sarfraz mcb

8/7/2019 Sarfraz MCB

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CREDIT DEPARTMENT

Credit department is considered as backbone of the bank because it is earns revenue for the though lending of money to corporate, SME & individual customers. It is one of the

assets of the bank. The credit department manages the credit portfolio of the branch by

maintaining the required diversification to minimize the risk of the branch. Thisdepartment performs two major functions:

Credit Marketing

Credit Administration

These both functions are performed by same personnel in this branch. In other branches

or banks these functions are performed by two credit marketing department, creditadministration department. Credit marketing department works as front end and credit

administration department as back end.

Credit MarketingCredit marketing is concerned with

Generation of borrowers (customers)

Collection of basic documents/information

Defining terms & conditions for advances

Preparation of proposal

Credit Administration

Credit administration is concerned with

Execution of terms & conditions settle by credit marketing

Preparation of legal documents

Markup recovery

Monitoring loans

Make arrangements for disbursement of loans

Maintenance of borrowers files



Classification of Credit Facilities

Running Finance L/C

Term Finance L/G

FAPC

FAFB

FBP

IBP

PAD

FATR

FIM

Explanation of Credit FacilitiesCredit department of every bank provides various types of facilities to its customer. In

broad terms, facilities are fund and non-fund basis. MCB Bank provides various types of credit facilities to its customers. Important advances are discussed bellow,

1. Credit Administration

This facility is provided to customer for a specified time period to meet theworking capital requirement of business. The customer can over drawn up to

credit limit sanctioned by the bank. The mark u is charged on amount actuallyutilized by the customer. After the expiry of the specific period if the customer and bank both agree to continue the facility then customer get it renewed from

bank. Bank can also adjust the facility on demand.

Some classifications under this head are as follows:

a. Temporary/Regular: It depends on whether running finance is allowed to

continue beyond seven days from the date of sanction.

CREDIT

Funded Non-Funded



b. Clean: Where the overdrawing is allowed only against a demand promissory

note signed by the account holder.

c. Security: In cases of running finance clean, the promissory note acts assecurity for the extension of the credit.

d. Secured: Where the facility is secured additionally against deposits/tangible

assets.

2. Cash Finance

This type of finance is allowed to the borrower against the hypothecation or pledge of stock of borrower. The inventory pledged/hypothecated operated as a

security for advance. The agreement with regard to the pledged/hypothecated

goods is executed with the customer. If the risk is high additional security may

also be obtained. This facility is also extended to fulfill the working capital needsof customer’s business.

3. Term Finance

Term finance is advanced for fixed period to fulfill capital expenditures of the business. Under this facility the loan is repayable in fixed installments. This type

of loan is secured against immoveable property.

4. Finance Against Packing Credit (FAPC)

This facility is provided to exporter after the evidence LC/Contract received by

him from the importer (buyer). This credit facilitates the exporter to purchase rawmaterial for the manufacturing of finished goods to be exporter. Such finance is

allowed to exporter for packing the goods to be exporter. The loan is advanced

against the security of inventory purchased by the borrower. It is important thatHypothecation Agreement with respect to such inventory be executed by the

customer. Additional security is also taken depending upon the risk element.

The SBP also provide export refinance facility at lower rates under name of

Part-I Refinance Scheme:

This facility is provided to exporter at presentation of evidence of

receiving LC/Contract from the importer.

Part-II Refinance Scheme:

This facility is provided to exporter who has already availed the part-I scheme &

showed the good performance. The main criteria set by SBP for sanctioning the

part-II scheme is export performance that is measured through EE statement.

5. Finance Against Foreign Bills (FAFB)

A loan advanced against a foreign bill (i.e. a bill drawn outside the country), payable accompanied by “documents of title to goods” at sight or at usance. The

loan is advanced against the security of the foreign bill in local currency. The

bank has “document of title to goods”, which operated as additional security. Theloan is adjusted on receipt proceeds from the drawee bank. If however, the bill is



not honored by the drawee bank can have recourse against the customers to whom

the loan was extended and also the goods whose, “documents of title” are in the

possession of the bank. Additional securities are also taken depending upon therisk element.

6. Foreign Currency Export Finance (FCEF)A loan advanced against a foreign bill (i.e. a bill drawn outside the country),

payable accompanied by “documents of title to goods” at sight or at usance. The

loan is advanced against the security of the foreign bill in foreign currency. The bank has “document of title to goods”, which operated as additional security. The

loan is adjusted on receipt proceeds from the drawee bank. If however, the bill is

not honored by the drawee bank can have recourse against the customers to whom

the loan was extended and also the goods whose, “documents of title” are in the possession of the bank. Additional securities are also taken depending upon the

risk element.

7. Foreign Bills Purchased (Documentary)Same as foreign bill purchased except that the bill of exchange is accompanied by

the documents of title of goods.

8. Foreign Bills Purchased (Clean)

Amounts advanced against the purchased of foreign instruments (it means

cheques, drafts, promissory note). The bill becomes the property of the bank,which arranges for collection. The advances adjusted on realization of proceeds.

9. Inland Bills Purchased (Documentary)

It is same like local and foreign bills purchased out only the difference is that bill

of exchange is accompanied by documents title to goods.

10. Inland Bills Purchased (Clean)

It just like the foreign bill purchased except that the negotiable instrument is

purchased in local rather than foreign currency and draw in country.

11. Payment Against Document (PAD)

The bank being the issuing bank on the customer’s behalf of a letter of credit, act

negotiating or advising bank and debits the PAD account, till its payment bycustomers. Until the realization of the amount a full set of documents representing

title to the shipped by the Foreign Exporter, is held by the bank as security.

12. Finance Against Trust Receipt (FATR)

Document of Title to the goods imported through the letter of credit may be

handed over the customers against a trust receipt to be signed by the latter signifying that the customer holds the goods in trust for the bank. The objective

being that the customers hall discharge the loan from the sale proceeds of goods.

13. Finance Against Imported Merchandise (FIM)



This facility empowers the importers to import the goods. The imported goods act

as security for the advance. Under this facility documents of title to the goods are

handed over to the approved agents for the clearance of goods. Goods are releasedafter receiving the payments from the borrower. The bank can have recourse to

these goods, if the customer fails in the discharge of its obligations. Additional

security can also be taken depending on the risk element.

14. Banker Acceptance Purchased

An advance guaranteed against purchase of a bill originally drawn or accepted bythe bank for the remaining period of its tenure. Other bank’s acceptance may be

purchased if an advance is guaranteed against a bill, accepted by another bank for

the remaining period of its tenure.

Contingent Facilities

1- Letter of Credit (LC)

Letter of credit issued by the bank can be classified as under:

Sign letter of credit

Usance letter of credit

The sight LC call for the draft to be drawn “at sight”. Documents negotiated and

received against sight are held as security till their retirement. Drafts drawn under

usance or for a tenure specified in the LC and are payable by the customer on duedate.

2- Letter of Guarantee (LG)

Letter of guarantee’s are normally for the guarantee given by bank on

customer behalf that if later failed to pay or fulfill the amount/agreement. L/Gdivide into following types:

a) Financial Guarantee

Where the bank guarantees the fulfillment of a financial commitment on

behalf of the customers. Under this guarantee the bank is called upon to pay in the

event of a breach of terms on the customers.

b) Performance Guarantee

Under this guarantee, the bank guarantees due fulfillment of a contract

undertaken by the customer. The amount of guarantee is usually up to the extentof the value of the contract.

c) Shipping Guarantee



Under which the bank issues guarantees in favor of the shipping company

to enable the importer to obtain delivery of the goods without production of the

bill of lading.

Principles for Accepting Securities

In the employment of his funds, a banker generally attaches great significance to the

consideration of security. Banker largely depends on borrowed funds it means deposits:

therefore, it can’t afford to take undue risks. To safeguard its interest by bank takesecurities against advances. Great care is required on the part of banker while accepting a

security for securing its loans. While guarantying advances because of securities offered

by the customer the bank should observe the following basic principles:

Adequacy of margins

Liquidity of securities

Completion of documentation

Reliability Durability

Types of Securities

Primarily bankers rely on the character, capacity and capital of the borrower inensuring the safety of his funds. The viability of the project itself and its cash

generating, capacity ensure to a large extent the safety of the bank funds. But

the bank can hardly afford to take nay risk in this regard and hence reliance is placed on the tangible assets of the borrower. In case of default by the borrower

in repaying the loan, the banker’s interest is safeguarded if he over the tangible

assets of the borrower. Loan with such rights conferred upon the banker arecalled secured advances. In secured advances charges are created on the

tangible assets in several ways depending upon the nature of assets.

Pledge

Hypothecation

Mortgage

Lien

Charge

Pledge

The bailment of goods as security for payment of a debt or performance of

promise is called pledge. The relationship of a customer and banker in this caseis that of a pledger (customer) and pledge (banker). The person who acts on

behalf of the bank is called MUQADDAM. This is more risky for bank point of

view as compare to Hypothecation. The owner of the goods pledged remains



with the borrower while the possession is with the banker. The possession may

be actual or constructive.

a) Actual Possession

When the goods are actually delivered to the bank for example in the case

of pledge of shares, share certificates are actually delivered to bank.

b) Constructive Possession

When the documents of title to the goods are delivered to the bank, dulyendorsed in favor of bank while the actual possession remains with a third party

for example storage company.

Hypothecation

An agreement to give a charge to goods or documents of title thereto without

conferring possession is called hypothecation. The goods are charged as a

security for a loan from the bank but ownership and possession remains withthe borrower. The security is granted by the borrower to the lender by a letter of

hypothecation, which contains the terms and condition of the hypothecationagreement.

As physical possession of goods remains with the borrower, the banker seeks

periodical stock reports from the borrower conforming full description and

value of the stock hypothecated.In order to prevent loss of stock by fire, theft and decoit etc. the borrower is

asked to get his stock insured. The hypothecated stock is liable to be inspected

by bank authorized person. In case of need, the banker may issue a stop order against the trading stock. The creditor has the right to take possession of the

hypothetical goods as and when desired.

Mortgage

“A mortgage is a charge which a borrower gives to a lender upon part or thewhole of his property”.

Mortgage is the transfer of an interest in specific immoveable property of

securing the payment of money advanced or to be advanced by way of loan,

existing or future debt or the performance of an engagement, which may giverise to a pecuniary liability. The transfer is called a mortgager and the

transferee mortgagee. The principle money and the interest of which the

payment is secured are called the mortgage money and the instrument by whichtransfer is affected is called the mortgage deed.

The main characteristics of the mortgage can be put as follows:

The mortgage does not transfer the ownership of property to the mortgage. He

(mortgagee) transfers only some of his rights as an owner.

Mortgage only relates to immovable properties, properties mortgaged should be specified by the mortgagee in the deed.



The object of mortgaging the property is to give security for the loan to be

taken or already taken or performance of an engagement-giving rise to the pecuniary liability.

The mortgage needs not to be always given the actual possession of the

property.

The mortgager gets back all the rights regarding the mortgaged property on payment of the loan with interest due thereon.

Principles for Accepting Securities

1. Equitable Mortgage

where a person delivers to a creditor or his agent documents of title toimmovable property with the intention to create a security thereon, the

transaction is called a “Mortgage by title of Deposit deeds”.

2. Registered Mortgage

Under this mortgage the entry of mortgage in the registrar (Patwari) isnecessary. In his registrar he marks the property as mortgaged. So it cannot beused further to raise loan.

Lien

Lien has been defined as the right of a person to retain the asset of the borrower

until a debt due from him is repaid. Lien gives a person only a right is retaining

the possession of the asset and not the pwer to sell unless such a right isexpressly conferred by statute. There are two kinds of lien.

a) Particular Lien b) General Lien

a) Particular Lien

It is attached to some specific goods. It is the right to retain possession over those specific goods on connection with which the debt or liability arises. This

type of lien is restricted to those goods, which are the subject matter of the

contract and are liable demands of the person in the possession of these goods.

b) General Lien

A general lien entitles a person to retain possession of goods belonging to

another for a general balance of outstanding liabilities. It entitles the person in possession of goods to retain them until all claims or accounts of the person in

possession against the owner of the goods are satisfied.

Charge

Charge refers to the level of payment to the bank incase of liquidation of specific assets. Incase of company charge is recorded with SECP. The form



which is used for the recording of charge is known Form 17 is used. To get the

information of charges on the assets of the company the bank is dependent on

search report which is available with SECP.There are of the three sorts:

1st

Charge Pari Passu Charge

Joint Pari Passu Charge

1. 1st Charge

If an organization has raised credit from only one bank such bank has first

charge in case liquidation or inability to repay loan.

2. Pari Passu Charge

If an organization has credit facilities from two banks the second bank can

create 1st pari passu charge after receiving the NOC from 1st bank. Now incaseof liquidation the bank that have 1st pari passu charge will recover its amount 1st

then 2nd

bank and so on. The concept of creating so much charges is calledranking.

3. Joint Pari Passu Charge

When more than one bank are involved in financing for an organization or

project, in this case all the banks create joint charge on the asset of theorganization and claim the amount in their proportion of financing.

Principles of Lending

Lending is very important portfolio of a commercial bank, which requires greatvigilance and technical skill on the banker. Some basic principles must be

strictly adhered to for successful lending and recovery of the funds advocated.

1. Safety

In this regard, following points must be considered to ensure good credit

decision.

a. Character of the borrower:

• Nature of the business

• Past record of borrowing and repayment

• General reputation enjoyed by the borrower

• Honesty and integrity of the borrower

b. Capacity of the borrower c. Capital of the borrower

d. Collateral Security

e. Conditionsf. Complacency

g. Carelessness



h. Communication

i. Contingencies

j. Competition

2. Liquidity of the Security

It means the possibilities of recovering the advance in case of emergency because all the money lent by a bank is repayable on demand. If borrower does

not provide it on demand the banker must be asked to provide most liquid

securities at the time of lending to him.

3. Dispersal

The bank must lend to diversified sectors of the economy so that in case of

recession in one or two sectors, the loan may become doubtful of bad.

4. Repayment

The modes and source of repayment of borrowed funds from the borrower to

the banker must be determined and decided before advancing money. Cashflow statement in respect of borrower’s business must be prepared and other

financial statements must be analyzed properly.

5. Remuneration

as a banker lends from the deposit of the public, the bank will have to pay cost

of the deposits in the form of profit on deposits (saving, term, special), althoughcurrent deposits are received free of cost. Bank has to meet various expenses

from the mark upon advances, communication recovered on various banking

transactions and return on investment. As mark up on advances comprisesmajor part of the bank’s income, the rate of mark up must be at such level

which may enable the bank to meet such all expenses after keeping a

reasonable margin.

6. Suitability

The bank’s advances besides being extended to carefully selected borrowersmust confirm to the national economy policies devised by higher authorities. It

should not for speculative or hording purpose.

7. Duration

Commercial banks are required to meet the short-term working capital

requirement of a business enterprise. Therefore, the duration of the loan should

one to two years. Long-term loan should be discouraged by the commercial banks. Long-term loan violate the matching principles. Recovery and

management of short term credit is more convenient for a commercial bank.

Documents Required for Request

1. Request letter from customer describing following heads



• Business Profile

• Business Strategy

• Management Structure

• Product Mix

• Distribution & Selling terms• List of Suppliers

• Affiliated Companies & their Liabilities

2. Borrower’s basic fact sheet

3. Audited financials for last three years

4. EE statement in case of FAPC II. (if applicable)5. List of Suppliers

6. Resolution of Board of Directors

7. Certified copy of memorandum & articles of association/partnership deed8. Certified copy of certificate of incorporation/acknowledgement of registration of

partnership9. Certified copy of certification commencement of business (for Public Ltd.Company)

10. Copy of NTN & Sales Tax Registration Certificate

11. Certified copies of ID cards of Directors/Owners of property

12. Form A, Form 29 & search report (for limited companies)13. Copy of import/export registration

14. Membership certificate (Chamber/Association)

15. Limits and Outstanding liabilities with other banks16. Business with other banks

17. Total business projection with MCB Bank Limited

Documents Required for RequestLC at Sight

In this LC the time period is not involved, the bank has to make the payment

within 7 days of presentation of documents after scrutiny of documents.

LC at Usance

LC that has time slice the time may 90, 120 or 180 days.

Irrevocable Letter of Credit

An irrevocable letter of credit cannot be amended or cancelled without theconsent of the issuing bank, the conforming bank, importer and exporter. This

letter of credit gives more security to the exporter as compared to the revocableletter of credit. But on the other side importer remain dependent on the

undertaking of the foreign bank.

Import Department



The main function of import department is to open letter of credit

execution of international transaction at low risk.

Opening of Letter of Credit

Followings requirements are required by the bank from the

importer:

• Importer should be a account holder

• Credit limit holder

• Request letter for opening LC

• LC application form

• Insurance policy• Performa Invoice from Indenter (for specified period)

• Form I

Important Contents of LC Application Form

• Application and expiry date

• Applicant’s name, address

• Beneficiary’s name, address

• Advising bank / Exporter’s bank

• Transshipment and partial shipment

• Margin

• Financing Position

Modes of Dispatching LC

• Courier

• Ordinary Mail

• Swift (Society for World Wide Inter Bank Financial Telecommunication)

Important Clauses of LC

• LC kind (Revocable/Irrevocable)

• LC no.

• Date and place of issue

• Expiry date

• Applicant bank

• Beneficiary name, address

• Applicant name, address

• Currency code

• Last date of shipment

• Goods code



• Description of goods

• Certificate of Origin

• Packing list/shipping mark

• Original documents

• Period of presentation

Banks Involved in LC Process

1. Negotiating Bank 2. Advising Bank

3. Reimbursing Bank

4. Issuing Bank 5. Confirming Bank

PAD (Payment Against Documents)

After receiving the documents under LC at sight the issuer bank takes 7 daysfor the scrutiny of documents if there is no discrepancy in documents. the

intimates the importer about documents and importer also certify the genuiness

of the documents. After this if the importer fails to make payment against LC

then bank lodge the documents in PAD and charge markup on fund involves inthis transaction to date of receiving cash from customer.

Margin

The rate of margin depends upon nature of goods and type of LC and reputation

of customer.

Bank Commission

Bank charge commission on this service.

Diagram of LC Working

Request Letter

Transmit (issuing to exporter)

Advisory Bank

Document Preparation



Presentation of documents

Negotiating/Lodgment

Reimbursing Bank

Documents at importer bank

Importer Accept Documents

Payment (sight)/wait for maturity (usance)

Import Department

LC for Export

When the exporter received LC from importer he starts to prepare

the goods according to the specifications of LC because he is sure

about the payment. After preparation of good according to

specification he shipped the shipment with preparation of

followings documents:

Commercial Invoices

Shipping Bill

B/L

Form E

Packing List

Certificate of Origin

Normally above mentioned documents are prepared by the exporter. GSP and

export license were also the requirement in the past. Now EPB has eliminatedthese documents.

Form “E”

E-Form means export form. This is the first and most important requirement of

export. In this form every description regarding goods, quantity, price, term etc

and mentioned.

Revolving LC



E-Form is the document on which all exports have to submit to the SBP.

Without this form the goods are not exported from Pakistan. In Pakistan, E

form of the export is certified by the bank.

Parts of Form

There are three parts of “E” form.

First Part:

First part is filled by the exporter in which the particulars regarding the export

of goods, country vessel etc is mentioned.

Second Part:

Second part of the E-form is filled by the bank, in which the bank is providing

the guarantee that the above particulars, which are filled by the exporter, are

correct.

Third Part:

The customer authority fills the third part of the E-form after the verification of goods that the goods are same as per mentioned in the E-form.

Copies of “E” form:

The E form consists of four copies:

• Original copy is for custom & SBP later on

• Duplicate copy is for the exporter’s bank

•The bank sends triplicate copy to the SBP at the time of realization

• Quadruplicate copy is for the customer’s record.

Post Shipment Facilities

FBP (Negotiation)

Negotiation means discounting of bill of exchange. The bank

provides additional facility to its clients by providing the facility in

the form of negotiation of a bill. The bank purchases the bill

through negotiation and provides the funds against bill. The bank provides this facility after satisfying that there is discrepancy in the

document because after this facility this bill becomes the banker

property. The bill is discounted with full value of the invoice. The

negotiation is also called the FBP (Foreign Bill Purchased).

Now the question arises “Why the exporter discounting the bills of

exchange”? The reason is being that the exporter is sometime in the



shortage of funds after the shipment. The goods are exported to

other countries on a sight or usance based LC. The LC negotiation

is in the case of usance based LC in which time period involved.

Meanwhile the exporter has to make the various payments and meet

the various expenditure so in order to meet the need of business

requirement. The exporters avail this facility and discount the bill.

After discounting the bill the amount is credited to the parties

account. The discount amount is the expenses of the party and on

the other side is the income of the bank.

FAFB (Finance Against Foreign Bill)

This facility is available to the customer only if he has line of credit under

FAFB with bank. Bank proffered to give this to the customer when the export

is on contract basis instead of LC or there is discrepancy in the documents. The bank provides finance equal to the 90% of the invoice value.

FDBC (Foreign Bill)

Bank provides this facility to exporter when he has neither negotiated the billnor avail FAFB facility from the bank. The bank sends the documents for the

purpose of collection from the importer. When the amount is collected it is

transferred to the customer account after deducting some service charges.

Pre Shipment Facilities

FAPC (Own Sources & Refinance)

Finance against packing credit is pre shipment finance facility to fulfill the

working capital requirements. The exporter can avail this facility from the bank as well as SBP refinance scheme one (FAPC I) the exporter can get loan

against the security of LC at cheaper rate from the bank. The refinance scheme

two (FAPC II) the loan is provided on the export efficiency basis. Whichsubmitted by the customer’s bank to the SBP on annual basis called EE

statement. The SBP can recall this facility if the efficiency is not according to

its standards.

Normally following deductions are made by the export department.

EDS @ 0.25% on FOB value

Withholding tax is deducted from export proceeds at the prevailing

rates

Common Incoterms



CFR: This term means cost and freight. It means that the invoice value consist of cost & freight.

CIF: This term means that invoice value consists of cost, freight & insurance.

FOB: This term stands for “Free on Board”. It means value excluding the freight

from invoice value.

Deposit Department

Bank accounts can be broadly classified as a current accounts, Fixed Accounts

or Time Accounts and Saving Accounts. This classification is based on the

duration and purpose for which the accounts are to be kept at the bank beforethey can be withdrawn by the depositors.

Current Account

Every commercial bank maintains current for its customers. A current accountis a running account which is continuously in operations, by the customers onall working days of the bank. The customers can withdraw the current deposits

without previous notice to the bank. The bank has to honor the cheques

provided they are within the limits of the account. The customers who need a

liquid balance maintain current deposit in the banks.In short, in current account, the banker incurs an obligation to honor all

cheques drawn by the customer so long as there is enough money to the credit

of the customer. The obligation may be extended by an agreement to theamount of overdraft agreed upon between the banker and the customer.

The bank does not pay any interest on these deposits as they ca be withdrawn

without notice. The bank here acts only as the custodian of money. It cannotemploy these funds due to fear of withdrawal. It has to keep a higher reserve

ratio to meet the demand liabilities.

Facilities Provided Current Account

The following facilities are generally provided to the current account holders

by the bank: Bank collects properly endorsed cheques, bills etc. on behalf of the current account holders. The bank may allow the facility of overdraft on

prior arrangements to the trustworthy customers. Loans and advances may be

sanctioned to the credit worthy current account holders with ease. Summing up,

the current account does not earn but serves the cause of industry, trade andcommerce.

Requirements Opening Current Account

Name

Occupation

Full Address



Specimen’s Signature

Introductory reference

Copy of National Identity Card

Declaration to the effect that he or she has read the rules and will

follow them.

Features of Current Account

1. No interest is paid on this account2. Operation is allowed for any/number of cheque

3. The account is to be opened with minimum account of Rs.5,000/-

4. It can only be introduced by another operation current account holder having goodmanage.

5. Specimen signature is to be obtained on CD specimen’s signature card.

6. A separate account opening form is to be filled in and signed.

Separate pay in slip is used. The bank normally opens current accounts for the business needs of the firm. In this category following types of accounts are

opened.

Proprietorship

Partnership

Limited Company

Saving Account

Saving deposit account is an ideal account for those who have money to save

but cannot invest it profitably anywhere else, as the amount is too small. Saving

deposit account is an important sources of fund for the commercial banks. It isopened to encourage thrift among the person of small means. The school

children, workers, employees, firms usually keep their savings by opening a

saving account in the bank.

Withdrawal of Amount

The depositors are normally allowed to withdraw a limited amount of money

only twice a week. If a customer want to withdraw a large sum of money fromhis account, he then has to give a prior notice of 7 to 15 days in writing to the

bank. The can safely invest the deposit of the saving account. The bank knowsit by experience that only a small percentage of this account is withdrawn by

the customers. The bank will keep a minimum amount in reserve for meeting

the customers demand upon this account and the balance will be safely utilized

for investment by the bank.



Payment of Mark-Up

The bank pays interest on saving bank account according to the prescribed rates by the central bank of country.

PLS Saving Account

In Pakistan the profit and loss sharing (PLS) saving account was introduced in

January 1982. the main rules of the PLS accounts at MCB Bank Limited are asunder:

1. The PLS saving account can be opened with a sum of Rs.10,000/-

2. The bank has full right to make investment of credit balances/depositsin the PLS saving account.

3. Withdrawal from a PLS saving account are allowed not more than 8

times in a calendar month and for a total amount not exceeding than 30,000 in a

month. For withdrawals of larger amounts, 7 days notice in writing is required to be given.

4. Withdrawals can only be made by means of cheque issued by the bank.

5. Statement of account will be supplied to the account holder at

periodical intervals.

6. The profit/loss earned/incurred on PLS saving account will becredited/debited as determined by the bank on the basis of its net working results.

Requirement for Opening of PLS Account

Name

Occupation

Full Address

Specimen’s Signature

Introductory reference

Copy of National Identity Card

Declaration to the effect that he or she has read the rules and will

follow them.

Fixed or Time Deposit Account

Fixed and Time Deposit accounts are major source of funds of a commercial bank. Fixed or time deposits, as the name implies, are deposit kept with a bank

for a certain period of time. They are not payable on demand like the currentdeposit. They can only be withdrawn by the depositor after the specified period

of time which ordinarily various from three months to five years. The person or

firms, trust, religious bodies that have surplus funds keep the money with fixed

deposits with bank. The rate of interest on fixed deposits is higher than that of saving deposits and it varies with the time of deposit. The longer the duration



for which the amount the higher is the rate of interest and vise versa. The bank

on receipt of funds for time deposits issues a fixed deposit (FDR) receipt on a

specially printed form. This receipt is marked not negotiable.

Time deposit is kept with the bank by the customer to earn interest. At the

maturity of the loan, the bank pays the principle along with the interest with thestipulated period to the holder. The money kept in the time deposit is thus a

safe investment. The FDR’s are marked not negotiable which means that it

cannot be transferred by merely endorsement and delivery of the receipt.

Payment on Fixed Account Before Maturity

Sometimes the bankers oblige the customers by allowing the withdrawal of fixed deposits before the due date, but this is not the good practice and impairs

the bankers own cash resources. In such situations the customers forego the

interest around on the deposits or borrows the required money against the

security of its fixed deposits at a rate of interest, which is generally 2% higher than allowed rate on deposits.

Fixed deposits in joint names

Fixed deposits may be the joint names of two or more persons; the payment to

either of them will not discharge the bankers, unless authorized by all the jointdepositors.

Remittances Department

Outward Bill for Collection

Clean Bills

These are negotiable instrument drawn on outstation branches banks

sent for collection on behalf of the customer i.e. cheques, dividends,

warrants and treasury bills etc.



Documentary Bills

These are bills accompanied by documents such as R.R., T.R. bills

of lading etc. having title of goods, collected by the bankers on

behalf of their customers.

Inward Bill for Collection

Clean Bills

These are the bills/cheques etc. that is collected locally; they are

received from outstation branches banks and party drawn on

received or other banks of parties.

1. Against Cash

2. Against Cheques

3. Against letter instruction

4. The coded message is typed. The office in charge checks the coded

and decoded message typed and then signs the coded message.

Confirmation letter is also dispatched to the draw branch, i.e. draw

“Test Agreed” is fixed on the telegram and signed by the officers

holding test keys. The proceed of telegraphic transfer are credited in

the respective account or telegraphic transfer receipt is issued to the

customer.

Mail Transfer (MT)

Funds are also transferred through mail. Mail Transfer advice is

issued against cash receipt cheques and letter of instruction, MT

advice is prepared and the test number is written on the MT advice.

The advice is given to dispatch for onward transmission.

Pay Order

When the payment is required to make within city.

Documentary Bills



These are bills received from outstation branches banks or parties

and collected locally.

Demand Draft

Demand draft is a negotiable instruction, which is drawn by one

branch of bank and another branch of the same. Demand draft is an

order instrument being capable of transfer by endorsement couple

with delivery. Demand draft can be issued to customer as well as to

non-customer against cash receipt, cheque and against letter of

instruction.

Telegraphic Tranfer (TT)

May be issued in three possible ways. The customers use theinstrument. The issuing branch makes the payment of payment

order. All pay order is issued as cross instrument unless some

genuine reasons for issuance of an open pay order. The pay order is

issued against each receipt, cheque or letter of instruction.

Remittances Department

Following books are maintained in the cash department:

1. Receiving cashier books

2. Paying cashier books

3. Scroll books

4. Cash balance books

When cash is received in counter it is entered in scroll book and

receiving cashier book. At the close of the day these are balanced

with cash other. When the cheque at any negotiable instrument is

presented at counter for payment, it is entered in the token book and

payment is made to payee. At the close of the day, the token book and paying cashier book is balanced. The consolidated figure of

receipt and payment of cash is entered in the cash. Balance book

and drawn closing of cash. Opening balance of cash plus receipt is

equal to payment closing balance. The entire book maintained in

this department are checked by an officer.



Account Department

Generally there are two ways of maintaining an account.

1. Journal System

2. Voucher System

Under Journal system entries are journalized in journal book and

then posted to main Ledge number voucher is prepared. This is in

practice in some commercial and industries accounts. In banking

account, voucher system is in use. For every transaction there has to

be voucher, either in cash or in transfer or in clearing. In banks there

are quite a number of vouchers which relate to one head of account.All vouchers are summarized and consolidated into one figure. So

that posting in cash-cum-day book is facilitated.

One sheet upon which these vouchers are summarized. Transaction

vise and consolidated into one figure is called supplementary:

a) Debit supplementary

b) Credit supplementary

Debit supplementary is used for all debit vouchers and credit

supplementary is used for credit vouchers. They are of red and

green colors respectively.

Following books and registers are used in the account department

1. Cash-cum-day book

2. Journal Ledger

3. Subsidiary Ledger

4. Voucher Register

5. Transfer book 6. CD/SB summary books

7. Old record register

8. Balance book

9. Bank Ledger

10.Fraud and Forgery Register

11.Comparative statistics cards of deposits



12.Advances, Profit and Loss

Accounts department is responsible for maintenance and handling

of vouchers. The consolidated figure of each hand of account is

postdating cash-cum-day book. The individual figure of subsidiaries

will be posted straight to subsidiary ledger from individual voucher.

These are exceptions to the above rules. The posting and

expenditure account, miscellaneous account and suspense account

are sundry.

Retail Banking Division

Retail banking division is providing valuable financial solution

tailored to fulfill the individual’s different need. Presently it is

offering following products:

Personal Finance

Smart Cash

Business Finance

Mortgage Finance

The setup of retail banking establish just during the last few days of my

internship so I have no more exposure about them.