

Demand Draft is used for the transfer of money outside station.

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♦

A draft is an instrument drawn by a bank in favour of any person on a branch of its own bank or any other bank to pay a certain amount of money which is demanded to the person named on it.

♦

It is not necessary for the demand draft that applicant or recipient account should be open in originating and responding branches.

♦

It is one of the cheapest methods of transference of money within the country or outside the country.

♦

Applicant has to fill in the application form for availing the facility of demand draft. After depositing the amount of draft, remittance officer prepares the cheque of demand draft.

♦

When banker issue draft to the customer, he also records customer particulars in a demand draft register where record is maintained branch wise.

♦

Responding branch and originating branch debit/credit the head office account and send the daily statement of transaction to head office.

2. Pay Order ♦

Pay Order is used as instrument for transfer of money within station or city.

♦

Pay order is written order, which is issued and received by the same bank or drawn and payable on same branch.

♦

For pay order it is not necessary that applicant should be account holder.

♦

It is used for local transference of money from one person to another.

♦

The bank charges excise duty and flat rate from the applicant.

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3. Mail Transfer ♦

The transfer of money from one branch to another branch of the same bank through mail or courier service is called mail transfer.

♦

The applicant should be the regular customer or the account holder of the responding as well as originating branch.

4. Telegraphic Transfer ♦

Originating branch send funds to responding branch instantly and immediately through telegram and fax.

♦

Bank charges commission, telegram/fax charges on telegraphic transfer.

Documents Prepared a. Application Form (SF-100) Firstly, the application(see annexure

) is filled by the

applicant in which he writes the name of payee, his a/c # & the name of branch to which TT is sent as well as the depositor’s name, his a/c # & address. Then in the office, they collect the charges, commission & excise duty. Same prescribed application form will be used for MT, TT, DD, and PO. It is understood that in case of T.T or M.T the remittance is being sent at our entire risk .In case of T.T Or M.T, there are two options:

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1: Advise & Pay Here the bank informs the beneficiary (to whom the money is sent ) through telephone or personal contact about the incoming cash.

2: Credit Account No In this case, if the beneficiary has Account with the Responding Bank

then his account is credited by the

incoming amount without informing him. When the applicant completely fills the application form then he is asked to sign at the bottom of the page. After signing, the applicant deposits the cash (cash to be sent + Charges) at the cash counter and receives the application back by having stamped and signed by the cashier. This application is then submitted to officer.

b. Memorandum (SF-237) The officer gives Memorandum to the applicant as a evidence of Remittance (see annexe

). Bank charges

along with some information about Remittance is written on it. Officer signs at the end of the form.

c. Fax/ Telegraphic Message In

case

if

FAX/Telegraph

the

Remittance

then

a

is

special

being

sent

form

known

Fax/Telegraphic Message” (see annexe I t contains following information:

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)

through as

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T.T No, R.No, Control, Total Rs Amount, Favour, A/C No Of Beneficiary, Test & Date.

T.T No & R.No: These numbers are noted from T.T register which contains every information of every T.T sent to different cities( T.T register will be explained more in coming pages).

Control It is the number written on the form “Confirmation Of Cable Sent” ( SF-89A).(See annexe

)

Favour & A/C No It shows the name of person & his account to whom the cash is being sent.

d. Confirmation Of Cable Sent (SF-89-A) These are two vouchers A & B. Special features of this form are Originating branch, Responding branch, Date Total amount & Branch code of both branches. For Example Branch code of MCB GBS Multan is (1412). These vouchers are used to credit & debit purposes (see annexe

).

e. T.T Register T.T.No

R.No Control

Favour

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Amount

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Head Office Account All transaction relating to remittance will be routed through head officer account. have an account of

All the branches of MCB

“Head Office”.

Through this Head

Office account it become easier for branches to do the transaction with other branches and update their books.

Whole Procedure 1) First of all application is filled by the applicant. Cash is

deposited in the cash department. Applicant is provided with Memorandum as an evidence. 2) Now starts the work of Bank officer. The officer enters

the information on the Register. In case of T.T, the T.T No, R.No, Name of Beneficiary, Branch, Code Of branch, Date, Account of beneficiary is written on the register. 3) Then “Fax / Telegraphic message” is filled which also

contains the same information as that of register. 4) Two Vouchers are prepared (SF-89-A & SF-89-B) which

are in Green & Pink colour. Amount of T.T is written on them. They also contain the heads of Originating Branch and Responding branch. 5) Then Test Is written on the extreme left column( T.T,

M.T, P.O No). The procedure of it’s calculation is written above.

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FINANCIAL ANALYSIS OF MCB For Year 1997-98 Ratios Interest earned / Advances Interest paid / Deposits Admin Expenses / Deposits Investment / Deposits Advances / Deposits EBT / Deposits ROA ROE EPS Cash Dividend / Share

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1998 27.33 % 8.94 % 4.85 % 46.75 % 50.81 % 0.76 % 0.27 % 11 % Rs 2.19 Rs 1.75

1997 26.32 % 8.17 % 4.85 % 46.70 % 51.74 % 0.99 % 0.21 % 9% Rs 1.31 Rs 1.50

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Explanation ♦

Interest earned to advances increased in 1998, which is a positive sign and shows increased income of the bank, and its improving financial position.

♦

Interest paid to deposits, investment to deposits and administration expenses to deposits, the firm has been able to sustained its position and expenses. There is an increase in the income of the bank, but there is no major increase in expenses. This shows a satisfactory position of the bank.

♦

The ratios of advances to deposits and EBT to deposits are not showing a healthy sign due to: The bank has paid a big amount as a cost/return on deposits The bank has given less advances in 1998 as compared to 1997

♦

The return on assets and return on equity are showing a good position, which refers to an improved financial position.

♦

The EPS and cost dividend ratios are showing an increasing trend, which means the firm is enjoying a good financial position.

♦

Overall MCB has a good and healthy position. The profitability and income is increasing, which is attracting new depositors and investors.

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PREFACE Prerequisite of MBA study is to undergo internship. I got the opportunity to join the MCB General Bus Stand Branch, Multan for the said purpose for a period of 6 weeks. Practical

involvement

was

a

great

experience

as

interactions both with the experienced executives and clients cemented the base of knowledge I have been acquiring in the classroom. This internship report includes the material about MCB and different departments along with their working procedure. For the completion of this project I met the various persons of these organizations. As far as my knowledge and hard work is concerned this report will provide a good in sight of MCB. I have special thanks for following persons who have encouraged & guide me lot. I learned very much under their guidance. ♦

Mr. Muhammad Saleem Khan Manager.

Branch

♦

Mr. Liaqat Raza Jaffery

Accountant.

♦

Mr. Masroor Mehmood

Officer. Riaz Hussain

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ACKNOWLEDGEMENT All praise to Allah, the Beneficent, the merciful, and respect for His Prophet “Peace Be Upon Him” who made us recognize our creator. First of all I am highly obliged to my honorable teachers Mr. Muhammad

Shoukat

Malik

and

Mr.

Muhammad

Rizwan because of them I could be able to do an internship in the MCB. I am also thankful to the Employees of MCB who provided me a friendly

and knowledgeable environment through

which I learned a lot.

Riaz Hussain

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CONTENTS HISTORY OF BANKING

1

EVOLUTION OF BANKING.................................................................................................................1 EARLY GROWTH............................................................................................................................1 DEVELOPMENT OF MODERN BANKING...............................................................................................3 BANKING IN PAKISTAN...................................................................................................................4 MUSLIM COMMERCIAL BANK LIMITED

7

HISTORY OF MUSLIM COMMERCIAL BANK........................................................................................7 BOARD OF DIRECTORS....................................................................................................................8 STRUCTURE OF MCB...................................................................................................................10 STRUCTURE OF MCB – GENERAL BUS STAND BRANCH (1412).........................................................12 OVERALL PERFORMANCE OF MCB IN 1998...................................................................................13 CHAIRMAN’S REVIEW...................................................................................................................19 ADVANCES DEPARTMENT

21

1.INITIAL INFORMATION ...............................................................................................................21 2.PREPARATION OF CREDIT PROPOSAL............................................................................................21 3.SANCTION ADVICE.....................................................................................................................22 OTHER TERMS AND CONDITIONS....................................................................................................23 TYPES OF ADVANCES....................................................................................................................24 TYPES OF ADVANCES BY MCB.....................................................................................................26 DEPOSIT DEPARTMENT

36

ACCOUNT OPENING......................................................................................................................36 TYPES OF ACCOUNTS....................................................................................................................36 PROCEDURE FOR ACCOUNT OPENING..............................................................................................36 TYPES OF CUSTOMERS.................................................................................................................38 CLOSING OF AN ACCOUNT.............................................................................................................39 IMPORTANCE OF DEPOSITS FOR BANK.............................................................................................40 TYPES OF ACCOUNTS IN MCB.....................................................................................................40 FOREIGN EXCHANGE DEPARTMENT

50

IMPORT......................................................................................................................................50 DOCUMENTS REQUIRED.................................................................................................................50 LETTER OF CREDIT......................................................................................................................51 EXPORT......................................................................................................................................62 EXPORT RE–FINANCING...............................................................................................................66 SPECIAL PRODUCTS......................................................................................................................67 FORMS OF EXPORT RE FINANCING ................................................................................................68 CLEARING DEPARTMENT

69

CHEQUES....................................................................................................................................69 RTC DEPARTMENT

79

IMPORTANT FEATURES...................................................................................................................79 PROCEDURE ................................................................................................................................80 REMITTANCE DEPARTMENT

81

REMITTANCE...............................................................................................................................81 IMPORTANT TERMS.......................................................................................................................81 TYPES OF REMITTANCE.................................................................................................................81 63

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MODES OF PAYMENT.....................................................................................................................82 DOCUMENTS PREPARED.................................................................................................................84 HEAD OFFICE ACCOUNT...............................................................................................................87 FINANCIAL ANALYSIS OF MCB

88

EXPLANATION..............................................................................................................................89 PREFACE

90

ACKNOWLEDGEMENT

91

CONTENTS

92

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