banks and indutry relations

8/8/2019 Banks and indutry relations

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Hassan Bakhtiar Roi M. RiazCIIT/FA08-MBA-039/LHR CIIT/FA08-MBA-087/LHR

Ehsan Ullah Uzair Ahmed SheikhCIIT/FA08-MBA-043/LHR CIIT/FA08-MBA-155/LHR

PRESENTED TO:

Miss. Mahwish Irum


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Special Thanks

We are glad to tell that the staff helped us a lot we are really thankful to

all of them even we cant give their thanks in words they teach us

everything regarding our project. We are pleased with all their support

Mr.Adnan-ul-haq (Vice President NIB)

Mr. Noman (OG 1 UBL)

Mr. Mohuindin Mahmood (In charge finance department ORIENT)

Mr. Qamar Latif (Manager, BOP)

Mr. Tariq Rahman (Industrial finance in charge JS Bank)

Mr. Arslan-ul-Haq (Student of BSC Finance LUMS)

Mr. Waqar (Head of Finance department ALI AKBAR Group)

Mr. Hanif (Manager Finance PEL)

They are the real professionals of their jobs they perform their jobs whole

heartedly.


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Topic name: Products and services provided by banks

to industry.

Introduction

We chose this topic because as students of management sciences we should have a proper

knowledge of Pakistan's banking system and the products and services being offered by

banks currently functioning in market. Since 1972 different reforms have been 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.

In this research paper we have tried to figure out how the services being provided by

banks have evolved to fulfill the needs of ongoing process of industrialization. We looked

at different services that are being provided by multitude of banks and categorized these

practices as conventional and non-conventional. After this categorization we made sub-

classes and looked at what falls under each of these sections. In conventional practices

we have put services like working capital lines, demand finance, BMR etcetera, basically

the services which are offered by almost all banks and which have been for quite some

time now. In non-conventional services we discuss services like bullet loans and

derivatives which are offered by a limited number of banks and the services themselves

are relatively new.

After looking at the services being provided by banks, we pin point a couple of industries

which are benefitting from these products offered by banks. We observed that theservices of banks are quite flexible depending on the magnitude of customer and there's

quite a bit of flexibility in the services provided by banks depending on how big a client

is and how good the reputation of the client is.


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Working Capital Lines (UBL, National Bank, Js Bank)

Working Capital Lines are the basic function of almost all banks because this line creates

a huge amount of revenue for banks. These lines are mostly used by industries in

different ways such as now-a-days textile industry is using working capital lines. Mostly

in working capital lines are available for a period ranging from 4 months to 3 years.

Unlike traditional form of loans offered by banks and other large financial institutions, a

working capital line of credit is acquired in a manner which is faster and whole lot easier.

The cash needed is readily made available in the shortest time possible, making it an ideal

option to answer to the urgent circumstances. With this, Industry owners are given the

opportunity to generate more profits by supporting them in their endeavors withoutasking for any security.

To acquire of a working capital line of credit, there is no need for small business

industries owners to use any of their properties as collateral. Though this is the case, there

are still a few conditions that the lending banking company requires you to meet before

an agreement is drafted. Among these conditions are the invested interest of the business

owner, credit history, and the capacity of the enterprise or business to generate revenue

that would serve enough to accommodate the repayments. The last factor mentioned

which is the adequate cash flow coming into the business as profits is probably the most

critical thing to consider by the lending company.

When the conditions have been met and the business proved to be eligible for a working

capital line of credit, the agreement will then be drafted. This comprises of the amount in

percentage of the overall revenue made by the business and the period of time to get the

borrowed amount fully paid. In accordance to the agreement, the access of the lending

company to a portion of the future profits through sales will continue to hold effective

until the predetermined time. In Working Capital Lines of Credit there are two types of

facilities that offered: Running Finance and Cash Finance.


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a. Running Finance

Running finance is nothing but the finance offerings by financial institutions against

mortgages. It works under the working capital finance. Specifically, the running finance

is a credit facility established for a specific time limit at variable interest rates. Cottage

industry is a contributory agent for successful operation of the running finance scheme.

The running finance is implemented by means of allowing the over draft facility and the

corresponding amount is determined by the repaying capacity of the borrower.

Overdraft is one sort of offering credit by the account providers, in that withdrawals are

permitted exceeding available balance of the bank account. It is nothing but an over-

drawing leading to a negative balance. The situation is more common with the credit card

offerings by the banks. For enjoying overdraft facility, there should be some agreement

or approval in advance with the account provider. Generally, the over-draft facility is

offered by the banks for some maximum amount and the same is required to be returned

to them (in the respective account) within some specified time limit.

Non-compliance of these guidelines may impose heavy penalty on the account holders. In

any case, drawing an overdraft necessitates paying interest. Fees charged for providing

the overdraft facility and in case of going into unauthorized limits may vary from bank tobank, but the principle remains the same.

b. Cash Finance:

Cash Finance facility is generally provided against pledge of goods. Under this type of

financial accommodation the facility amount is disbursed in specially opened account for

the purpose. The pledged goods are released to the borrower against cash payment only.

In case the goods pledged are seasonal in nature, the customer would be required to

adjust the facility before the season ends. Rollover shall not be allowed.


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2. Demand Finance (UBL, National Bank, Js Bank)

As it is clear from its name demand finance is on the disposal of the industry. Suppose

the industry needs machinery worth Rs. 1,000,000/- the bank is allowed to sanction loanunto 80% of total worth. Mostly this loan is used for renovation of business.

Credit facilities extended against registered mortgage of property (i.e, land/buildings

constructed or to be constructed) is by nature classified as a Secured Advance. A formal

charge on the property is established and recorded with the Registrar Land and Property

termed as registered mortgage. Advances are also made against equitable mortgage of

property, whereby the original title Deeds, are deposited with the Bank as Security and

the charge is registered with the Registrar SECP.

In case the Finance is allowed to Limited Companies, where the original title documents

of Land/Building and other Fixed Assets are held by the senior charge holders, our

charge (Pari-Pasu or ranking) as approved by Credit Committee, shall be recorded with

the Registrar Securities & Exchange Commission of Pakistan (SECP). However, in case

of Pari-Pasu Charge, NOCs from the senior Charge Holders shall be obtained before

registration of charge with SECP. In case of borrowers failure to liquidate the obligation,

or on classification of the advance to Non-Performing the Bank has a legal recourse to

apply for a decree in a court of law, to sell off the mortgaged property through auction as

ordered by the court.

Example of demand finance is given below this product is offered by UBL Ltd.

Products available, criteria of selection and eligibility criteria is given below.

NIACF (Revolving Credit Scheme)

Loan Tenure 3 years

Documentation once for 3 years.

Cleanup once a year

Option for the farmer to use limit as per requirement


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Markup is charged on amount used or withdrawn

Minimum Amount PKR 30,000

Maximum Amount as per requirement of the farmer

(Demand Finance Production)

Loan Tenure 3 months to 1 year

18 months for Sugar cane only

Lump sum disbursement of the limit for a specified period.

Repayment of loan in bullet payment on maturity (Principal and markup).


Maximum Amount as per requirement of Farmer

Development Loan

Land Development, Equipments and Machinery

Financing for Land Improvement, Water course improvement, Tube wells, Lift pumps,

Deep turbine pumps, Cotton pickers, Godown, Cold Storage, Harvester, Thresher, etc

Loan Tenure 1 to 5 years


Repayment in installments (Principal with markup).

Repayment mode monthly, quarterly and half yearly


Maximum Amount as per requirement of Farmer

Tractor & Vehicle Finance

To purchase Tractors, Delivery Vans, Mini Trucks, Motor Cycle and other vehicles used

for marketing Agri Products

Loan Tenure

1 to 3 years for Motor Cycle

1 to 7 years for Tractor

1 to 5 years for other 4 wheel vehicles



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Repayment in installments (Principal with markup).

Repayment mode monthly, quarterly and half yearly


Maximum Amount PKR 1,500,000

Eligibility

Should be a Pakistani & holding CNIC

Preferably an account holder of UBL

Permanent resident of the area

Should be Agri land owner

Self cultivator

Minimum 3 years experience in relevant field

Not a defaulter of any bank

Have repayment capacity

Able to produce proper securities / Passbooks / sureties

Collateral Requirement

Bank charge on Agri Land through Zarie Passbook

Mortgage of Rural / Urban property other than Agriculture Land

Hypothecation of Farm equipments with backup collateral

Join registration of Tractor / vehicle with backup collateral

Growers loans against continuing Guarantee of Agriculture processing units

Join registration of Tractor / vehicle with backup collateral

Liquid Securities (Defence Saving Certificates, National Saving Certificate, etc.)

Terms & conditions

Clean CIB

1 to 3 years for Motor Cycle

Markup payment frequency quarterly / half yearly for working capital loanInstallment repayment frequency monthly / quarterly / half yearly / yearly for Term

finance loans

Minimum landholding 10 acres for Tractor Financing

Equity for Tractor 10%

Equity for 4 wheelers except Tractor is 25%


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3. Letter of Credit: (UBL, National Bank, Js Bank)

A standard, commercial letter of credit is a document issued mostly by a financial

institution, used primarily in trade finance, which usually provides an irrevocable

payment undertaking.

The LC can also be source of payment for a transaction, meaning that redeeming the

letter of credit will pay an exporter. Letters of credit are used primarily in international

trade transactions of significant value, for deals between a supplier in one country and a

customer in another. They are also used in the land development process to ensure that

approved public facilities (streets, sidewalks, stormwater ponds, etc.) will be built. The

parties to a letter of credit are usually a beneficiary who is to receive the money, theissuing bank of whom the applicant is a client, and the advising bank of whom the

beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be amended

or cancelled without prior agreement of the beneficiary, the issuing bank and the

confirming bank, if any. In executing a transaction, letters of credit incorporate functions

common to giros and Traveler's cheques. Typically, the documents a beneficiary has to

present in order to receive payment include a commercial invoice,bill of lading, and

documents proving the shipment was insured against loss or damage in transit. However,

the list and form of documents is open to imagination and negotiation and might contain

requirements to present documents issued by a neutral third party evidencing the quality

of the goods shipped, or their place of origin.

How it works:

A business called the InCosmetika from time to time imports goods from a business

called BLISS, which banks with the ABC Bank. InCosmetika holds an account at the

Commonwealth Bank. InCosmetika wants to buy $500,000 worth of merchandise from

BLISS, who agrees to sell the goods and give InCosmetika 60 days to pay for them, on

the condition that they are provided with a 90-day letter of credit for the full amount. The

steps to get the letter of credit would be as follows:
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InCosmetika goes to The Commonwealth Bank and requests a $500,000 letter of

credit, with BLISS as the beneficiary.

The Commonwealth Bank can issue an LC either on approval of a standard loan

underwriting process or by InCosmetika funding it directly with a deposit of

$500,000 plus fees which are typically between 1% and 8% of the face value of

the LC.

The Commonwealth Bank sends a copy of the LC to the ABC Bank, which

notifies BLISS that payment is available and they can ship the merchandise

InCosmetika has ordered with the full assurance of payment to them.

On presentation of the stipulated documents in the letter of credit and compliance

with the terms and conditions of the letter of credit, the Commonwealth Bank

transfers the $500,000 to the ABC Bank, which then credits the account of BLISS

for that amount.

Note that banks deal only with documents required in the letter of credit and not

the underlying transaction.

Many exporters have mistakenly assumed that the payment is guaranteed after

receiving the LC. The issuing bank is obligated to pay under the letter of credit

only when the stipulated documents are presented and the terms and conditions of

the letter of credit have been met.
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4. Letter of Guarantee: (UBL, National Bank, Js Bank)

Letter of guarantee or popularly known as Bank Guarantee widely used in industries and

is a form of indemnity letter issued by bank on behalf of its client, whereby the bank

promises to indemnify the beneficiary in the event of default of its client. The most

commonly used BGs in any form of trade (Domestic or International) are either the

financial letter of guarantee or Performance letter of guarantee.

Like that ofLetter of Credit the Bank Guarantee can also be issued in any currency. The

major difference between these two instruments is that the banks liability in LC arises on

happening of an event and that in BG arises on non-happening of an event . Bank

guarantees are becoming popular medium of facilitating trade and business especially inconstruction an infrastructure sector.

The Bank Guarantees can be of varied nature depending on their usage, the most

commonly used Bank Guarantees in domestic/ international trade are as mentioned

below:

Bid Bond Guarantee: Such a BG is basically used in projects awarded through

tenders. Such a bank guarantee is given for the shortest of the tenure and isreturned back if in case the work is not allotted. The same can later be treated as

Performance Guarantee if in case the work is allotted.

Advance Payment Guarantee: Such a BG if used wherein the employer / principal

of the contract agrees to pay a portion of total contracted value in advance. In lieu

of the advance the employer / principal of the contract asks for a guarantee from

the contractor to ensure that the commitment would be honored. Contractor then

approached the bank for issue of Bank Guarantee in favor of the employer. Such a

BG is equivalent to the amount of advance given.

Performance Guarantee: A guarantee given by the seller to the buyer to honor any

claims by the buyer on seller in case of default in delivery or performance of the

goods or work executed.
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Shipping Guarantee: A shipping guarantee is used by the buyer to be given to the

customs. In case where the goods reach the destination before the bill of lading

the customs ask for such a guarantee before releasing of the goods. Such a

guarantee secures the claim of the customs against the buyer if in case the Bill of

lading is not submitted with the allotted time frame.

Retention money Guarantee: After execution of the work, the employer usually

retains back certain percentage of the value of total work executed as security for

quality of the work performed. This may vary from contract to contract but is

usually in range of 5-10% of the contract value. The contractor can get this money

released by way of providing a bank guarantee for equivalent amount to

employer. This guarantee is known as Retention money Guarantee.

Bank Guarantees are issued through the financial institutions mostly a Bank. Before

issuing such an instrument the bank takes care of its own interest in the event of

invocation of such an instrument. Further commission earned on issuance of bank

guarantees forms an important part ofbanking industrys revenue. The Bank Guarantee

can be issued in three ways:

Backed by Cash Margin: This is the simplest way of getting a BG issued from a

bank. In case of domestic BG, bank seeks a cash margin of 100% in form of Fixed

Deposits and that in case of any foreign BG the cash margin can range any where

from 105% to 110% depending from bank to bank. The additional margin kept in

case of foreign BG is to take care of currency rates fluctuations.

Through Credit Lines : As compared to the Cash margin this is most desired way

of getting a BG issued though such a facility is not available to every client. In

such a case a bank opens a credit line for BG in the name of client on the basis of

credit appraisal and collateral securities. Unlike the first option here client is

required to pay lesser cash margin for the BG. The cash margin can range from

10% to 25% depending from bank to bank and also on the credit rating of the

client seeking the facility. This enables the client to maintain the liquidity within

his system as he is required to take out lesser cash out of the business for a BG.
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Backed by Counter Guarantee : This is just like that of BG issued backed by cash

margin .Security here is the counter guarantee of another financial institution in

place of Fixed Deposits. Such a facility is subject to approval of credit of the bank

issuing the BG.

5. Bullet Loan/ Balloon payment: (UBL, National Bank, Js

Bank)

Bullet loans are sanctioned to the industry, the mechanism is that an industrialist who

needs financing goes to bank and says that I have 4 million stuck in a consignment and it

will be returned to me next month. Currently I am running short of capital so I want 2

million on urgently. Now the bank gives 2 million and the person is going to return it in

lump sum.

In banking and finance, a bullet loan is a loan where a payment of the entire principal of

the loan, and sometimes the principal and interest, is due at the end of the loan term.

Likewise for bullet bond. A bullet loan can be a mortgage, bond, note or any other type of

credit.

The payment that is due at the end of the loan is referred to as thebullet payment or

balloon payment.

Bullet loans are common, and usually referred to by other names; bullet loan is a generic

and unofficial term. Many types of publicly-traded bonds and notes constitute bullet

loans: the face value of the bond is payable at bond maturity and only interest payments

are due during the interim periods. Short-term bonds or notes which pay no interest are

also a form of bullet loan.
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6. Derivative (UBL, National Bank, Js Bank)

Derivatives come under modern banking. Industries utilize derivatives in multiple ways.

A derivative is a financial instrument that is derived from some otherasset, index, event,

value or condition (known as the underlying asset). Rather than trade or exchange the

underlying asset itself, derivative traders enter into an agreement to exchange cash or

assets over time based on the underlying asset. A simple example is a futures contract: an

agreement to exchange the underlying asset at a future date.

Derivatives are often highly leveraged, such that a small movement in the underlying

value can cause a large difference in the value of the derivative.

Derivatives can be used by investors to speculate and to make a profit if the value of the

underlying asset moves the way they expect (e.g. moves in a given direction, stays in or

out of a specified range, reaches a certain level). Alternatively, traders can use derivatives

to hedge or mitigate risk in the underlying, by entering into a derivative contract whose

value moves in the opposite direction to their underlying position and cancels part or all

of it out

There are three major classes of derivatives:

1. Futures/Forwards are contracts to buy or sell an asset on or before a future date at

a price specified today. A futures contract differs from a forward contract in that

the futures contract is a standardized contract written by a clearing house that

operates an exchange where the contract can be bought and sold, while a forward

contract is a non-standardized contract written by the parties themselves.

2. Options are contracts that give the owner the right, but not the obligation, to buy(in the case of a call option) or sell (in the case of a put option) an asset. The price

at which the sale takes place is known as the strike price, and is specified at the

time the parties enter into the option. The option contract also specifies a maturity

date. In the case of a European option, the owner has the right to require the sale

to take place on (but not before) the maturity date; in the case of an American
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option, the owner can require the sale to take place at any time up to the maturity

date. If the owner of the contract exercises this right, the counterparty has the

obligation to carry out the transaction.

3. Swaps are contracts to exchange cash (flows) on or before a specified future date

based on the underlying value of currencies/exchange rates, bonds/interest rates,

commodities, stocks or other assets.

7. Banks as Underwriters: (UBL, National Bank, Js Bank)

When a bank acts as an underwriter, it is basically performing the functionalities of an

investment bank. When a company or other organization wants to raise funds, it

frequently does so by issuing and selling new securities, such as stocks or bonds. Aninvestment bank usually helps in this process by providing expertise and customers to

buy the securities. A company does not need to use an investment bank, but it usually

does, because it is less costly than trying to sell securities directly to the public.

An investment bank is not a bank in the usual sense. It doesn't have checking or savings

accounts, nor does it make auto or home loans. It is a bank in the general sense, in that it

helps businesses, governments, and agencies to get financing from investors in a similar

way that regular banks help these organizations get financing by lending money that the

banks' customers have deposited in the banks' savings, checking, and money market

accounts.

An investment bank helps an organization, which may be a company, or a government or

one of its agencies, in the issuance and sale of new securities. It is usually a division of a

brokerage firm, because many of their activities are related. When an organization needs

funds, it will first discuss the options and possibilities with an investment banker: how

much money will be needed, what type of security to sell and any special features it

might have, at what price, and how much this will cost the company.
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Underwriting Agreement Firm Commitment

If the investment bank and company reach an agreement to do an underwritingalso

known as a firm commitmentthen the investment bank will buy the new securities for

an agreed price, and resell the securities to the public at a markup, bearing all of the

expenses associated with the sale. The company gets the guaranteed funds even if the

investment bank does not sell all of the securities. Thus, the investment bank takes a

significant risk in a firm commitment. Often, the investment bank becomes a broker-

dealer, or market-maker, in the new security.

Direct responsibilities in an underwriting include registering the new securities with the

Securities and Exchange Commission, setting the offering price, possibly forming and

managing a syndicate to help sell the new securities, and to peg the price of the new issue

by buying in the open market, if necessary.

Selecting the Right Offer Price is very important in an Underwriting

If the offer price is too high, the investment bank will fail to sell all of the new issue (aka

under-subscription), then it will have to hold some of the issue in inventory, hoping to

sell it later. If the investment bank holds the new issue in inventory, this will tie up

capital that can be used elsewhere, or, worse yet, it will have to borrow money.

Furthermore, the initial customers who paid a higher price for the new issue will be

disappointed that they paid a higher price, and the investment bank may lose these

customers in a future offering. The bank will also probably submit a stabilizing bid until

either the new issue sells out, or it ends the offering and just takes the loss.

If the offering price is too low, then the new issue will quickly sell out, and the price of

the new issue will rise quickly because the supply will be limited (aka oversubscription),

inducing the initial investors to sell for quick profitscommonly called flipping.

However, the company will not reap any of this extra money, and it will be disappointed

that the initial offering price was not higher. Investment banking is a very competitive

business. The issuer and other companies will see this as a failure to set the best price,

and may take its future business elsewhere.


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8. Banks as brokerage houses (UBL, National Bank, Js

Bank)

Abrokerage house is a place from which a broker conducts business. The term brokerage

house is often referred to as a broker, brokerage, or a brokerage firm. Working through a

licensed brokerage house, your broker buys and sells shares ofstockfor your portfolio as

per your instructions. A full service brokerage house provides a wide range of services to

its clients, including advice and recommendations concerning which stocks to buy and

when to sell. A lot of banks like UBL, National Bank and JS bank provide some of the

services provided by brokerage houses. With your permission your brokerage house may

allow your broker to buy and sell shares in your name at the broker's discretion. Inexchange for these services, a full-service brokerage house often charges higher

commissions than a discountbrokerage house. A discount brokerage house typically

provides few services other than the actual placement of buy and sell orders. A discount

brokerage house typically refrains from offering recommendations or advice. As the

name implies, a discount brokerage house typically has lowercommission rates.

JS group provide brokerage services for its customers in Pakistan. JS Group's securities

brokerage business is run through JS Global Capital Limited (JSGCL). JSGCL is a

market-leader in Pakistan's equity, fixed income and foreign exchange brokerage

markets. In 2004 and 2006, JSGCL was the winner of Asia moneys 'Best Equity House'.

In 2004 Asia money magazine also declared JSGCL 'Best Bond House' for Pakistan. In

2005, the CFA Association of Pakistan voted JSGCL 'Best Equity Brokerage House'.

JSGCL is one of the largest securities brokerage firms in Pakistan by volume and team

size and serves more than 1,000 clients, both local and foreign.
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9. Micro financing (UBL, National Bank, Js Bank)

Microfinance is often defined as financial services for poor and low-income clients. In

practice, the term is often used more narrowly to refer to loans and other services from

providers that identify themselves as microfinance institutions (MFIs). These

institutions commonly tend to use new methods developed over the last 30 years to

deliver very small loans to unsalaried borrowers, taking little or no collateral. These

methods include group lending and liability, pre-loan savings requirements, gradually

increasing loan sizes, and an implicit guarantee of ready access to future loans if present

loans are repaid fully and promptly.

More broadly, microfinance refers to a movement that envisions a world in which low-

income households have permanent access to a range of high quality financial services to

finance their income-producing activities, build assets, stabilize consumption, and protect

against risks. These services are not limited to credit, but include savings, insurance, and

money transfers.

JS group provide brokerage services for its customers in Pakistan. JS Group views the

Micro Finance sector as an essential part of its overall financial services portfolio to tapinto a new market segment while acting in accordance with its social responsibilities as a

corporate citizen. JS Group established Network Microfinance Bank in partnership with

Network Leasing, a specialist micro-leasing company.

Network Micro Finance Bank (NMB), Pakistan's third such financial institution,

launched its services in 2004. Network Micro Finance Bank is the first Micro Finance

institution in Pakistan to be listed on a stock exchange (the Karachi Stock Exchange).

Network Micro Finance Bank provides a full range of banking services to micro-

entrepreneurs and people belonging to a low income category. The bank makes special

efforts to support and finance women entrepreneurs. State Bank of Pakistan has a

prudential regulation applicable to micro finance banks which fixes the maximum loan

size at Rs 150,000. Network Micro Finance Bank's primary commercial banking function


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will be to provide short and medium term loans for working capital and other productive

uses to small, under-financed and under-banked segments of the country, with emphasis

on Karachi.

10. Bank assurance

Bancassurance take place in the forms of a) distribution agreements, b) setting-up joint

ventures by mutually subscribing to the shareholding, and c) setting-up subsidiary by

bank and then selling its products.

Bancassurance in Pakistan: There is no restriction by SBP on Bancassurance taking

place in the form of Distribution Agreement between independent insurers and the banks

to sell insurance products, on stand-alone basis or offering their own products bundled

with insurance products. It is important to mention here that the Draft Banking Act, 2006

also allow the banks to sell insurance products of insurance companies.

Insurance provided by abank. For example, a bank could offerlife insurance in addition

to its savings, loan, and investment services. Proponents argue that bancassurance can

streamline internal and government regulations. For example, a bank offering a mortgage

may require borrowers to buy homeowners insurance; if bancassurance is available, the

borrower could purchase a policy directly from the bank without needing to shop around.However, bancassurance is somewhat controversial; critics contend that allowing banks

to sell insurance gives them too much control over the financial services sector. As a

result, some countries prohibit it. The United States has allowed it since the passage of

the Gramm-Leach-Bliley Act.
http://financial-dictionary.thefreedictionary.com/insurancehttp://financial-dictionary.thefreedictionary.com/Bankhttp://financial-dictionary.thefreedictionary.com/Life+insurancehttp://financial-dictionary.thefreedictionary.com/Loanhttp://financial-dictionary.thefreedictionary.com/Investmenthttp://financial-dictionary.thefreedictionary.com/Mortgagehttp://financial-dictionary.thefreedictionary.com/buyhttp://financial-dictionary.thefreedictionary.com/Sellhttp://financial-dictionary.thefreedictionary.com/Gramm-Leach-Bliley+Acthttp://financial-dictionary.thefreedictionary.com/insurancehttp://financial-dictionary.thefreedictionary.com/Bankhttp://financial-dictionary.thefreedictionary.com/Life+insurancehttp://financial-dictionary.thefreedictionary.com/Loanhttp://financial-dictionary.thefreedictionary.com/Investmenthttp://financial-dictionary.thefreedictionary.com/Mortgagehttp://financial-dictionary.thefreedictionary.com/buyhttp://financial-dictionary.thefreedictionary.com/Sellhttp://financial-dictionary.thefreedictionary.com/Gramm-Leach-Bliley+Act


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Problems

Even though the industries using these facilities provided by banks are quite satisfied

with the services being offered to them, still there are some areas where improvement is

possible. We identified some problems which we are listing below:

The banking system as we see today here is majorly imported from west, but the

market realities of Pakistan are very different from what is present abroad. To say

the least, the market is much more efficient abroad and the customer is way more

informed as compared to a Pakistani customer. The end result is that this gives

Pakistani banks a chance to exploit its customers which are industries or evenindividuals in certain instances. For example, a farmer who wants loan for his

tractor might not be aware of the going interest rate in the market and due to lack

of resources, financial or otherwise, might not even be able to carry out a proper

market survey. This gives the bank a chance to exploit such customer, as in

charge a higher interest rate and exploit him.

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.

The facilities which are being offered under non-conventional banking system are

relatively new, an example of that is derivatives. Derivatives are complex in


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nature and require specialized knowledge if they have to be utilized fully by an

industry. Since the trade in derivatives is relatively new, banks haven't yet

employed enough experts that they can perform financial engineering to an

optimal level and benefit their customers to fullest. As a result the returns

investors get out of derivatives provided by the banks are less than efficient and

these services can be improved.

Even though micro financing is available and a number of banks are offering

loans to SME's but the concept is still new for Pakistan. The loans which are

available for cottage industry normally require collateral or incorporate a

condition or two which make it harder for people to take full advantage of these

loans. Micro financing as it exists has a long way to go in its practices.

Practical Problems:

Credit Eligibility criteria is tough. Eg no proper collateral

TAT Term around time min 7 days of evaluation

Mark up rate is higher bargaining is possible

EW early warning market credibility of industry

All r major element of risk analysis

Making gas station govt criteria eg gas station

Directors CIB Central Investigation burro check of directors credibility.

Personal guarantee of director

Previous loans

Political problems

PNW personal network statement personal assets included

Directors loan subordinate preference over directors loan

default loans

1 Nature of industry

2 financial of co

If the check of organization bounce4 times the banks reject the loan

Documentation ,securities


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Solutions

1. In order to make the market more efficient the flow of information

has to be regulated so that the customers are not exploited. For this purpose joint

efforts of government (state bank) and other banks are required. To have a more

informed consumer, campaigns need to be run to reach out to all sorts of

consumers, industrial or individual, to dissipate all sort of information regarding

interest rate prevailing in market, types of loans available, documentation required

for different loans etc.

2. To take full advantage of thecomplex serviced benign offered such

as derivatives specialize knowledge is required so that optimal amount offinancial angering is done andportfolios are built which give maximum return for

a given amount of risk. For this to happen experts need to be highbred, preferably

those who have experience in dealing with derivatives.

3. The credit terms and collateral requirements put forward by banks

for availing micro finance facilities are very rigid considering the clientele for

such facilities. Micro financing needs to start on more favorable terms for

consumer so that they can gain maximum out of these loans which are extended to

them. The model given by Muhammad Younus is a good starting point in

considering how micro financing should be done.

4. To counter practical problems the Banks should have flexible

polices. Actually eligibility criteria and documents required criteria is very much

tough.


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Conclusion

In this project we have discussed all the product lines available for industries by

the bank. We have discussed each and every point in detail we have consulted thepersonals of organization who helped us a lot. We selected JS Bank, UBL, NIB.

In industries we selected power generation sector represented by ORIENT and

PEL. And on behalf of agriculture we have selected ALI AKBAR Group. We

conclude that suppose if bank provide 10 services then the industry is using 6

services. The representatives of industry say that we are using 4 major services

eg. Working capital lines, Demand Finance, Letter of credit and letter of

guarantee. Now we identify some major problems and their solution is also given.

We can say that banks are doing their best to facilitate the industries.


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References

Web Sited:

http://ezinearticles.com/?Working-Capital-Line-of-Credit&id=1509680

http://www.blurtit.com/q481941.html

http://www.bop.com.pk/CashFin.aspx

http://www.bop.com.pk/DemandFinance.aspx

http://en.wikipedia.org/wiki/Letter_of_credit

http://www.finance-strategy.com/letter-of-guarantee.html

http://en.wikipedia.org/wiki/Bullet_loanhttp://thismatter.com/money/stocks/investment-banking.htm

http://www.investorglossary.com/brokerage-house.htm

http://www.microfinancegateway.org/p/site/m/template.rc/1.26.9183/

Books:

Siddiqi H Israr Law and practice banking in Pakistan.

Gilbert J.W principles and practice.

SirPaged John The law ofBanking, page 51.

SirPaged John The law ofBanking, page 51.
http://ezinearticles.com/?Working-Capital-Line-of-Credit&id=1509680http://www.blurtit.com/q481941.htmlhttp://www.bop.com.pk/CashFin.aspxhttp://www.bop.com.pk/DemandFinance.aspxhttp://en.wikipedia.org/wiki/Letter_of_credithttp://www.finance-strategy.com/letter-of-guarantee.htmlhttp://en.wikipedia.org/wiki/Bullet_loanhttp://thismatter.com/money/stocks/investment-banking.htmhttp://www.investorglossary.com/brokerage-house.htmhttp://www.microfinancegateway.org/p/site/m/template.rc/1.26.9183/http://ezinearticles.com/?Working-Capital-Line-of-Credit&id=1509680http://www.blurtit.com/q481941.htmlhttp://www.bop.com.pk/CashFin.aspxhttp://www.bop.com.pk/DemandFinance.aspxhttp://en.wikipedia.org/wiki/Letter_of_credithttp://www.finance-strategy.com/letter-of-guarantee.htmlhttp://en.wikipedia.org/wiki/Bullet_loanhttp://thismatter.com/money/stocks/investment-banking.htmhttp://www.investorglossary.com/brokerage-house.htmhttp://www.microfinancegateway.org/p/site/m/template.rc/1.26.9183/


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Team leader

Uzair.A.Sheikh

Work Distribution

Droup 1

Ayyma Saman, Nimra Malik, Sidra Iqbal

Collect data from net about different industries and their requirements. Actually

their part only consists of literature so that we could make our basis for this

project. Actually they have worked on initial stage of this project.

Group 2

Fouad Abdul Hameed, Ali Shabbar, Saqib Murtaza

They are supposed to submit data on Banks. I have assigned them this task

because they have done internships in banks so, they are more awarded of the

banking practices. Valuable data is collected from them. They submit their task

before time bank in which they have done internships are UBL and Bank Alflah.

Group 3

M Faisal, Mohsin Saeed, Hassan Bakhtiar Roi, M. Riaz

They are suppose to submit data on industry. I have assigned them this task

because they have done internship in PEL and in Orient. They face many

problems regarding data collection because of holidays.

Group 4

Ahsan Saeed, Saftain, Ehsan Ullah

They are supposed to submit data on industry and on NIB. I have assigned them

this task because they have done internship in Js Bank and in Ali Akbar group.

banks and indutry relations

Documents