CHAPTER-03

MCB MAIN BRANCH MARDAN

3.1 Background of MCB Mardan

The MCB main branch bank road Mardan is considered as most active and

productive branch of the city. It was established on 7 th March 1959. The bank

is currently operating with an excellent deposit base and the efficient staff

category which are the back bone in Improving the branch performance and

upgrading of its foreign exchange department to increase bank’s contact with

customers with in the region while the branch is headed by a Chief Manager

guiding to different functions operating within the branch and a sub manager

taking the responsibility of staff’s efficiency working in foreign exchange

department.

Where as the branch is completely equipped and decorated with modern

furniture and a pleasant internal atmosphere, which really attracts the

customers, that to get feel easy during their dealing with bank specially in rush

hours.

3.2 DEPARTMENTS OF BRANCH

The departments functioning at, MCB main branch bank Mardan briefed by its

concerned officers during the internship are:

Accounts department.

Remittance department.

Foreign Exchange Department.

Advance department.

3.2.1 ACCOUNTS DEPARTMENT

The function of Accounts department is to post daily activities of each and

every section. Every department is sending the detailed report of daily

progress to the Account Department for posting the same in the cash book,

also allowed the clean cash register. The transaction then will be shifted to

their appropriate heads. Accounts department deals in two types of registers.

In the income ledger the transactions relating to the income of the bank are to

be posted, like commission from parties, maintenance etc. all the development

expenses of the bank including salaries expenses of the staff, rent expenses

etc are to be posted in the expense ledger. Accounts department also maintains

the deposits, and also prepares the weekly and daily statements of the affairs

of the branch. It is just like a balance sheet.

3.2.2 THE DEPOSITS SECTION

The deposits are one of the most fundamental sections of any bank. This

section had been set up with a view to accept deposits from general public and

which was also a central idea to create a bank. It will not wrong to say that the

banking starts from this section.

3.2.2.1 FUNCTIONS OF THE SECTION

The deposits section carries out many significant functions, besides providing

other required facilities and information to its customers. Some of key

functions are given under:

3.2.2.1.1 OPENING NEW ACCOUNT

Opening of new account is like a contract between the banker and customer,

which is at MCB main branch Mardan is guided by the people under deposits.

It is the preliminary function of the deposits section to open various types of

account, by allotting them numbers.

3.2.2.1.1.1 Types of Accounts

Keeping in view the purpose and duration for which deposits are to be kept

with the deposits section in the bank, the deposits can be classified into two

categories, Demand deposits and Time or Fixed Deposits. The demand

deposits are ones which are payable by the bank whenever demanded y the

depositors. This category includes current and savings deposits accounts.

While on the other hand the deposits which are accepted by the bank under the

condition that they will not be payable on demand but will be payable on a

fixed or predetermined future time or date are called Time or Fixed Deposits.

Following are the types of accounts the deposits department opens.

3.2.2.1.1.1.1 Current Accounts

These are running accounts and are opened by the individuals/businessmen,

public institutions and groups, that make deposits and withdrawals frequently.

The deposits and withdrawals can be made through cheques, demands drafts,

pay orders, etc, drawn on the branch.

As these accounts are payable whenever the depositors demand and the Bank

by accepting these deposits incurs the obligation of paying all types of orders

to the extent of the credit balance in the depositor’s accounts. These deposits

represent current liabilities of the bank. So, the bank has to keep sufficient

funds in its hand to meet the requirements of the depositors of these deposits.

Furthermore the businessmen, who require money frequently, open current

accounts. The bank can not apply the proceeds of such expenses, fees,

commission, markup etc arising out of any dealing or services with the branch.

i. The account holder is expected to maintain a minimum balance of

Rs.500/- in his account or whatever the minimum amount is prescribed

for the purpose.

j. These accounts are completely exempted from withholding tax and

zakat deduction.

3.2.2.1.1.1.2 PLS Saving Accounts

These are also one kind of demand deposits and are kept to develop the saving

sense in the citizens of the country. These accounts are opened mainly by

those customers whose banking transactions are not frequent and numerous.

Lower and middle income groups, small traders, professionals, farmers and

other salaried classes usually make such deposits, so as to save small amounts

for the small or big needs, like purchase of television, refrigerator, car or

house. Funds can be deposited frequently through cash, cheques, demand

drafts, pay orders, telegraphic transfers, and other such instruments. But the

withdrawals are restricted to twice a week.

From the bank’s point of view a considerably percentage of such deposits can

safely be invested and the Bank need not keep larger reserves to satisfy the

daily demand upon such deposits. At the same time the bank pays the profit at

competitive rates on such deposits in long period investments. The bank can,

on the request of its depositors, pay their utility and other bills out of their

accounts. The profit is not paid on these deposits. As a result the bank earns

maximum profit from these kinds of accounts. Providing banking investment

with the proceeds of these deposits and providing, under an agreement,

overdraft facilities to the depositors are the main proposes of the bank by

keeping such deposits.

3.2.2.1.1.1.2.1 SALIENT FEATURE

a. To maintain requirement for opening account is rs.500/-

b. There is no limit for maximum deposit.

c. No limit of deposits and withdrawals is defined.

d. The deposits can be lodged in both local as well as foreign currencies.

e. The bank collects cheques, demand drafts, etc and pay all the bills,

cheques, pay orders, etc, on the behalf of its depositors.

f. The current accounts can be made by:

Individuals (single or jointly)

Proprietorship, Proprietorship, and companies in

their names.

Such other groups and organization.

g. All cheques and other instruments should be crossed, before they are

deposited for credit into account.

h. The bank would not require any prior permission from the account

holder for debiting his/her account for charging deposits, which varies

from time to time usually after every six months.

The objectives of the bank to keep deposits are to earn maximum profit by

investing the proceeds of the deposits, to help small savers, to fulfill their

banking needs and to provide assistance in uplifting the economy.

3.2.2.1.1.1.3 (PLS) TERMS DEPOSITS

The deposit which is acceptable by the bank under the condition that it will not

be payable on demand, but will be payable on a fixed or predetermined future

time or date, is called fixed deposit. But after the islamization of banking

system in 1985, its name has been changed from fixed to PLS Terms Deposit.

These deposits represent such surplus funds of the depositors, which are not

required by them for sufficiently long periods. The bank needs not to keep

greater reserves in respect of such deposits. The bank can make long-term

investments from the credit balances of such deposits. The deposits are

accepted for the range from 3 months to above. Of course, the longer the

period, the higher is the rate of profit offered.

People generally deposit larger amounts of money in these accounts. The bank

can advance loan to businessmen out of these deposits because they are fixed

for a particular period. But for the premature withdrawal of amount a prior

notice to the bank is necessary.

For the amount placed on the term deposit, the bank issues a deposit certificate

(receipt), which states the amount received, the name of the depositor and the

period for which the deposit is placed. Being a deposit receipt it cannot be

negotiated or transferred.

The bank accepts these deposits with the purposes, to make minimum profit

by using the proceeds of such deposits, to appeal customers by offering them a

high rate of return, to meet their entire banking needs, and to help economy to

grow.

3.2.2.1.1.1.3.1 SALIENT FEATURE

a. The minimum deposits is accepted by the bank with the sum of

Rs.1000/-

b. The maximum deposit has got no limit.

c. The deposits are accepted for the period form three months maximum

to above.

d. The PLS term depositors would be eligible for sharing profit/loses with

the bank at true rate determined by the bank.

e. Where profits and losses would be distributed on half yearly basis.

f. On the maturity, the depositors shall have an option either to draw the

deposit and the amount of his profit share if any or renew the deposit.

g. Incase of premature withdrawal a prior notice must be given by the

depositor to the bank on which bank is eligible to maximize the profit

ratio of depositor or to deduct some charges of its services.

3.2.3 REMITTANCE DEPARTMENT

According to concerned officer of this department, the bank promoted the

facility of remitting the funds within certain limits. Remittance department

here consists of two major section.

a. Inland remittance.

b. Foreign remittance.

3.2.3.1 INLAND REMITTANCE

The term inland remittance means transfer of funds from one branch too

another within the country through following banking instruments.

Demand draft.

Telegraph transfer.

Mail transfer.

Pay order.

3.2.3.1.1 Demand draft (DD)

It is written drawn by one branch of a bank upon another branch of the same

bank or upon branch of any other bank working with in the country under

special arrangement to pay certain sum of money to or to the order of specified

person.

MCB deals with two types of dd.

Open DD1

1 Siddiqi, Asrar H. (1993). Practice and law of Banking in Pakistan. 5th Edition. Karachi : Royal Book Company.p.133.

Open DD is one which is payable directly at the counter and there is no need

of crediting to the account.

Cross DD2

Cross DD is one whose payment is done through account, the amount of the

DD is credited to the favoring accounts and then he can transact in ordinary

way through cheque.

3.2.3.1.2 Telegraph Transfer (TT)

Transfer of funds form one branch to another of the same bank or upon other

banks under special arrangements for the payment to beneficiary, through

telegram, telex, fax is allied telegraph transfer.

3.2.3.1.3 Mail Transfer

Transfer of funds from one branch of the same bank inside or outside the

country through mail/courier service is called. Mail transfer are same as for

telegraph transfer, but if a person’s account is not existed in the said branch, in

this case the sending branch will shift the amount to the concerned branch and

advice will be sent to the other bank in which his account exists. In suspense

account the party will have to prove identity.

3.2.3.1.4 Pay Order

A pay order is a written authorization for payment made in a receipt from

issued and payable by the bank to the person named and addressed there, on

this giving a proper discharge there on. Pay order can be made for the branch

of same bank with in the same city. There is option to change bank (name) But

that bank’s branch should be in the same city. The Bank’s commission is fixed

as 5% for any amount.

3.2.3.2 FOREIGN REMITTANCE

The bank provides the facilities of foreign remittance to the domestic

residential and foreigners to send money from one country to another. The

2 Siddiqi, Asrar H. (1993). Practice and law of Banking in Pakistan. 5th Edition. Karachi : Royal Book Company.p.133.

bank also provides foreign exchange in the shape of traveler’s cheques to

intending visitors. Travelers cheque is an order drawn by the bank in favor of

travelers upon specific bank to pay him specific amount on demand after

proper identification abroad. The travelers first pay the amount of money to

the issuing bank, which is responsible to pay the amount to the foreign bank

upon which it is drawn.

Figure 3.1 ORGANIZATIONAL CHART OF MCB MAIN

BRANCH MARDAN

Source: Personal Observation

3.2.4 FOREIGN EXCHANGE DEPARTMENT

Foreign exchange department plays a vital role in the international trade of any

country. By realizing so, MCB has also concentrated and improved, well its

foreign exchange operation as for the efficiency of its employees and

customers satisfaction is concerned.

Under foreign trade operations normal transaction starts with the sales contract

where by the buyer tenders value and the seller goods. There is a degree of

risk involved in the exchange of goods against payment, if geographic distance

increase. The problem is furthered by the fact that buyer and seller belong to

two different countries. Thus in the first place they don’t know each other and

Teller

in second place they cannot ascertain the risk involved and finally the

problems is worsened by the fact that laws of the land differ in each country.

Thus in the ordinary course of business, following four forms of transactions

can take place in international trade:

Advance payment.

Open account.

Documentary collection.

Documentary crudity.

3.2.4.1 ADVANCE PAYMENT

The importer makes the payments in advance payment, first and goods are

received later on.

3.2.4.2 OPEN ACCOUNT

In the open account exporter sends the goods first and payment is made later

on.

3.2.4.3 DOCUMENTARY COLLECTION

In the documentary collection, the remitting back sends the documents and the

importer bank delivers documents against payment. It may be dawn under

sight or acceptance basis.

3.2.4.4 DOCUMENTARY CREDIT

Documentary Credit reduces the risk attached to either importer or exporter

hence an L/C (Letter of credit) is established by the issuing back on the

request of importer and the L/C is sent to the advising bank in the exporter

country which then collects the documents and sends them to the issuing bank

provided they confirm to the terms and conditions of the credit which are then

tendered by issuing bank of payment acceptance as per terms of the L/C.

The Muslim Commercial Bank Road Mardan foreign exchange Department is

divided into the following sections:

Licensing section.

Import section.

Foreign Exchange Remittance Section.

Foreign currency account section.

3.2.4.4.1 Licensing Section

Licensing section it working under chief controller of imports. The main

function of this section is to grant the registration to importers.

3.2.4.4.2 Imports

Imports can be defined as bringing any commodity good into a country from

out side the country through any way or channel. In Pakistan imports are

regulated by Ministry of Commerce, under the export and import act 1950 and

the notification issue there under:

All the imports are done through letter of Credit L/C which is an

understanding or a letter of guarantee issued to the exporter by the bank on

behalf of importer says defaulter the bank will pay and in case the exporter do

not follow the terms and conditions of the L/C the bank will be liable to the

importer.

3.2.4.4.2.1 Types Of Letter Of Credit3

An “irrevocable letter of Credit” cannot be altered or canceled without the

consent of all the parties, i.e. the opener, the opening bank, the confirming

bank and the beneficiary. This credit becomes confirmed as soon as the

advising bank at the request of opening bank confirms the credit to the

beneficiary. In this way the exports gets the double satisfaction of receiving

the payment for goods from the confirming bank, provided he submits the

shipping documents strictly in terms of credit.

3.2.4.4.2.1.1 Revocable Letter of Credit

This letter can be modified or canceled by the issuing bank at any time without

any obligation or its part. This letter is usually not acceptable to the

businessmen.

3 Siddiqi, Asrar H. (1993). Practice and law of Banking in Pakistan. 5th Edition. Karachi : Royal Book Company.p.156.

3.2.4.4.2.1.2 Confirmed

The exporter’s bank, which confirms the letter of credit, takes the liability of

paying exporters in case the issuing bank fails to make payment to the

exporter.

3.2.4.4.2.1.3 Unconfirmed L/C

Unconfirmed letter of credit, the bank through which the credit is negotiated

does not give any guarantee to the exporter that the issuing bank will honor the

bills drawn. From exporter’s point of view the confirmed irrevocable L/C is

the best form of receiving payment.

3.2.4.4.2.1.4 Clean L/C

There these are no conditions attached to bill and the issuing banks makes

payment up to the limit credit, the letter is called a Clean L/C.

3.2.4.4.2.2 OPENING OF LETTER OF CREDIT

The mechanism of financing international through LC is quite simple. The

importer needing some foreign goods, will first of all contact the exporter

outside the country or their agents working here in Pakistan. They both will

sign a contact, which will contain all the necessary information about the

goods to be imported. The importer then will apply for the issuance of letter of

credit through a form, this form contains all the necessary information like the

description of merchandise, port of shipment, port of unloading and quality

and quantity of the commodity. Following documents are required for the

issuance of LC.

a. Application for L.C through a form.

b. Proforma invoice of sending of foreign company.

c. Membership certificate of chamber of commerce or association.

d. Issuance certificate.

e. IBS charge form.

3.2.4.4.3 REMITTANCES IN FOREIGN EXCHANGE

MCB provides the opportunity to his customers to transfer his money from

one country to another; the customer must have an account in foreign currency

in the bank. MCB provides all modes of foreign remittance similar to local

remittances i.e. FDD, FTT, FMT.

3.2.4.4.4 FOREIGN CURRENCY ACCOUNT SECTION

The section deals in foreign currency accounts. Foreign currency account

scheme was started from April 1991 in Muslim Commercial Bank under the

name of “Prime Currency Account”. The account can be opened in personal

name or joint names by Pakistan residents or non-residents or non-residents

foreign Nationals. Foreign currency account can be opened in four global

currencies i.e. US Dollar, Pound Sterling, Japanese Yen, and Deutsche Mark.

Traveler’s cheques and foreign currency notes can also be issued to the

holders of the personal and joint account. Remittances from abroad.

Travelers cheques foreign currency notes and foreign exchange generated by

enchasing (F.E.B.Cs). Foreign Bearer Certificate may be deposited in these

accounts. Rupee loan facility is also available against this account.

The foreign currency account holder can draw any amount of foreign

exchange from foreign currency account and transfer or remit the amount

freely to any part of the World without any restrictions.

The restrictions imposed by State Bank of Pakistan for the opening of Foreign

Currency Account in absence of passports, work permit and resident visa have

been withdrawn. The account will be restriction free.

The prime currency scheme is exempted from all form of taxes including

income tax, wealth tax and zakat dedications. The return on the scheme is up

to 10% per annum, payable in foreign currency only.

3.2.4.4.4.1 MCB FOREIGN CURRENCY ACCOUNTS DETAILS

(PRIME CURRENCY ACCOUNTS)

3.2.4.4.4.1.1 Types

Saving.

Current.

3.2.4.4.4.1.2 Currencies

US DOLLAR.

POUND STERLING.

DEUTSCHE MARK.

JAPANESE YEN.

3.2.4.4.4.1.3 who can open these accounts?

All resident Pakistanis.

All non-resident Pakistanis.

Foreign companies.

Charitable trusts.

Resident Companies locally incorporated.

3.2.4.4.4.1.4 Minimum Amount of Deposit

US DOLLAR 1000.

POUNDS STERLING. 500.

JAPANESE YEN. 150,000.

DEUTSCHE MARK. 2000.

3.2.4.4.4.1.5 Other Opportunities

Free from taxation.

Free from deduction of Zakat.

Free from any sort of questioning regarding the source of funds.

Free from restriction of remittance.

3.2.4.4.4.2 DOLLAR KHUSHALI ACCOUNT

Long-term investment in foreign exchange was not so attractive, so MCB

introduced this scheme in Nov. 1993, to attract customer to deposit foreign

currency even for short time.

The minimum amount for opening of this account is USS 100/- or equivalent

in other acceptable currencies4. The profit on this account is given on daily

basis.

Who can open this account?

i. All resident Pakistanis.

ii. Free from deduction of Zakat.

3.2.4.4.4.3 PRIME CURRENCY FIXED DEPOSIT RECEIPTS

This scheme was introduced in 16th Oct 1991. The minimum amount of

investment is USS 200 or equivalent in other acceptable currencies. The time

period for this scheme is from 3 to 36 months.

3.2.4.4.4.3.1 Who can open this account scheme

i. All resident Pakistanis.

ii. All Non resident Pakistanis.

iii. Charitable trusts.

iv. Firms and companies.

3.2.4.4.4.3.2 Opportunities

i. Free from taxation.

ii. Free from Zakat.

3.2.5 ADVANCES DEPARTMENT

As told by the concerned officers of this department. Advances department is

lending loans to individuals, Companies, Corporations etc for different

purposes. It provides loans for agricultural and industrial development. It

provides the following finances.

3.2.5.1 RUNNING FINANCE

4 Muslim Commercial Bank. (1999). Banking Products and Services of MCB. Karachi: Yaqeen Art Press.p.6.

It is provided only to the current account holder, zonal office can sanction the

loan up to 3 lakes. General Manager of the circle has the power to sanction the

loan up to 1 million; beyond this limit the head office will be sanctioning

authority. The loan can be granted on personal guarantee or any thing tangible

that is acceptable to the bank like stock property must be ensured by the party.

The mark up will be charged as 51 paisa per thousand on daily product basis.

The yearly interest rate is 18.2% the repayment of the loan will be made from

time to time. In running finance the loan up to 3 lakes is called commercial

loan beyond this, the loan is called general loan.

3.2.5.2 DEMAND FINANCE.

The rules in demand finance are same as for running finance. PLS Account

holder can also take the loan after meeting with all the requirements and

standard set by the bank for financing. The repayment of the loan will be made

in monthly equal installments.

The mark up will be charged on the expiry of the scheduled date of loan.

3.2.5.3 STAFF FINANCE.

Where MCB also permits to its staff members for getting loans when needed

for the following purpose.

3.2.5.3.1 House Building

The employee having served for 5 years in the bank, either clerk or an officer

will be granted 80 basic pays as a loan for building house. If the granted loan

exceed Rs. 160,000 the 10% interest rate will be charged.

3.2.5.3.2 Motor Cycle Car, and Personal Vehicle

The car loan may be granted to those employees whose minimum basic pay is

at least Rs. 10,000 and have served for at least 3 years. The employee will be

granted 18 basic pays as loan. If the amount is exceeding Rs. 160,000 the 10%

interest rate will be charged. The maximum Motor Cycle Loan is 56,000. In

this case the officers of above Grade will pay 5% interest.

3.2.5.3.3 Over Drafting (OD)

MCB gives the facility of drawing more than the balance to the reliable and

established customer, by over drafting we mean that drawing more than the

balance held with MCB. After over drafting the bank will show debit balance

of the customer, and will charge interest on the amount over drawn.

This type of facility is provided occasionally and for short term.

There are three types of over drafts.

3.2.5.3.3.1 Temporary Overdrafts

This type of facility is totally under direction of the branch and requires no

security, but the State Bank of Pakistan fixes the limit, MCB can arrange over

draft upto 25,000 rupees.

3.2.5.3.3.2 Secured over draft

It is a continues facility and the branch can not provide it under his own

discretion. Credit Management Division of Head Office sanction is the

sanctioning authority.

3.2.5.3.3.3 Clean over Draft

It is a continuous facility and its limit is fixed by the State Bank of Pakistan.

No security is required in this case.

3.2.5.3.3.4 Finance Against Imported Merchandise (FIM)

It is a short-term facility provided to such importers who are not in a position

of paying and clearing documents due to un availability to funds for the time

being or lack of finance against L.C.

In such cases the importer makes arrangements with MCB, the bank pledges

the imported goods and pays the obligations against L.C. When the importer

pays the amount to the bank he will get goods.