copy of nbp final

7/30/2019 Copy of NBP Final

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NATIONAL BANK OF PAKISTAN

(GOLBAG BRANCH GULGASHT MULTAN)

NAME:

ROLL NO:

SESSION:

UNIVERSITY OF EDUCATION MULTAN CAMPUS


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DEDICATION

I dedicate this report to my Parents. Without their patience, understanding, support and most of

all love, the completion of this work would not have been possible.


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ACKNOWLEDGEMENT

All gratitude and thanks to almighty ALLAH the gracious, the most merciful and beneficent

who gave me courage to undertake and complete this task. I am very much obliged to my ever

caring and loving parents whose prayers have enabled to reach this stage. I am grateful to

almighty ALLAH who made me able to complete the work presented in this report. It is due to

HIS unending mercy that this work moved towards success. I am very thankful to my university,

University of Education who provided me a chance to enhance my knowledge by sending me in

National Bank of Pakistan for internship.I am very grateful to Madam Mehreen Tanveer Bhatti

(Branch Manager), Amir Khalil (Operation Manager), Mr Shakeel Nawaz from Account opening

branch and Sohail Rasheed & Sana Naseer from Credit Department for providing me guideline

for the completion of this report. I feel great pride and pleasure on the accomplishment of this

report.

I would like to thank:

Almighty Allah whose blessings are always with me.

To my teachers at all my stages of study who always guided me in right direction and developed

my personality as a useful citizen for the society.

To the staff of the Bank who fully cooperated with me in the completion of my tasks.

To all my friends from whom I learned much.

Name


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EXECUTIVE SUMMARY

National Bank of Pakistan is the largest commercial bank operating in Pakistan . Its balancesheet size surpasses that of any of the other banks functioning locally. It has redefined its role

and has moved from a public sector organization into a modern commercial bank. The Bank's

services are available to individuals, corporate entities and government. While it continues to act

as trustee of public funds and as the agent to the State Bank of Pakistan (in places where SBP

does not have a presence) it has diversified its business portfolio and is today a major lead player

in the debt equity market, corporate investment banking, retail and consumer banking,

agricultural financing, treasury services and is showing growing interest in promoting and

developing the country's small and medium enterprises and at the same time fulfilling its social

responsibilities, as a corporate citizen.

In today's competitive business environment, NBP needed to redefine its role and shed the public

sector bank image, for a modern commercial bank. It has offloaded 23.2 percent share in the

stock market, and while it has not been completely privatized like the other three public sector

banks, partial privatization has taken place. It is now listed on the Karachi Stock Exchange.

National Bank of Pakistan is today a progressive, efficient, and customer focused institution. It

has developed a wide range of consumer products, to enhance business and cater to the different

segments of society. Some schemes have been specifically designed for the low to middle

income segments of the population. These include NBP Karobar, NBP Advance Salary, NBP

Saiban, NBP Kisan Dost, NBP Cash n Gold. It has implemented special credit schemes like

small finance for agriculture, business and industries, administrator to Qarz-e-Hasna loans to

students, self employment scheme for unemployed persons, public transport scheme. The Bank

has expanded its range of products and services to include Shariah Compliant Islamic Banking

products. For the promotion of literature, NBP recently initiated the Annual Awards for

Excellence in Literature. NBP will confer annual awards to the best books in Urdu and in all

prominent regional languages published during the defined period. Patronage from NBP would


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help creative work in the field of literature. The Bank is also the largest sponsor of sports in

Pakistan . It has provided generously to philanthropic causes whenever the need arose.

It has taken various measures to facilitate overseas Pakistanis to send their remittances in a

convenient and efficient manner. In 2002 the Bank signed an agreement with Western Union for

expanding the base for documented remittances. More recently it has started Electronic Home

Remittances Project. This project introduces technology based system to handle inward

remittances efficiently, by ensuring that the Bank's branches keep a track of the remittance

received from abroad till its final receipt.

This report is based on internship in National Bank of Pakistan Golbagh Branch Multan. It is a

famous and reputed bank of Pakistan. National Bank of Pakistan maintains first position in

banking sector in Pakistan. This report is based on the activities which are performed in this

bank. This report contains functions of Bills and Clearing department, Account Opening,

Government section, Credit Department, SWOT analysis, Human Resource activities, Financial

analysis of bank, Critical analysis of branch bank tariffs and exchange rates of National Bank of

Pakistan. There are also stated the activities which I performed during my internship in the

branch. There are also mentioned the way of investment, rates of investment, all types of

financing and loans facilities the National Bank of Pakistan provides. The problems, conclusion

and recommendations for improvement in this branch are also discussed.


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TABLE OF CONTENTS

CONTENTSDEDICATION ................................................................................................................................................................... 3

EXECUTIVE SUMMARY ................................................................................................................................................... 5

TABLE OF CONTENTS ..................................................................................................................................................... 7

OVERVIEW OF THE ORGANIZATION ............................................................................................................................ 11

BRIEF HISTORY ......................................................................................................................................................... 11

NATURE OF THE ORGANIZATION ............................................................................................................................. 12

Definitions of Bank .............................................................................................................................................. 12

Evolution of Banking in Pakistan.......................................................................................................................... 13Banking Growth during (1948-1970) ................................................................................................................... 13

Banking Reforms 1972 ......................................................................................................................................... 16

Nationalization of Banks (1974) In Pakistan ........................................................................................................ 18

Islamization of Banking ........................................................................................................................................ 20

Dis-investments and Deregulation of Banking 1991 ......................................................................................... 21

Interest Free Banking ........................................................................................................................................... 21

HISTORY OF NBP ...................................................................................................................................................... 21

MISSION STATEMEN ................................................................................................................................................ 22GOALS AND OBJICTIVES ........................................................................................................................................... 22

PRODUCT LINES AND SERVICES ............................................................................................................................... 23

Demand Drafts ..................................................................................................................................................... 23

Swift System ........................................................................................................................................................ 23

LETTERS OF CREDIT .............................................................................................................................................. 23

TRAVELER'S CHEQUES .......................................................................................................................................... 23

PAY ORDER........................................................................................................................................................... 24

MAIL TRANSFERS ................................................................................................................................................. 24

SHORT TERM INVESTMENTS ................................................................................................................................ 25

EQUITY INVESTMENTS ......................................................................................................................................... 26

COMMERCIAL FINANCE ....................................................................................................................................... 26

RADE FINANCE OTHER BUSINESS LOANS ............................................................................................................ 26

INTERNATIONAL BANKING .................................................................................................................................. 29


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REFRENCES ........................................................................................................................................................... 30

ORGANIZATIONAL STRUCTURE.................................................................................................................................... 31

Organizational Hierarchy Chart ............................................................................................................................... 31

Number of Employees ............................................................................................................................................. 32

INTRODUCTION WITH DEPARTMENTS .................................................................................................................... 33

CASH DEPARTMENT ............................................................................................................................................. 33

CLEARANCE DEPARTMENT .................................................................................................................................. 36

ADVANCES DEPARTMENT .................................................................................................................................... 37

REMITTANCE DEPARTMENT ................................................................................................................................ 42

HUMAN RESOURCE MANAGEMENT .................................................................................................................... 44

DEPOSIT DEPARTMENT ........................................................................................................................................ 47

FOREIGN EXCHANGE/DEPARTMENT ................................................................................................................... 50

DEPARTMENTATION OF GOLBAGH BRANCH NBP ................................................................................................... 51

REFRENCES ............................................................................................................................................................... 55

PLANNING OF INTERSHIP PROGRAM........................................................................................................................... 56

TRAINING PROGRAM ................................................................................................................................................... 57

Objectives of the Study ............................................................................................................................................ 57

Limitation of The Study ............................................................................................................................................ 57

Benefit of The Study ................................................................................................................................................ 58

RESEARCH METHODOLOGY ......................................................................................................................................... 58

STRUCTURE OF HR DEPARTMENT ............................................................................................................................... 59

Number of Employees in HR Department ............................................................................................................... 59

FUNCTIONS OF HRM DEPARTMENT ............................................................................................................................ 60

HUMAN RESOURCE PLANNING & FORECASTING .................................................................................................... 60

FORECASTING .......................................................................................................................................................... 60

Zero-Base Forecasting ......................................................................................................................................... 60

Bottom-Up-Approach .......................................................................................................................................... 60

Use of Mathematical Model ................................................................................................................................ 60

Simulation ............................................................................................................................................................ 60

EMPLOYEE RECRUITMENT & SELECTION ................................................................................................................. 60

TRAINING AND DEVELOPMENT ............................................................................................................................... 65

PERFORMANCE MANAGEMENT .............................................................................................................................. 67

Performance Appraisal ........................................................................................................................................ 67

Promotion ............................................................................................................................................................ 67


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Demotion/Expulsion ............................................................................................................................................ 67

Resignation .......................................................................................................................................................... 68

Retirement ........................................................................................................................................................... 68

EMPLOYEE COMPENSATION AND BENEFITS ........................................................................................................... 69

Compensations and Benefits ............................................................................................................................... 69

LABOR MANAGEMENT RELATIONS ......................................................................................................................... 70

PROMOTION POLICY ................................................................................................................................................ 72

TRANSFER/JOB ROTATION POLICY .......................................................................................................................... 73

ELIMINATION OF REDUNDANCIES ........................................................................................................................... 76

FINANCIAL STATEMENTS ANALYSIS ............................................................................................................................. 77

Balance Sheet .............................................................................................................................................................. 78

Income Statement (Rupees in Millions) ...................................................................................................................... 79

Ratio Analysis ........................................................................................................................................................... 80

Profitability Ratios ............................................................................................................................................... 80

Gross Profit Margin Ratio .................................................................................................................................... 80

Net Profit Margin Ratio........................................................................................................................................ 81

Assets Turnover ................................................................................................................................................... 82

Return on Capital Fund ........................................................................................................................................ 83

Return on Investment .......................................................................................................................................... 83

Return on Deposits .............................................................................................................................................. 84

Effective Tax Rate ................................................................................................................................................ 85

Liquidity Ratios .................................................................................................................................................... 86

Current Ratio ....................................................................................................................................................... 86

Cash Ratio ............................................................................................................................................................ 87

Advances to Deposit Ratio ................................................................................................................................... 87

Due from Banks to Total Assets ........................................................................................................................... 88

Due from Banks to Due to Banks ......................................................................................................................... 89

Due to Banks to Total Deposits............................................................................................................................ 90

Debt Ratios .......................................................................................................................................................... 90

The Debt to Equity Ratio ...................................................................................................................................... 91

Interest Coverage Ratio ....................................................................................................................................... 91

Loan Loss Coverage Ratio .................................................................................................................................... 92

a) Capital Adequacy Ratios ............................................................................................................................. 93

Capital Funds to Total Assets ............................................................................................................................... 93


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Operating Performance Ratios ............................................................................................................................ 94

Fixed Assets Turnover .......................................................................................................................................... 94

Sales or Revenue Per Employee .......................................................................................................................... 95

Horizontal Analysis .................................................................................................................................................. 96

Horizontal Analysis of Balance Sheet ....................................................................................................................... 98

Horizontal Analysis of Income Statement ............................................................................................................. 101

Vertical Analysis ..................................................................................................................................................... 108

Vertical Analysis of Balance Sheet ......................................................................................................................... 109

Vertical Analysis of Income Statement .................................................................................................................. 113

CRITICAL ANALYSIS (THEORY VS PRACTICAL) ............................................................................................................ 117

Conclusion ............................................................................................................................................................. 117

Bank Analysis with refernce to commercial Banks listed on stock exchange ............................................................ 118

Critical Analysis (Theory vs Practical) .................................................................................................................... 120

SWOT ANALYSIS ......................................................................................................................................................... 122

STRENGTH .............................................................................................................................................................. 122

WEAKNESSES ......................................................................................................................................................... 124

OPPORTUNITIES ..................................................................................................................................................... 125

THREATS ................................................................................................................................................................ 126

COMPETITIVE ANALYSIS ............................................................................................................................................ 127

SHORT FALLS/ WEAKNESSES OF NATIONAL BANK OF PAKISTAN .............................................................................. 129

CONCLUSIONS ........................................................................................................................................................... 131

RECOMMENDATIONS ................................................................................................................................................ 132

REFRENCES................................................................................................................................................................. 134


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OVERVIEW OF THE ORGANIZATION

BRIEF HISTORY

There are different opinions that how the word Bank originated. Some of the authors opinionthat 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 B.C. 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 provide guarantee 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 moneylenders 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.


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NATURE OF THE ORGANIZATION

As above discussed we are going to discuss the banking sector in our report and the bank is

National bank of Pakistan. Following are some details about the nature of banking sector briefly

from the beginnings.

Definitions of 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.

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.

Sir John Paged 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 customers The American defined theterm 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 Cheques or order, money


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is advanced or loaned on stocks, bonds, bullion, bill of exchange, promissory notes are received

for discount or sale.

Evolution of Banking in Pakistan

The first phase in evolution of banking in Pakistan sees very hard days for the whole bankingsector. 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 30th 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.

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.

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


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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 bank 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, 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.


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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 Khan 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 frameworks 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, 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


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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

percentage as against 32.01 percentage 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 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.

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


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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, if necessary 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 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 profittheir 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 supervision 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


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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 to extend 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 set up of finance public sector owned and managed industries and

enterprises.

Nationalization of Banks (1974) In Pakistan

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 in

Pakistan 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 ofvarious 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 limite Muslim commercial bank limited Allied bank of Pakistan limited


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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.

Islamization of Banking

Another major development in the history of Pakistan Banking System was the introduced of

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 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 theindustrial 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.


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Different financial schemes introduced in the Islamization process are:

Musharika Financing. Hire Purchase Financing. Modaraba Financing. Specific Purpose Modaraba.

Dis-investments and Deregulation of Banking1991

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 Bankwas 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.

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 thissystem result oriented. New products and their systematic consumption are making Pakistani

banking comparable to their several modern counterparts anywhere in the developed world.

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.


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It is the major business partner for the Government of Pakistan with special emphasis on

fostering Pakistan's economic 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 allPakistani 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 thetotal schedule bank credit.

MISSION STATEMEN T

To make the bank complete and competitive with all international standards with performing

the quality of operations, staff, and financial strength. And products and services To develop a

culture of excellence in every spare of activity of the bank.

GOALS AND OBJICTIVES

An organizational objective is the intended goal that prescribes definite scope and suggests

direction to thepanning efforts of a organization.

Goals and objectives 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.
http://www.nbp.com.pk/Services.htmhttp://www.nbp.com.pk/Branch_Nwt.htmhttp://www.nbp.com.pk/Branch_Nwt.htmhttp://www.nbp.com.pk/Services.htm


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PRODUCT LINES AND SERVICES

NBP offers the following services to the people.

Demand DraftsIf 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.

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.

LETTERS 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.

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.


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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 payment order. 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.

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.

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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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 remittance services 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.

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.

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.

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

It is a checking account and there is no limit of withdrawal.


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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%.

EQUITY 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.

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

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.

TRADE FINANCE OTHER BUSINESS LOANS

There are two types of trade finance.


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AGRICULTURAL FINANCE

NBP provides Agricultural Finance to solidify faith, commitment and pride of farmers who

produce some of the best agricultural products in the World.

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.

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.

Agricultural Credit (Medium Term):

Production and development Watercourse improvement Wells Farm power Development loans for tea plantation Fencing


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Solar energy Equipment for sprinklers

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 equipmentLivestock loans for the purchase, care, and feeding of livestock.

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.

CORPORATE FINANCE

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 financeCash FinanceSmall Finance

Discounting & Bills Purchased Export Bills Purchased / Pre-shipment / Post Shipment

Agricultural Production Loans


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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.

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.

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

INTERNATIONAL BANKING

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:-


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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

NBP offers:

The lowest rates on exports and other international banking products Access to different local commercial banks in international banking

Cash and Gold Finance.

Cash and Gold finance means that loan is given against the gold. The gold is mortgaged with

the bank and loan is taken. It is the area of consumer finance. And borrower can take loan for

common use.

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.

REFRENCES

1. http/www.nbp.com.pk.services

2. Annual reports 2001, 2002, 2003.
http://www.nbp.com.pk/http://www.nbp.com.pk/


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ORGANIZATIONAL STRUCTURE

Organizational Hierarchy Chart of National bank of Pakistan is under below:

Organizational Hierarchy Chart

Chairman & President

Board, Corp, Affairs, Private and Operational Committee

Credit / Risk

Management

Group

Operations

Group

Audit and

Inspection

Group

Compliance

Group

HR & Admin

Group

Commercial

& Retail

Banking

Group

Corporate &

Investment

Banking

Group

Treasury

Management

Group

Special Asset

Management

Group

Islamic

Banking

Group

Overseas

Banking

Group

Information

Technology

Group

Cash management

and trade finance

group


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Number of Employees

Permanent 13237

Temporary/ On Contractual basis 842

Bank's own staff strength at the end of the year 14079

Outsourced 2350

Total Staff Strength 16429

An employee may be defined as: "A person in the service of another under any contract of hire,

express or implied, oral or written, where the employer has the power or right to control and

direct the employee in the material details of how the work is to be performed." iAn employee

contributes labor and expertise to an endeavor. Employees perform the discrete activity of

economic production. Of the three factors of production, employees usually provide the labour.

Specifically, an employee is any person hired by an employer to do a specific "job". In most

modern economies, the term employee refers to a specific defined relationship between an

individual and a corporation, which differs from those of customer, or client. The relationship

between National Bank of Pakistan and its employees is usually handled through the Human

Resource Management & Administration Group & Employees benefit disbursement & trustee

division. These groups handle the incorporation of new hires, and the disbursement of any

benefits which the employee may be entitled, or any grievances that employee may have.

There are differing classifications of workers within National Bank of Pakistan, these are:

Permanent

Temporary / On Contractual

Outsourced

The Employees of National Bank of Pakistan are organizing into trade unions, which represent

most of the available work force in National Bank of Pakistan. These trade Unions utilize their

representative power to collectively bargain with the management of bank in order to advance

concerns and demands of their membership.


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INTRODUCTION WITH DEPARTMENTS

Dividing an organization into different parts according to the functions is called

departmentalization. We are discussed here the Golbag Branch of National Bank of Pakistan

Multan, its Branch Code is 0542. Branch Manager is Madam Mehreen Tanveer Bhatti and Amir

Khalil is the operational manager of Golbag Branch Multan of National Bank of Pakistan.

CASH DEPARTMENT

Cash department performs the following functions

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.

Payments

It is a bankers primary contract to repay money received for this customers account usually by

honoring his cheques.

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:

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


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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).

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 writingb) The unconditional orderc) Drawn on specific banker onlyd) Payment on Demande) Sum Certain in moneyf) Payable to a specific persong) Signed by the drawerParties 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 Drawerb) The Draweec) The PayeeTypes of Cheques

Bankers in Pakistan deal with three types of cheques

a) Bearer Cheques


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Bearer cheques are cashable at the counter of the bank. These can also be collected through

clearing.

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 account usually 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 thefollowing essentials are fulfilled.

a) Cheques should be in a proper form:b) Cheque should not be crossed:


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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: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 bythe 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 deposited. At the same time, th e creditors

banks receive large amounts of cheques drawn on other banks giving claims of payment by them.


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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.

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.

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.

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 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.


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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.

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.

Principles of Advances

There are five principles, which must be duly observed while advancing money to the borrowers.

Safety

Liquidity

Dispersal

Remuneration

Suitability

a. SafetyBankers 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


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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 capacityenough 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 no insight 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

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.


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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 consideration of 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.

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 moneyborrowed 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.


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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.

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.

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


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least on self or one quarter of the amount of cash finance limit allowed to him even when he does

not utilize that amount.

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.

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.

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

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.


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a) Demand Draftb) Telegraphic Transferc) Pay Orderd) Mail TransferDemand 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

I. Up to Rs. 50,000/- is Rs 50/- onlyII. Over Rs. 50,000/- is 0.1%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.


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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.

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

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