FINI619 Internship Report on NBP 3(1)
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Transcript of FINI619 Internship Report on NBP 3(1)
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Chapter 10 Implementation Plan
CHAPTER 1
INTRODUCTION OF STUDY
1.1 Background of Studies
As part of the academic requirement for completing MBA (Banking and Finance) Master
Business Administration of the students are required to under go six months of internship
with an organization. The internship is to serve the purpose of acquainting the students
with the practice of knowledge of the discipline of banking administration.
This report is about National Bank Pakistan. NBP was established in 1949 and since then,
it has expended its network, becoming the largest commercial Bank of the country. It offers
different products of services to its customers.
Purpose of the Studies
The main of the study in hand is together relevant information to compile internship report
on National Bank of Pakistan.
To observe, analyze and interpret the relevant data competently and in a useful manner.
To work practically in an organization.
To develop interpersonal communication.
Scope of Studies
As an internee in National Bank of Pakistan the main focus of my study research was on
general banking procedures in one of the branches of NBP. These operations include
remittances, deposits, advances and foreign exchange.
Similarly different aspects of overall of NBP are also covered in this report.
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Research Methodology
The report is based on my two months internship program in National Bank of Pakistan.
The methodology reported for collection of data is primary as well as secondary data. The
biggest source of information is my personal observation while working with staff and
having discussion with them. Formally arranged interviews and discussions also helped me
in this regards.
Primary data:
Personal observation
Interviews of staff
Secondary data:
Manuals
Journals
Magazine
Annual reports
Internet
1.5 Scheme of Study
SECTION 1
Chapter 1:
An introductory chapter that discuss the introduction of study of report, its Background,
Purpose, Scope, Methodology, limitations and Scheme of the report.
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SECTION 2
Chapter2
This chapter concludes brief history of banking in general, evolution of banking, banking
in Pakistan..
Chapter3:
This chapter consist Nationalization of banking in Pakistan, History of NBP, mission
statement, its objectives and functions of National Bank of Pakistan.
Chapter4:In this chapter the services of NBP were discussed.
SECTION III
Chapoter5: In this chapter the in this section the departmentation of NBP is explained, and
also NBP Hayatabad township branch.
SECTION IV
Chapter6:
It tells about Strengths, Weaknesses, Opportunities and Threats of i.e. SWOT analysis of
NBP.
Chapter 7:
It consists of comprehensive performance of NBP through past several years. Ratio
analysis and those parties, which are interested in financial performance of Bank.
Chapter 8:
It covers the critical analysis of the bank. This chapter has been divided into four parts i.e.
Problems at the Branch, Functional analysis, Administrative analysis, and Personal
Management Analysis.
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SECTION V
Chapter 9:
In this chapter recommendation for improvement on all aspects of the Bank are given.
Chapter 10:
Two implementation plans are given in this chapter. Mare Gare Car Financing Scheme
and Need for Telephone Operator.
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CHAPTER # 2
EVOLUTION OF BANKS IN PAKISTAN
There are different opinions that how the word Bank originated. Some of the authors
opinion that this word is derived from the word Bancus or Banque, which means a
bench. The explanation of this origin is attributed to the fact that the Jews in Lombard
transacted the business of money exchange on benches in the market place; and when the
business failed, the people destroyed the bench. Incidentally the word Bankrupts said to
have evolved from this practice.
Some of the authors are of opinion that the word Bank is derived from the German word
back, which means joint stock fund. Later on when the German occupied major part of
the Italy the word Back was italicized into Back.
In fact human left the need of bank when it begins to realize the importance of money as a
medium of exchange. Perhaps it where the Babylonian who developed banking system as
early as 2000 BC. At that time temples were used as banks because of their prevalent
respect. During the rule of king Hamurabi (1788 1686 BC) the founder of Babylonians
Empire, loans were started being granted for interest. The borrower has to provideguarantee or he had to pledge his goods or valuables. King Hamurabi drew up a code
wherein he laid down standards rules for procedures for banking operations by temples and
great landowners. Also in Greece, the temples were used as banks, where the people
deposited their money and other valuables for safe custody and security. In Europe with the
revival of civilization (Renaissance) in the middle of twelve century, trade and commerce
started expanding and this development compelled the business community to borrow the
money from the Hebrew money lenders on high rates of interest and usury. Seeing the great
demand, these moneylenders started organizing themselves and bank started up at the
principle seaports of southern Europe. Soon Venice and Geneva became the most
important money markets of the time and banking though different from its present form,
flourished. What we know as modern banking originated in the 14th century in
Barcelona.1
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2.1 Definitions of Bank
Bank
"A financial institution, which deals with money and credit. It accepts
Deposits from individuals, firms and companies at a lower rate of
Interest and gives at higher rate of interest to those who need them.2
A financial establishment which uses money deposited by customers for investment, pays it
out when required, makes loan at interest, exchanges currency, etc.
J.W Gilbert in his principles and practice banking defines a banker in these words:
A banker is dealer in capital or more properly, a dealer in money. He is intermediate
party between the borrower and the lender. He borrows of one and lends to another.3
Sir John Paget defines banker in these terms:
That no person or body, corporate or otherwise, can be a banker who does not
Take deposits accounts.
Take current accounts,
Issue and pay Cheques and
Collect Cheques crossed and uncrossed for his customers4 (The law of
Banking by Sir John Paged, page 51).
The American defined the term banker in a very broad sense as under:
By banking, we mean the business of dealing in credits and by a Bank we
include every person, firm or company having a place of business where credits are
opened by deposits of collection of money or currency. Subjects to be paid or remitted on
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Cheques or order, money is advanced or loaned on stocks, bonds, bullion, bill of exchange,
promissory notes are received for discount or sale.5
2.2 Evolution of Banking in Pakistan
The first phase in evolution of banking in Pakistan sees very hard days for the whole
banking sector. Starting virtually from scratch in 1947, the country today possesses a full
range of banking and financial institutions to cope with various needs of the economy.
The area now constituting Pakistan was, relatively speaking, fairly well provided with
banking facilities in undivided India, in March 1947 there were 3496 offices of Indian
scheduled banks out of which as many as 487 were situated in territories now constituting
Pakistan.
The Reserve bank of India was the central banking authority in India. At the time of
partition it was decided that in the interest of smooth transition it should continue to
function in newly emerging state of Pakistan, until 30 th Sep.1948.
In 1947 due to uncertainty and unsuitability the banking sector suffer heavy losses.
This resulted in a negative effect on baking service in Pakistan. The banks, which had their
registered offices in Pakistan, transferred them to India. In an effort to bring about the
collapse of the new state by pushing a deliberate policy of withdrawals the Indian bank
offices closed quickly. Those banks, which stayed, operated only in name pending the
winding up of their business. The number of scheduled banks thus declined form 487
branches before independence to only 195 branches by 30th June1948.5
2.3 Banking Growth during (1948-1970)
In this tense situation, a committee was immediately setup to formulate a scheme of central
banking legislation for Pakistan. Many specialists were of the opinion that in view of the
acute shortage of trained staff, any idea of establishing a central bank was I impractical and
the best that could be attempted was the setting up of a currency board until such times as
sufficient staff could be organize to operate a central bank.
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The questions as to whether the institution should be only a currency board or a full-
fledged central bank had exercised the mind of the Pakistan government since
independence. Through, it was realized that the shortage of trained personal to run the
central bank would present serious difficulty in view of the tangible advantages that a
central bank enjoyed over currency board, the government ultimately decided to take the
bold step of setting up a full fledged central banking authority. Among other factors,
which led to this decision, there was the fact the banking facilities in the country had been
totally disrupted and there was an urgent need for their rehabilitation, which a central ban
alone could meet. As there was hardly any time to pass as Act, an order was drafted, known
as the state bank of Pakistan order, which was promulgated by the government of Pakistan
on 12th may 1948. The state bank declared open on July 1 , 1948 by the father of the nation.
One of the first tasks of the state bank was to arrange for the replacement of the Reserve
bank of India notes, which had continued to circulate in Pakistan during the transitional
period, by Pakistan currency.
The first Pakistan notes were issued in October 1948 in the denominations of Rs. 5, 10 &
100.
An equally urgent task, which the new central bank had to address itself, was the creation
of a national banking system. To this end, while extending every help and encouragement
to Habib Bank to expand its organization, the state bank recommended the setting up of a
new banking institution to serve both as an agent to the state bank recommended the setting
up of a new banking institution to serve both as an agent of the state bank as well as the
spearhead of its credit polices.
Accordingly the NATIONAL BANK OF PAKITSN was setup under an ordinance in
November 1949. It started with six offices in the former East Pakistan. In view of the
special role assigned to the new institution, contrary to traditional practices the Governor of
the state bank was appointed to head its board of Director in 1950. Under the fostering care
of the state bank and the support of the government, the new institution developed rapidly.
By using its special powers, the state bank made liberal advances to the new bank to help it
expand credit facilities in the country. By 1952, the National bank of India. Shortly,
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afterwards, in November 1952, the governor of the state bank ceased to function as the
president of National bank of Pakistan.
With a view to broadening the institutional framework of the financial system, the state
bank also sponsored the establishment of specialized credit institutions in the filed of
agriculture and industry. Banking companies (control) act was passed in December 1948
specifically empowering the state bank to control the operations of banking companies in
Pakistan.
Moreover realizing that the most serious limitation on the expansion of banking services in
Pakistan was the lack of trained personal, the state bank sponsored a banking training
scheme, which was repeated after year and turned out a large number of bankers.
As the Commercial Banking facilities continued to expand, a new Pakistani bank, the
National Commercial Bank was established and registered as a scheduled bank. In the filed
of industrial finance a new institution known as the industrial credit and investment
cooperation was set up.
The year 1958 marked the completion of the first decade of the working of the State Bank
of Pakistan. When it was established there were only 195 bank offices in existence. At the
end of June 1958 their number had increased to 307, of which Pakistani banks accounted
for 232 against 25 in mid 1948. Moreover at the end of June 1958. Pakistani banks held
60% of the total banks deposits, and were responsible for 65 of total bank credit.
When the Ayub Government took over in 1958, the banking and monetary scene was
significantly affected by Developments such as the liberalization of imports, transfer of
business in food grains to the private sector, and the firming up of commodity markets. The
demand of funds picked up and there was a substantial expansion of bank credit to the
private sector. The pace of expansion in the institutional frame work of the countrys
banking system quickened and a new Pakistani, bank, namely the United Bank Limited
was established.
Owning the five years 1960-65, the credit structure in Pakistan made rapid progress. The
bank extended its network by opening six new offices located at Chitagong, Peshawar,
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Quetta, Khulna, Layallpur and Rawalpindi. The number of scheduled bank offices rose
from 430 at the end of June 1960 to 1591 in June 1965. Several new banks were added to
the list of scheduled banks.
Two principal additions were the commerce bank, and the standard bank. The number of
scheduled banks, which stood at 29 in June 1960 rose to 36 by June 1965.
Under the impact of economic growth and dear scope of private enterprises, bank credit to
the private sector rose from Rs. 1,458 millions to Rs. 5759 million. Thus the total
expansion in bank credit to the private sector during this period amounted to Rs. 4300
million, which gave a annual expansion of Rs. 860 million compared to the annual average
increase of Rs. 144 million over the preceding five years. Banks deposits increased from
Rs. 2,493 million to Rs. 6883 million during the five years period ended June 1965
compared to Rs. 231 million in the proceeding five years. Time deposits during this period
increased from Rs. 946 million to Rs. 3228 million, where demand deposits rose from Rs.
1997 million to Rs 3655 million. The increase in time deposits was particularly rapid. The
ratio of time deposits to total deposits in June 1965 stood at 49.6 percent age as against
32.01 percent age five years earlier. Another salient feature of banking development during
this period was that since the rate of increase in bank deposits lagged behind the rate of
expansion in bank credit, the banked has to depend increasingly on central bank finance.They borrowing from the state bank rose from Rs. 11 million in June 1960 to Rs. 1688
million in June 1965. Owing keen demand for bank credit, banks investments could not
increase as rapidly as their advances. Their investments totaled to Rs. 1,874 million at the
end of June 1965 compared to Rs. 1,231 million in June 1960. Investments which were
almost equal to their advances in June 1960 were only about one third of the advances in
June 1965.
The third plane period witnessed a further expansion of banking facilities in the country the
total number of scheduled banked offices increased from 1,591 at the end of June 1965 to
3133 at the close of June 1970. During the same bank credit to the private sector rose from
Rs. 5,789 million to Rs. 9492 million. There was also a substantial growth in the bank
deposits, which increased from Rs. 6883 million June 1965 to Rs. 13147 million at the end
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of June 1970. A remarkable change occurred during this period related to the composition
of deposits. Time deposit becomes greater than demand deposits forming about 54 percent
age of the total deposits. As oppose to what happened in the previous period, banks were
able to finance a mush higher level of credit expansion without having to increase their
borrowings from the central bank.7
2.4 Banking Reforms 1972
After the assumption of office by a new government in 1971, may 1972 different reforms
were introduced to make the banks more responsive to the requirements of economics
growth with social justice. The reforms aimed at bringing about a more purposeful and
equitable distribution of bank credit, improving the soundness and efficiency of the banks,
and securing greater social accountability of the banking system as a whole.
The role of the banking system had been truly spectacular in mobilizing savings of the
community and meeting the credit needs of the economy. But at the same time, the banks
had generally neglected their role in promoting social justice and had failed to play an
effective role in ensuring a wider and more equitable dispersal of the benefits of economic
growth. In particular the inter locking of ownership with commercial and industrial
interests had led to the misuse of bank resources. There was a heavy concentration of credit
in big accounts and in urban area. Credit facilities for agriculture, small business, newly
emerging exports and housing had remained obviously inadequate while the banks
indulged in capital financing in few selected business sectors and issued guarantees on
behalf of favored clients, term clients, term financing facilities for industry were wholly
absent.
Under the banking reforms introduced in May 1972 the state bank of Pakistan was
accorded wider powers. It was authorized to remove directors or managerial personnel, ifnecessary and supersede the board of directors of a banking company and appoint
administrators during the period of such super session. It was also empowered to nominate
directors on the board of every bank. As regard bank directors, it was provided that anyone
defaulting in meeting his obligations to bank would forfeit his directorship. Moreover, it
was laid down that no person could serve as director of a bank for more than six years
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continuously. Each bank was required to have a paid up capital of not less than 5 percent
age of its deposits to be progressively build up to 10 percent age over a period of time. The
banks were also required to transfer 10 percentage of their profit their reserves every years
after the reserve became equal to the paid up capital. With a view to diversity the
ownership of the banks, the banks were required to raise new capital from the market.
Unsecured loans to directors, their families or firms and companies, were totally
prohibited.
The bank reforms also brought about the establishment of new institutions to achieve new
objectives.
A national credit consultative was setup under the supervise of the state bank with
representation form the government and the private sector. It was assigned the task of
determining of economys annual credit needs within the safe limits of monetary and credit
expansion with reference to the annual development plan. Such a credit plan was to cover
the public and private sectors. Alongside the National credit council and Agricultural
Advisory Committee was formed to allocate agriculture credit for various purposes, to
coordinate the operation or the agriculture credit agencies and to oversee the flow of credit
to the designated targets. A standing committee on exports in general and the new
emerging exports in particular, was also established. With a view to encourage the banks toextend credit to small borrowers, a credit guarantee scheme was introduced under which
the state bank under took to share any bonfire losses incurred by the commercial banks in
case of small loans of advances to agriculture.
At the same time two financing institutions were established. The peoples Finance
Corporation was designed to provide finance to people of small means while the National
Development Finance Corporation was setup of finance public sector owned and managed
industries and enterprises.8
REFRENCES
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1 Siddiqi H Israr Law and practice banking in Pakistan.
2 Gilbert J.W principles and practice.
3 Sir Paged John The law ofBanking, page 51.
4 Sir Paged John The law ofBanking, page 51.
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CAHAPTER # 3
NATIONALIZATION OF BANKS (1974)
The banking reforms turned to be transitional and interim step and when they were hardly
eighteen months old the government nationalized the banking systems, with the following
main objectives.
To enable the government to use the capital concentrated in the hands of a few rich bankers
for the rapid economic development of the country and the more urgent social welfare
objectives.
To distribute equitably credit too different classes sectors and regions.
To coordinate the banking policies in various area of feasible joint activity without
eliminating healthy competition among banks.
The act passed for the nationalization of banks is known as the banks Nationalization Act
1974.
Thus under this act the state bank of Pakistan and all the commercial banks incorporated inPakistan and carrying business in or outside the country were brought under government
ownership with effect from Jan 1, 1974. The ownership, management and control of all
Pakistani banks stood transferred to and vested in the Federal government. The
shareholders were provided compensation in the form of federal government bonds
redeemable at par anytime within the period of fifteen years. Under the Nationalization act,
the Chairman, Directors and Executives of various banks, other than those appointed by
federal government were removed from their offices and the central boards of the banks
and all local bodies were dissolved. Pakistan banking council was established to coordinate
the activities of the Nationalized Commercial banks. At the time of Nationalization on
December31, 1973 there were following 14 Pakistani commercial banks with 3323 offices
allover Pakistan and 74 offices in foreign countries:
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National banks of Pakistan
Habib bank limited
Habib bank (overseas) limited
United bank limited
Muslim commercial bank limited
Commerce bank limited
Standard bank limited
Australia bank limited
Bank of Bahawalpur limited
Premium bank limited
Pak Bank limited
Sarhad bank limited
Lahore commercial limited
Punjab provincial co-operative bank limited
The Pakistan banking council prepared a scheme for the recognition of banks. The bank
(amalgamation) scheme 1974 was notified in April, providing for the amalgamation of the
smaller banks with bigger ones and following the five units in there phases:
National bank limited
Habib bank limited
United bank limited
Muslim commercial bank limited
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Allied bank of Pakistan limited
The first phase was completed on 30th June. 1974. When the bank Bahawalpur was merged
with the National Bank of Pakistan. The premier Bank Limited with Muslim Commercial
Bank limited and Sarhad Bank Limited and Pak bank limited and renamed as Allied Bank
of Pakistan limited.
The second phase was completed on 31st Dec.1974, when the commerce bank limited
merged with the United Bank limited.
The third and the final phase were completed on 30th June, 1975 when the standard bank
limited was merged with Habib Bank limited.
The nationalization was very smooth and gave very positive results.
The number of branches, which stood at 3397 on Dec31, 1973, reached on 7661 by end
June 1992. The bank deposits which stood at Rs. 1925 corers at the end 1973 reached the
highest mark about 323 corers.1
3.1 Islamization of Banking
Another major development in the history of Pakistan Banking System was the introducedof interest free banking in selected Commercial Banks with effect form Jan1, 1981. This
followed the effort to eliminated interest from the operation of Nation investment trust, the
House Building Finance Corporation of Pakistan. Certain amendments were made in
banking and other laws with the object of ushering in a new system of banking, which
would confirm of Sharia. A new law Modaraba Companies Ordinance 1980 was
promulgated. Separate interest free counters began to operate in all the nationalized
commercial banks free counters began to operate in all the nationalized commercial banks.
The state bank provides finance against participation term certificate and also against
promissory notes supported by Modaraba certificate.
In order to cover interest free transactions certain banking definitions such as creditors,
debtor, and advances credits and deposits were revised. Stipulations concerning form of
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business in which banking companies may engage may also have been modified schemes
were introduced to provide interest free loans to formers and deserving students.
A private Limited Company named as Bankers Equity limited was incorporated in 1979 to
provide financial assistance to the industrial sector primarily on interest free basis.
A scheme to extend interest free productive loans to farmers and fisherman has also been
introduced. Instead of interest, a system based on mark-up in price, exchange rate
differential, and profit and loss sharing accounts were introduced.
Different financial schemes introduced in the Islamization process are: 2
Musharika Financing.
Hire Purchase Financing.
Modaraba Financing.
Specific Purpose Modaraba.
3.2 Dis-Investment and Deregulation of Banking 1991
When it was realized that the role of public sector in the economy is over extended and the
banking sector has more earning potential in the private sector the process of privatization
banking sector restarted in 1991 by the Muslim League Government. Muslim Commercial
Bank was Dis-invested in to two phases while ABL was sold to its employees. Since then
allot of investment is being made in the banking sector and several new banks were
established and still the process is going on. Now only NBP is government bank other than
SBP. The performance of this bank will be analyzed and judged in the following chapters.
3.3 INTEREST FREE BANKING
A new concept of interest free banking was introduced in 1981 and by now it has been
established on sound footing and new trends and techniques are being implemented to
make this system result oriented. New products and their systematic consumption are
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making Pakistani banking comparable to their several modern counterparts anywhere in the
developed world.
3.4 HISTORY OF NBP:
The NBP was established vide NBP Ordinance No. XIX of November 9. 1949.
British Govt. devalued its currency in September 1949, India devalued its rupees but
Pakistan did not. It led to a crisis in trading between the two countries and India refused to
lift the Pakistan Jute. To solve this problem i.e. to export jute NBP was established through
an Ordinance of GOP.National Bank of Pakistan maintains its position as Pakistan's
premier bank determined to set higher standards of achievements. It is the major business
partner for the Government of Pakistan with special emphasis on fostering Pakistan'seconomic growth through aggressive and balanced lending policies, technologically
oriented products and services offered through its large network of branches locally,
internationally and representative offices.
The Bank in 1950 had one subsidiary The Bank of Bahawalpur on December4, 1947 by
the former Bahawalpur State.
NBP was undertaking Treasury Operations and Managing Currency Chests or Sub Chests
at 57 of its offices where the turnover of the business under the head amounted to Rs.2460
million.
i) Deposits held by NBP constituted about 3.1% of total deposits of all
Pakistani Banks in 1949, which rose to 38% in 1952.
ii) Growth in Deposits was accompanied by increase in Bank portfolio in advances.
NBP lent out to Textile, Yarn, Iron and Steel and played a pioneer role in support of
agriculture and commerce.
iii) NBP advances reached Rs.554.4 million by December 1959, which was one third
of the total schedule bank credit.3
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3.4.1 MISSION STATEMENT To
make the Bank complete and competitive with all international
Standard in performing, quality of, operations, staff, financial strength. And
products and services To develop a culture of excellence in every spare of activity of thebank4.
3.4.2 GOALS AND OBJICTIVES
An organizational objective is the intended goal that prescribes definite scope and
suggests direction to the panning efforts of a organization.6
3.4.3 GOALS AND OBJICTIVES NBP
To be the pre-eminent financial institution in Pakistan and achieve market recognition
both in the quality and delivery of service as well as the range of product offerings. 7
3.4.4 BOARD OF DIRECTORS
Table 1
NAME DISIGNATION
Ali Raza Chairman & President
Dr Waqar Masood Director
Ifthikhar Ali Malik Director
Syed Shafqat Ali Shah Jamoti Director
M Zubair Motiwala Director
Sikandar Hayat Jamali Director
M. Khalid Malik Director
S.M. Rafique SEVP & Sectorary to BD
(Source Annual report 2003)
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3.5 MANAGEMENT
Management is a distinct process consisting of activities of planning, organizing, actuating
and controlling performed to determine and accomplish stated objectives with the use ofhuman being and other resources.8
The management has two types.
1 Centralized.
2 Decentralized.
Centralized Management tends to concentrate decision making at the top of the
Organization .
Decentralized disperses decision making and authority throughout and further down the
organizational hierarchy.9
NBP have a centralized type of management because all the decisions are taken by the top
management.
3.5.1 SENIOR MANAGEMENT OF NBP.
Table 2
Masood Karim Sheikh
SEVP & Group Chief, Corporate &
Investment Banking Group and Chief
Financial Officer
S. M. Rafique SEVP & Secretary Board of Directors
Derick CyprianSEVP & Group Chief, Special Assets &
Remedial Management Group
Imam Bakhsh Baloch SEVP & Group Chief, Compliance
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Group
Shahid Anwar KhanEVP & Group Chief, Commercial &
Retail Banking Group
Nadeem A. DogarEVP & Group Chief, Information
Technology Group
Muhammad Sardar KhawajaEVP & Group Chief, Audit & Inspection
Group
Dr. Asif A. Brohi EVP & Group Chief, Operations Group
Javed MehmoodEVP & Group Chief, Risk Management
Group
Muhammad Nusrat VohraEVP & Group Chief, Treasury
Management Group
Amim Akhtar EVP & PSO to the President
Dr. Mirza Abrar BaigGroup Chief, Human Resources
Management & Administration Group
Uzma Bashir Group Chief, Organization D&T Group
(Source www.nbp.com.pk)
3.6Net Work of Branches:
NBP have wide range of branches inside the country and outside the country.
In Pakistan it has 29 regional offices, 1189 Branches and 4 Subsidiaries.
In overseas it has 16 overseas branches, 6 other branches. 10
.3.7 Objectives of NBP
National bank of Pakistan is also a commercial organization and its main objective is profit
maximization. This is achieved in two ways:
1. By increasing deposits.
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2. By charging interest on loans provided to the private sector and business community.
These are explained as:
3.7.1 Increase in deposits:
Competition in banking is intense and every bank whether it is Pakistani, foreign, private or
nationalized tries to increase its deposits by providing better facilities to its customers. By
increasing its deposits a bank can extend greater amount of loan and hence achieves higher
profit. NBP is also improving its facilities and services to attract customers with higher
volume of deposits. There are two main factors involved in increasing the deposits. These
factors are improving the services and courtesy. NBP is continuously working on these two
factors to increase its deposits.
3.7.2 Extension of loans:
The profitability of a bank largely depends on the amount given to people as loan and the
type of people to whom credit is given i.e. the credit worthiness of the borrowers. This
strategy has worked quite well for NBP. Deposits are collected from the people and
invested in different projects. NBP prefers to give loans to financially sound and reliable
parties, after securing the collators. NBP has an extremely well organized section. The staff
is adequately trained, and educated and competent. They carry out extensive financial
analysis before deciding on the loan. Interest charged on the loans potentially contributes to
higher profits.
Some of the other objectives of NBP are:
i. Improve customer services.
ii. Quick disposal of credit cases.
iii. Efficient operation of the branches.
iv. Better Public Relations.
v. Operational and advisory services for foreign exchange accounts activities
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3.8 Functions of NBP
Since NBP is a commercial bank, it performs a variety of functions.
Like other commercial banks, NBP is engaged in financing international trade. Its othermajor functions include receiving deposits, advancing loans and discounting of exchange.
The functions performed by NBP are:
3.8.1 Accepting Deposits
This function is important because banks largely depend on the funds deposited with them
by its customers. Deposits are of many types:
i. Current deposits
Current deposits are also called demand liability on current deposits. NBP pays practically
no interest on current deposits. Businessmen usually open current accounts. In NBP current
account can be opened with a minimum amount of Rs.500/-.
ii. PLS saving deposit
Profit and loss sharing deposits (PLS) are also called checking accounts. One can deposit
and draw money easily. Profit on PLS is calculated every month but paid after six months.
PLS account can be opened with a minimum amount of Rs.500/-
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iii PLS term deposits
Fixed term deposits are deposits with the bank for certain fixed period before the expiry of
which they cannot be withdrawn unless giving due notice. In this case the rates of profit
will be different depending upon the time period.
3.8.2. Discounting bills of exchange
Discounting of bill is practically speaking lending for exchange at their market rate i.e. it
pays to holder of the bill an amount equal to the face value after deducting interest at the
current market rate for the period. This bill has to be mature. This is the common way used
for keeping a part of assets of the bank in a liquid form.
3.8.3. Agency service
NBP also provides best and unique service to its valued customers. NBP provide the
following agency services to the customers:
i. Collection of dividends
As NBP deals with the purchase and sale of various types of securities, therefore NBP also
provide dividend or interest earned on share or bonds or invested money.
ii. Collection of Cheques
In the collection and payment of Cheques, bills and promissory notes etc. National bank of
Pakistan acts as an agent for its customers.
iii. Acting as an agent
NBP also acts as an agent correspondent or representative for its customer at home or
abroad.
iv. General utility services:
Utilities provided by NBP are as follows:
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a. Clearance of utility bills
NBP provides the service of clearing the utility bills i.e. electricity, gas and telephone bills
of its customers. For this purpose it also provides evening banking services.
b. Lockers facility
National bank of Pakistan also provides locker facilities to its customers to keep their
valuable assets in it. The charges of different size of lockers are different.
c. Acts as a referee
NBP provides useful services to its customers by acting as a referee to their credit
worthiness.
d. Supply of information
NBP provides operational and advisory service for foreign exchange accounts/activities.
3.9 Unmatched Banking Facilities
Deposit security, Guaranteed by Government of Pakistan.
Highest rates of return to attract the savings.
Lowest rates on exports and other borrowings.
Largest contribution towards Government and Semi-Government requirements.
Agents of the SBP handling Treasury Functions, receipts of Taxes & other
Revenues.
Handling of salaries & pensions of federal/provincial/defense personnel.
Utility Bills collections.
Hajj arrangements.
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Sale and encashment of prize Bonds.
Sale and encashment of Defense Savings and Special Savings Certificates.
Safe Deposit Lockers for customers.
Rational Human Resource Management.
The prestigious periodical The Banker UK recognized NBP as the best bank for 2001-
2002 and NBP is the bank of the year for 2003-2004 of Pakistan.
i. AAA rating awarded JCR-VIS Credit co. Ltd and affiliated of Japan Credit Rating
Agency for 2001.
ii. AAA+1 rating awarded JCR-VIS Credit Co.Ltd and affiliated of Japan Credit
Rating Agency for 2002
3.10 NBP at the forefront of Pak-Afghan trade
i. Booth at dry port Peshawar
ii. Booth at Pak Afghan border (Torkham) NWFP
iii. Booth at Pak Afghan border (Chamman).Baluchistan.
iv. Establishing branch at Kabul in near Future.11
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REFRENCES
1 Bank Nationalization act 1974.
2 Islamic Banking.
3 www.nbp.com.pk
4 Annual report 1998.
5 www.nbp.com.pk
6 Terry and Franklin Principles of Management.
7 www.nbp.com.pk
8 Terry and Franklin Principles of Management.
9 Terry and Franklin Principles of Management.
10 Annual report 2003.
11 www.nbp.com.pk
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CHAPTER # 4
SERVICES OF NBP
SERVICES
Services are he outputs of the firm which are in intangible form.
NBP offers the following services to the people.
4.1 DEMAND DRAFTS
If you are looking for a safe, speedy and reliable way to transfer money, you can now
purchase NBPs Demand Drafts at very reasonable rates. Any person whether an account
holder of the bank or not, can purchase a Demand Draft from a bank branch.
4.2 SWIFT SYSTEM
The SWIFT system (Society for Worldwide Inter bank Financial Telecommunication) has
been introduced for speedy services in the area of home remittances. The system has built-
in features of computerized test keys, which eliminates the manual application of tests that
often cause delay in the payment of home remittances. The SWIFT Center is operational at
National Bank of Pakistan with a universal access number NBP-APKKA. All NBP
overseas branches and overseas correspondents (over 450) are drawing remittances through
SWIFT.
Using the NBP network of branches, you can safely and speedily transfer money for our
business and personal needs.
4.3LETTERS OF CREDIT *
NBP is committed to offering its business customers the widest range of options in the area
of money transfer. If you are a commercial enterprise then our Letter of Credit service is
just what you are looking for. With competitive rates, security, and ease of transaction,
NBP Letters of Credit are the best way to do your business transactions.
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4.4 TRAVELER'S CHEQUES
Travelers cheques are negotiable instruments, and there is no restriction on the period of
validity of the cheques. Rupee travelers cheque is available at all 700 branches of NBP.
This can be encashed in all 400 branches of NBP. There is no limit on purchase of this
cheque. It is one of the safest ways for carrying money.
4.5 PAY ORDER
NBP provides another reason to transfer your money using our facilities. NBP pay orders
are a secure and easy way to move your money from one place to another. And, as usual,
NBP charges for this service are extremely competitive. The charges of NBP are very low
all over the Pakistan. It charges Rs 50/- for NBP account holders on issuing one paymentorder. And charges Rs 100/- for NBP non-account holders on issuing one payment order. It
charges Rs 25/- for students on payment of fees of educational institutions. If some one
want a duplicate of payment order they charges Rs 100/- for NBP account holders and Rs
150/- for non account holders.
4.6 MAIL TRANSFERS
Move your money safely and quickly using NBP Mail Transfer service. And NBP also
offer the most competitive rates in the market. They charges Rs 50/- exchange rate and RS
75/- postage charges on issuing mail transfer.
4.7 FOREIGN REMITTANCES:
To facilitate its customers in the area of Home Remittances, National Bank of Pakistan has
taken a number of measures to:
Increase home remittances through the banking system
Meet the SBP directives/instructions for timely and prompt delivery of remittances
to the beneficiaries
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4.7.1 New Features:
The existing system of home remittances has been revised/significantly improved and well-
trained field functionaries are posted to provide efficient and reliable home remittanceservices to nonresident Pakistanis at 15 overseas branches of the Bank besides Pakistan
International Bank (UK) Ltd., and Bank Al-Jazira, Saudi Arabia.
Zero Tariffs: NBP is providing home remittance services without any charges.
Strict monitoring of the system is done to ensure the highest possible security.
Special courier services are hired for expeditious delivery of home remittances to
the beneficiaries.
4.8 SHORT TERM INVESTMENTS
NBP now offers excellent rates of profit on all its short term investment accounts. Whether
you are looking to invest for 3 months or 1 year, NBPs rates of profit are extremely
attractive, along with the security and service only NBP can provide.
4.9 National Income Daily Account (NIDA)
The scheme was launched in December 1995 to attract corporate customers. It is a current
account scheme and is part of the profit and loss system of accounts in operation
throughout the country.
4.9.1 Salient Features:
Rs 2-million is required to open an account and there is no maximum limit.
Profit is paid on half yearly basis on monthly balances.
The rates of profit vary according to the slabs of deposit. On Deposits of Rs.2
million to 2,000 million, the rate fluctuates from 1.4 to 1.75
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It is a checking account and there is no limit of withdrawals.
4.9.2 Rates on NIDA
From Rs 2/- million to Rs 50/- the rate is 1.4%.
From Rs50/- million but less than Rs 500/-million, the rate is 1.5%.
From Rs 500/- million but below Rs 1000/- the rate is 1.6%.
From Rs 1000/- and above the rate is 1.75%.
4.10 QUITY INVESTMENTS
NBP has accelerated its activities in the stock market to improve its economic base and
restore investor confidence. The bank is now regarded as the most active and dominant
player in the development of the stock market.
4.10.1 NBP is involved in the following:
Investment into the capital market
Introduction of capital market accounts (under process)
NBPs involvement in capital markets is expected to increase its earnings, which would
result in better returns offered to account holders
4.11 COMMERCIAL FINANCE
NBP dedicated team of professionals truly understands the needs of professionals,
agriculturists, large and small business and other segments of the economy. They are the
customers best resource in making NBPs products and services work for them.
4.12 RADE FINANCE OTHER BUSINESS LOANS
There are two types of trade finance.
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4.12.1 AGRICULTURAL FINANCE
NBP provides Agricultural Finance to solidify faith, commitment and pride of farmers whoproduce some of the best agricultural products in the World.
4.12.1.1 Agricultural Finance Services:
I Feed the World program, a new product, is introduced by NBP with the aim to help
farmers maximize the per acre production with minimum of required input. Select farms
will be made role models for other farms and farmers to follow, thus helping farmers across
Pakistan to increase production.
4.12.1.2 Agricultural Credit:
The agricultural financing strategy of NBP is aimed at three main objectives:-
Providing reliable infrastructure for agricultural customers
Help farmers utilize funds efficiently to further develop and achieve better
production
Provide farmers an integrated package of credit with supplies of essential inputs,
technical knowledge, and supervision of farming.
4.12.1.3 Agricultural Credit (Medium Term):
Production and development
Watercourse improvement
Wells
Farm power
Development loans for tea plantation
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Fencing
Solar energy
Equipment for sprinklers
4.12.1.4 Farm Credit:
NBP also provides the following subsidized with ranges of 3 months to 1 year on a renewal
basis.
Operating loans
Land improvement loans
Equipment loans for purchase of tractors, farm implements or any other equipment
Livestock loans for the purchase, care, and feeding of livestock.
4.12.1.5 Production Loans:
Production loans are meant for basic inputs of the farm and are short term in nature.
Seeds, fertilizers, sprayers, etc are all covered under this scheme.
If you require any further information, please do not hesitate to e-mail us.
4.12.2 CORPORATE FINANCE
4.12.2.1 Working Capital and Short Term Loans:
NBP specializes in providing Project Finance Export Refinance to exporters Pre-
shipment and Post-shipment financing to exporters Running finance Cash Finance Small Finance Discounting & Bills Purchased Export Bills Purchased / Pre-shipment /
Post Shipment Agricultural Production Loans
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4.12.2.2 Medium term loans and Capital Expenditure Financing:
NBP provides financing for its clients capital expenditure and other long-term investment
needs. By sharing the risk associated with such long-term investments, NBP expedites
clients attempt to upgrade and expand their operation thereby making possible the
fulfillment of our clients vision. This type of long term financing proves the banks belief
in its client's capabilities, and its commitment to the country.
4.12.2.3 Loan Structuring and Syndication:
National Banks leadership in loan syndicating stems from ability to forge strong
relationships not only with borrowers but also with bank investors. Because we understand
our syndicate partners asset criteria, we help borrowers meet substantial financing needs
by enabling them to reach the banks most interested in lending to their particular industry,
geographic location and structure through syndicated debt offerings. Our syndication
capabilities are complemented by our own capital strength and by industry teams, who
bring specialized knowledge to the structure of a transaction.
4.12.3.4 Cash Management Services:
With National Banks Cash Management Services (in process of being set up), the
customers sales collection will be channeled through vast network of NBP branched
spread across the country. This will enable the customer to manage their companys total
financial position right from your desktop computer. They will also be able to take
advantage of our outstanding range of payment, ejection, liquidity and investment
services. In fact, with NBP, youll be provided everything, which takes to manage your
cash flow more accurately
4.13 INTERNATIONAL BANKING
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National Bank of Pakistan is at the forefront of international banking in Pakistan which is
proven by the fact that NBP has its branches in all of the major financial capitals of the
world. Additionally, we have recently set up the Financial Institution Wing, which is
placed under the Risk Management Group. The role of the Financial Institution Wing is:-
To effectively manage NBPs exposure to foreign and domestic correspondence
Manage the monetary aspect of NBPs relationship with the correspondents to
support trade, treasury and other key business areas, thereby contributing to the
banks profitability
Generation of incremental trade-finance business and revenues
4.13.1 NBP offers:
The lowest rates on exports and other international banking products
Access to different local commercial banks in international banking
4.14 Cash and Gold Finance.
Cash and Gold finance means that loan is given against the gold. The gold is mortgagedwith the bank and loan is taken. It is the area of consumer finance. And borrower can take
loan for common use.
4.15 Advance salary loan:
This loan is given to those people who are govt servants. They can get a loan up to the
salary of fifteen months.
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REFRENCES
1. http/www.nbp.com.pk.services
2. Annual reports 2001, 2002, 2003.
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CHAPTER # 5
DEPARTMENTALIZATION
Dividing an organization into different parts according to the functions is called
departmentation. So NBP Hayatabad township branch is divided into two main parts.
A) DEPARTMENTATION
5.1 CASH DEPARTMENT
Cash department performs the following functions
5.1.1) Receipt
The money, which either comes or goes out from the bank, its record should be kept. Cash
department performs this function. The deposits of all customers of the bank are controlled
by means of ledger accounts. Every customer has its own ledger account and has separate
ledger cards.
5.1.2) Payments
It is a bankers primary contract to repay money received for this customers account
usually by honoring his cheques.
5.1.3) Cheques and their Payment
The Negotiable Instruments. Act, 1881,
Cheque is a bill of exchange drawn on a specified banker and not expressed to be
payable otherwise than on demand2
.
Since a Cheque has been declared to be a bill of exchange, it must have all its
characteristics as mentioned in Section 5 of the Negotiable Instruments Act, 1881.
Therefore, one can say that a Cheque can be defined as an:
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An unconditional order in writing drawn on a specified banker, signed by the drawer,
requiring the banker to pay on demand a sum certain in money to, or to the order of, a
specified person or to the bearer, and which does not order any act to be done in addition
to the payment of money3. (Law of Banking by Dr. Hart, p.327).
5.1.4) the Requisites of Cheque
There is no prescribed form of words or design of a Cheque, but in order to fulfill the
requirements mentioned in Section 6 above the Cheque must have the following.
a) It should be in writing
b) The unconditional order
c) Drawn on specific banker only
d) Payment on Demand
e) Sum Certain in money
f) Payable to a specific person
g) Signed by the drawer
5.1.5) Parties to Cheque
The normal Cheque is one in which there is a drawer, a drawee banker and a payee, or no
payee but bearer.
a) The Drawer
b) The Drawee
c) The Payee
5.1.6) Types of Cheques
Bankers in Pakistan deal with three types of cheques
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a) Bearer Cheques
Bearer cheques are cashable at the counter of the bank. These can also be collected through
clearing.4
b) Order cheque
These types of cheques are also cashable on the counter but its holder must satisfy the
banker that he is the proper man to collect the payment of the cheque and he has to show
his identification. It can also be collected through clearing.
c) Crossed Cheque
These cheques are not payable in cash at the counters of a banker. It can only be credited
to the payees account. If there are two persons having accounts at the same bank, one of
the account holder issues a cross-cheque in favour of the other account holder. Then the
cheque will be credited to the account of the person to whom the cheque was issued and
debited from the account of the person who has actually issued the cheque.
5.1.7) Payment of Cheques
It is a bankers primary contract to repay money received for his customers accountusually by honouring his cheques. Payment of money deposited by the customer is one of
the root functions of banking. The acid test of banking is the receipt of money etc. from the
depositors, and repayment to them. This paying function is one, which is the distinguishing
mark of a banker and differentiates him from other institutions, which receive money from
the public. However the bankers legal protection is only when payment is in Due Course.
The payment in due course means payment in accordance with the apparent tenor of the
instrument, in good faith and without negligence to any person in possession thereof under
circumstances, which do not afford a reasonable ground of believing that he is not entitled
to receive payment of the amount therein mentioned. It is a contractual obligation of a
banker to honor his customers cheques if the following essentials are fulfilled.
a) Cheques should be in a proper form:
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b) Cheque should not be crossed:
c) Cheque should be drawn on the particular bank:
d) Cheque should not mutilated:
e) Funds must be sufficient and available:
f) The Cheque should not be post dated or stale:
g) Cheque should be presented during banking hours:
5.2 CLEARANCE DEPARTMENT
A clearinghouse is an association of commercial banks set up in given locality for the
purpose of interchange and settlement of credit claims. The function of clearinghouse is
performed by the central bank of a country by tradition or by law. In Pakistan, the clearing
system is operated by the SBP. If SBP has no office at a place, then NBP, as a
representative of SBP act as a clearinghouse.
After the World War II, a rapid growth in banking institutions has taken place. The use of
cheques in making payments has also widely increased. The collection as settlement of
mutual obligations in the form of cheques is now a big task for all the commercial bank.
When Cheque is drawn on one bank and the holder (payee) deposits the same in his
account at the bank of the drawer, the mutual obligation are settled by the internal bank
administration and there arises no inter bank debits from the use of cheques. The total
assets and total liabilities of the bank remain unchanged.
In practice, the person receiving a Cheque as rarely a depositor of the cheque at the same
bank as the drawer. He deposits the cheque with his bank other than of payer for the
collection of the amount. Now the bank in which the cheque has been deposited becomes a
creditor of the drawers bank. The depositor bank will pay his amount of the cheque by
transferring it from cash reserves if there are no offsetting transactions. The banks on
which the cheques are drawn become in debt to the bank in which the cheques are
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deposited. At the same time, the creditors banks receive large amounts of cheques drawn
on other banks giving claims of payment by them.
The easy, safe and most efficient way is to offset the reciprocal claims against the other and
receive only the net amount owned by them. This facility of net inter bank payment is
provided by the clearinghouse.
The representatives of the local commercial banks meet at a fixed time on all the business
days of the week. The meeting is held in the office of the bank that officially performs the
duties of clearinghouse. The representatives of the commercial banks deliver the cheques
payable at other local banks and receive the cheques drawn on their bank. The cheques are
then sorted according to the bank on which they are drawn. A summary sheet is prepared
which shows the names of the banks, the total number of cheques delivered and received
by them. Totals are also made of all the cheques presented by or to each bank. The
difference between the total represents the amount to be paid by a particular bank and the
amount to be received by it. Each bank then receives the net amount due to it or pays the
net amount owed by it.
5.2.1) In-Word Clearing Books
The bank uses this book for the purpose of recording all the cheques that are being received
by the bank in the first clearing. All details of the cheques are recorded in this book.
5.2.2) Out-Word Clearing Book:
The bank uses outward clearing register for the purpose of recording all the details of the
cheques that the bank has delivered to other banks.
5.3 ADVANCES DEPARTMENT
Advances department is one of the most sensitive and important departments of the bank.
The major portion of the profit is earned through this department. The job of this
department is to make proposals about the loans. The Credit Management Division of Head
Office directly controls all the advances. As we known bank is a profit seeking institution.
It attracts surplus balances from the customers at low rate of interest and makes advances at
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a higher rate of interest to the individuals and business firms. Credit extensions are the
most important activity of all financial institutions, because it is the main source of earning.
However, at the same time, it is a very risky task and the risk cannot be completely
eliminated but could be minimized largely with certain techniques.
Any individual or company, who wants loan from NBP, first of all has to undergo the
filling of a prescribed form, which provides the following information to the banker.
5.3.1) Name and address of the borrower.
a) Existing financial position of a borrower at a particular branch.
b) Accounts details of other banks (if any).
c) Security against loan.
d) Exiting financial position of the company. (Balance Sheet & Income Statement).
e) Signing a promissory note is also a requirement of lending, through this note
borrower promise that he will be responsible to pay the certain amount of money
with interest.
5.3.2) Principles of Advances
There are five principles, which must be duly observed while advancing money to the
borrowers.
Safety
Liquidity
Dispersal
Remuneration
Suitability
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a. Safety
Bankers funds comprise mainly of money borrowed from numerous customers on various
accounts such as Current Account, Savings Bank Account, Call Deposit Account, Special
Notice Account and Fixed Deposit Account. It indicates that whatever money the banker
holds is that of his customers who have entrusted the banker with it only because they have
full confidence in the expert handling of money by their banker. Therefore, the banker must
be very careful and ensure that his depositors money is advanced to safe hands where the
risk of loss does not exist. The elements of character, capacity and capital can help a banker
in arriving at a conclusion regarding the safety of advances allowed by him.
b. Character
It is the most important factor in determining the safety of advance, for there is no
substitute for character. A borrowers character can indicate his intention to repay the
advance since his honesty and integrity is of primary importance. If the past record of the
borrower shows that his integrity has been questionable, the banker should avoid him,
especially when the securities offered by him are inadequate in covering the full amount of
advance.
It is obligation on the banker to ensure that his borrower is a person of character and has
capacity enough to repay the money borrowed including the interest thereon.
c. Capacity
This is the management ability factor, which tells how successful a business has been in the
past and what the future possibilities are. A businessman may not have vast financial
resources, but with sound management abilities, including the insight into a specific
business, he may make his business very profitable. On the other hand if a person has noinsight into the particular business for which he wants to borrow funds from the banker,
there are more chances of loss to the banker.
d. Capital
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This is the monetary base because the money invested by the proprietors represents their
faith in the business and its future. The role of commercial banks is to provide short-term
capital for commerce and industry, yet some borrowers would insist that their bankers
provide most of the capital required. This makes the banker a partner. As such the banker
must consider whether the amount requested for is reasonable to the borrowers own
resources or investment.
e. Liquidity
Liquidity means the possibilities of recovering the advances in emergency, because all the
money borrowed by the customer is repayable in lump sum on demand. Generally the
borrowers repay their loans steadily, and the funds thus released can be used to allow fresh
loans to other borrowers. Nevertheless, the banker must ensure that the money he is lending
is not blocked for an undue long time, and that the borrowers are in such a financial
position as to pay back the entire amount outstanding against them on a short notice. In
such a situation, it is very important for a banker to study his borrowers assets to liquidity,
because he would prefer to lend only for a short period in order to meet the shortfalls in the
wording capital. If the borrower asks for an advance for the purchase of fixed assets the
banker should refuse because it shall not be possible for him to repay when the banker
wants his customer to repay the amount. Hence, the baker must adhere to the considerationof the principles of liquidity very careful.
f. Dispersal
The dispersal of the amount of advance should be broadly based so that large number of
borrowing customer may benefit from the bankers funds. The banker must ensure that his
funds are not invested in specific sectors like textile industry, heavy engineering or
agriculture. He must see that from his available funds he advances them to a wide range of
sector like commerce, industry, farming, agriculture, small business, housing projects and
various other financial concerns in order of priorities.
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Dispersal of advances is very necessary from the point of security as well, because it
reduces the risk of recovery when something goes wrong in one particular sector or in one
field.
g. Remuneration
A major portion of the bankers earnings comes form the interest charged on the money
borrowed by the customers. The banker needs sufficient earnings to meet the following:
a) Interest payable to the money deposited with him.
b) Salaries and fringe benefits payable to the staff members.
c) Overhead expense and depreciation and maintenance of the fixed assets of the
bank.
d) An adequate sum to meet possible losses.
e) Provisions for a reserve fund to meet unforeseen contingencies.
f) Payment of dividends to the shareholders.
h. Suitability
The word suitability is not to be taken in its usual literary sense but in the broader sense
of purport. It means that advance should be allowed not only to the carefully selected and
suitable borrowers but also in keeping with the overall national development plans chalked
out by the authorities concerned. Before accommodating a borrower the banker should
ensure that the lending is for a purpose in conformity with the current national credit policy
laid down by the central bank of the country.
5.3.3 Forms of Loans
In addition to purchase and discounting of bills, bankers in Pakistan generally lend in the
form of cash finance, overdrafts and loans. NBP provides advances to different people in
different ways as the case demand.
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a) Cash Finance
This is a very common form of borrowing by commercial and industrial concerns and is
made available either against pledge or hypothecation of goods, produce or merchandise. In
cash finance a borrower is allowed to borrow money from the banker up to a certain limit,
either at once or as and when required. The borrower prefers this form of lending due to the
facility of paying markup/services charges only on the amount he actually utilizes.
If the borrower does not utilize the full limit, the banker has to lose return on the un-
utilized amount. In order to offset this loss, the banker may provide for a suitable clause in
the cash finance agreement, according to which the borrower has to pay markup/service
charges on at least on self or one quarter of the amount of cash finance limit allowed to him
even when he does not utilize that amount.
b) Overdraft/Running Finance
This is the most common form of bank lending. When a borrower requires temporary
accommodation his banker allows withdrawals on his account in excess of the balance
which the borrowing customer has in credit, and an overdraft thus occurs. This
accommodation is generally allowed against collateral securities. When it is against
collateral securities it is called Secured Overdraft and when the borrowing customer
cannot offer any collateral security except his personal security, the accommodation is
called a Clean Overdraft. The borrowing customer is in an advantageous position in an
overdraft, because he has to pay service charges only on the balance outstanding against
him. The main difference between a cash finance and overdraft lies in the fact that cash
finance is a bank finance used for long term by commercial and industrial concern on
regular basis, while an overdraft is a temporary accommodation occasionally resorted to.
c) Demand Financing/Loans
When a customer borrows from a banker a fixed amount repayable either in periodic
installments or in lump sum at a fixed future time, it is called a loan. When bankers allow
loans to their customers against collateral securities they are called secured loans and
when no collateral security is taken they are called clean loans.
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The amount of loan is placed at the borrowers disposal in lump sum for the period agreed
upon, and the borrowing customer has to pay interest on the entire amount. Thus the
borrower gets a fixed amount of money for his use, while the banker feels satisfied in
lending money in fixed amounts for definite short periods against a satisfactory security
5.4 REMITTANCE DEPARTMENT
Remittance means a sum of money sent in payment for something. This department deals
with either the transfer of money from one bank to other bank or from one branch to
another branch for their customers. NBP offers the following forms of remittances.
a) Demand Draft
b) Telegraphic Transfer
c) Pay Order
d) Mail Transfer
5.4.1) Demand Draft
Demand draft is a popular mode of transfer. The customer fills the application form.
Application form includes the beneficiary name, account number and a senders name. The
customer deposits the amount of DD in the branch. After the payment the DD is prepared
and given to the customer. NBP officials note the transaction in issuance register on the
page of that branch of NBP on which DD is drawn and will prepare the advice to send to
that branch. The account of the customer is credited when the DD advice from originating
branch comes to the responding branch and the account is debited when DD comes for
clearance. DD are of two types.
a) Open DD: Where direct payment is made.
b) Cross DD: Where payment is made though account.
NBP CHARGES FOR DD5
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I. Up to Rs. 50,000/- is Rs 50/- only
II. Over Rs. 50,000/- is 0.1%
5.4.2) Pay Order
Pay order is made for local transfer of money. Pay order is the most convenient, simple and
secure way of transfer of money. NBP takes fixed commission of Rs. 25 per pay order from
the account holder and Rs. 100 from a non-account holder.
5.4.3) Telegraphic Transfer
Telegraphic transfer or cable transfer is the quickest method of making remittances.
Telegraphic transfer is an order by telegram to a bank to pay a specified sum of money to
the specified person. The customer for requesting TT fills an application form. Vouchers
are prepared and sent by ordinary mail to keep the record. TT charges are taken from the
customer. No excise duty is charged on TT. The TT charges are:
Telegram/ Fax Charges on TT = Actual-minimum Rs.125.
Cable telegram transfer costs more as compared to other title of money. In cable transfer
the bank uses a secret system of private code, which is known to the person concerned withthis department and branch manager.
5.4.4) Mail Transfer
When the money is not required immediately, the remittances can also be made by mail
transfer (MT). Here the selling office of the bank sends instructions in writing by mail to
the paying bank for the payment of a specified amount of money. Debiting to the buyers
account at the selling office and crediting to the recipients account at the paying bank
make the payment under this transfer. NBP taxes mail charges from the applicant where no
excise duty is charged. Postage charges on mail transfer are actual minimum Rs. 40/- if
sent by registered post locally Rs.40/- if sent by registered post inland on partys request.
5.5
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the organization and its objectives. In reality the man is more important than machine as it
is the human which could get maximum out of machine to keep a happy customer.
However, most organizations give little importance to this very important asset. HUMAN
RESOURCE MANAGEMENT
Human Resource plays a vital role in the success of every service organization. They
interact between man and machine. Their attitude can win or loose the customer. The
positive attitude could only be created in a conducive environment, which can make the
staff dedicated towards
Various aspects related to human resource of National Bank of Pakistan are critically
examined in the following text:
5.5.1) Selection & Recruitment
Although the Bank believes in merit but in practice the selection of employees is not done
on merit. Most of the employees are low educated. This shows that candidates with some
strong family background or political pressure are given preference in recruitment and
qualified candidates are sometimes left behind.
5.5.2) Job for Life
Like the employee of public sector organizations in Pakistan, the employees of NBP also
enjoy their job for life. Since there is no risk of early retirement or redundancy in rank, they
do not perform with their full potentials. This is one redundancy in rank, they do not
perform with their full potentials, and this is one of the reasons responsible for the low
productivity of the employees of the Bank.
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5.5.3) Performance Appraisal
The performance of employees of the Bank are appraised though their annual confidential
reports at the end of each year. This has become an outdated method of performance
appraisal and no longer used due to the following reasons:
1. The performance of employees is evaluated after quite a long time.
2. Element of subjectivity is involved in this method.
3. Employees participation is not ensured in the process of evaluation.
4. Objectives of employees are not quantified.
5.5.4) Inter Personal Relationship
Modern management acknowledges human resources as one of the most important assets
of an organization. But by their very nature, human beings are also the most unpredictable.
Where a number of persons work together, interactions among them, of necessity, will lead
to conflicts and NBP is no exception. Most interpersonal conflicts in NBP can be traced
back to the following major heads.
Lack of Communication
Lack of communication is for the biggest reason for conflicts. Not only it is due to the
failure to send a massage but to an interpretation given to the massage by the receiver is
different from that intended.
5.5.5) Diversity in Values
Diversity in values, perceptions, cultural background and life-style is another reason
responsible for inter personal conflicts in NBP. Different values and perceptions about the
same issue, event or personality hinder understanding. When things come to such a
pavement, therefore, interpersonal conflicts are generated.
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The dominant trend in all modern industrial societies of the world is merit and expertise,
which helps promote cohesion and reduce conflicts. But the feudalistic mindset is still very
strong in our set up and there is no tradition of tolerance for differing viewpoints. Hence,
interpersonal conflicts are generated.
5.5.6) Corruption
Our social acceptance of corruption gives rise to corruption at every level of social and
organizational set up. Corruption involves financial embezzlement, favoritism, nepotism,
cronyism and other number of such practices. All these cause resentment that keep building
up and lead to conflict sooner or later.
In the past few years, some cases of frauds have happened in different branches. Thereasons can be linked with the employee dissatisfaction of NBP.
5.5.7) Discipline & Authority
Maintaining discipline and implementation of authority (tables) in letter and spirit is the
key to success of any organization. In NBP, The authority tables are not strictly
maintained. Line managers are not fully equipped with the authority with no vertical or
horizontal interference.
5.6) DEPOSIT DEPARTMENT: -
It controls the following activities:
a) A/C opening.
b) Issuance of cheque book.
c) Current a/c
d) Saving a/c
e) Cheque cancellation
f) Cash
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5.6.1 Account opening
The opening of an account is the establishment of banker customer relationship. Before a
banker opens a new account, the banker should determine the prospective customers
integrity, respectability, occupation and the nature of business by the introductory
references given at the time of account opening. Preliminary investigation is necessary
because of the following reasons.
i. Avoiding frauds
ii. Safe guard against unintended over draft.
iii. Negligence.
iv. Inquiries about clients.
There are certain formalities, which are to be observed for opening an account with a bank.
Formal Application
Introduction
Specimen Signature
Minimum Initial Deposit
Operating the Account
1. Pay-In-Slip Book
2. Pass Book
3. Issuing Cheque Book
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a) Qualification of Customer
The relation of the banker and the customer is purely a contractual one, however, he must
have the following basic qualifications.
He must be of the age of majority.
He must be of sound mind.
Law must not disqualify him.
The agreement should be made for lawful object, which create legal relationship
Not expressly declared void.
b) Types of Accounts
Following are the main types of accounts
1) Individual Account
2) Joint Account
3) Accounts of Special Types
Partnership account
Joint stock company account
Accounts of clubs, societies and associations
Agents account
Trust account
Executors and administrators accounts
Pak rupee non-resident accounts
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Foreign currency accounts1
5.6.2 Issuing of cheque book:
This deptt issue cheque books to account holders.
Requirements for issuing cheque book
a) The account holder must sign the requisition slip
b) Entry should be made in the cheque book issuing book
c) three rupees per cheque should be recovered from a/c holder if not then debit his/her
account.
5.6.3 Current account
These are payable to the customer whenever they are demanded. When a banker accepts a
demand deposit, he incurs the obligation of paying all cheques etc. drawn against him to
the extent of the balance in the account. Because of their nature, these deposits are treated
as current liabilities by the banks. Bankers in Pakistan do not allow any profit on these
deposits, and customers are required to maintain a minimum balance, failing which
incidental charges are deducted from such accounts. This is because the depositors may
withdraw Current Account at any time, and as such the bank is not entirely free to employ
such deposits.
Until a few decades back, the proportion of Current Deposits in relation to Fixed Deposits
was very small. In recent years, however, the position has changed remarkably. Now, the
Current Deposits have become more important; but still the proportion of Current Deposits
and Fixed Deposits varies from bank to bank, branch to branch, and from time to time.
5.6.4 Saving account
Savings Deposits account can be opened with very small amount of money, and the
depositor is issued a cheque book for withdrawals. Profit is paid at a flexible rate calculated
on six-month basis under the Interest-Free Banking System. There is no restriction on the
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5.7.1 L/C dealing
NBP is committed to offering its business customers the widest range of options in the area
of money transfer. If you are a commercial enterprise then our Letter of Credit service is
just what you are looking for. With competitive rates, security, and ease of transaction,
NBP Letters of Credit are the best way to do your business transactions.
5.7.2 Foreign currency account dealing:
This deptt deals with the foreign currency accounts which mainly include dollar account,
euro account etc.
5.7.3Foreign Remittance dealing.
This is very important function of this deptt.
B) DEPARTMENTATION OF HAYAT ABAD TOWNSHIP BRANCH NBP.
Dividing an organization into different parts according to the functions is called
departmentation. So NBP Hayatabad township branch is divided into two main parts.
1. Cash Department
2. General Banking Department.
5.1 Cash Department:
Cash department mainly deals