Najm-ul-Hassan NATIONAL BANK OF PAKISTAN

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At the time of independence in 1947, Pakistan’s commercial banking facilities were almost
jammed according to a plan in the whole sub continent especially in the Muslim majority areas.
Pakistan’s banking and industrial sectors were in very poor conditions. Banks largely depend for
their growth and development on industrial sector but at the time of independence, Pakistan had
practically no industry except a few textile mills and only produced food grains and agricultural
raw materials, most of the industries were situated in the Hindu majority areas now called India.

A number of banks closed their branches with the result that only 81 branches remained open on
30th June 1948 out of 487 in 1947 as their head offices were in India and most of their Hindu staff
fled to India. Imperial Bank of India, which was conducting government receipts and payments,
closed down most of its branches thus blocking the funds needed by the government.

The country being in infancy, needed most of the general commercial banking and credit
facilities. This need was a little bit satisfied with the transferring of the head office of the H.B.L.
to Karachi on 7th August 1947.This bank played a great role in the next years in the economic
development of Pakistan. As the Habib Bank was also new in the newly born country it was
asked to open more branches at new places?

In view of the above mentioned circumstances and in order to rehabilitate the banking in Pakistan
without further delay, on the recommendations of an expert committee it was decided to establish
as early as possible a Central Bank to control the banking and currency in Pakistan. Accordingly
State Bank of Pakistan was inaugurated by Quaid-e-Azam Muhammad Ali Jinnah on 1st July
1948.This bank lost no time in meeting the national requirements of banking, currency and took
following remedial measures:

1. Requested Government to start a new bank for nation wide service. Accordingly National
Bank of Pakistan was formed in 1949 which opened numerous branches. It also took over
government agency work from Imperial Bank of India in 1952.
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2. It withdrew Indian currency notes of Rs.125 crore from general circulation and sent these
for recovery to Reserve Bank of India:

a. In order to help the growth of foreign trade foreign exchange department was setup in
State Bank of Pakistan.
b. Banking Companies (control) Act 1949 empowering State Bank of Pakistan was passed.

The following banks were also opened:

a. Agricultural Development Bank was set up to finance agriculture production in order

to overcome food shortage.
b. Pakistan Industrial Credit and Investment Corporation (PICIC), was acted to finance
industrial projects.
c. United Bank Limited was established to meet the increasing demand for funds
consequent upon the commodity market having become firm. The following banks
and other financial institutions were also formed with the passage of time.

1. Commerce Bank Limited.

2. Standard Bank Limited.
3. Muslim Commercial Bank Limited.
4. Australasia Bank Limited

INTRODUCTION :

National bank was established on November 09, 1949 under N.B.P ordinance 1949 in order to
cope with the crises condition which was developed after trade deadlock with India and the
devaluation of Indian rupee in 1949. Its main aim was to provide all types of banking services to

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the government and private sector and to handle treasury transactions for the Government of
Pakistan as agent to State Bank of Pakistan.

The Normal procedure for the establishing of the banking was set aside and the bank was
developed through the promulgation of an ordinance due to the crises situation developed due to
the financing of
jute trade. The bank commenced its operation on November 20, 1949 at six centers of jute in the
then East Pakistan. Lahore and Karachi offices were opened subsequently in December 1949. The
nature
and responsibilities of the bank differ from other banks and financial institutions. The bank acts as
an agent to the state bank of Pakistan for making payments and collection of receipts on their
behalf.

The bank was incorporated with authorized capital of 60 millions. In 1960 this amount was
reduced to the 30 millions. Bank issued 15 million of which 25% was subscribed by the
government and the balance was offered to the general public. Shares to the public were issued in
1950 and were promptly taken up. In 1950 banks ordinance was amended so that it could take up
ordinary commercial banking business. On January 01,1974 national bank along with thirteen
other commercial banks were nationalized under the promulgation of bank
(NATIONALIZATION) act 1974 and the shares not held by the government were reacquired after
compensating them. The period of 1990s witnessed financial reforms and the national bank also
incorporated the changes in its working and offered new services and product to its clients. At
presents the bank is playing very impotent role in financing the trade, commerce, agriculture and
important concerns and contributing the best toward making the country prosperous.

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MANAGEMNENT:

Board of Directors: An executive board comprising six senior executives of the bank and the
president, who is also the chief executive, supervises the affairs and business of the bank, called
the board of directors.

Management Committee:
Also there is a Management Committee consisting of nine senior executives of the bank, called
the members and the president who is also the chairman of the committee.

Branches:
Presently the bank is divided into 10 groups headed by leading professionals. Its fields operations
are controlled by 29 regions reporting to Regional Business Chief, Regional Business Chief,
Regional Risk Management Chief and 1196 domestic branches headed by Branch Managers. The
bank has 15 overseas branches. The bank has one joint venture in UK and one wholly owned
subsidiary in
Kazakhstan. UK operation of the bank was merged with UBL to form joint venture bank named as
United National Bank Limited (UNB).

Training and Management Development Wing:

National bank of Pakistan has its national and development centers and 4 staff collages at:
1. Karachi
2. Lahore
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3. Peshawar
4. Islamabad
In these centers and staff colleges, the banking training is provided to the officers, managers, and
to potential managers. It arranges courses and seminars for middle and higher management in all.
Each year almost 1500 persons receive training over there.

OBJECTIVES OF NATIONAL BANK OF PAKISTAN:

The objectives of National Bank of Pakistan are as under:

1. To earn the profit

2. To develop the economy
3. To provide the latest banking facilities to its customers
4. To improve customer service
5. To offer specialized services to major corporate
6. To reduce the size of non performing loans (NPL’

FUNCTIONS PERFORMED BY NATIONAL BANK OF PAKISTAN:

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To fulfill the basic objectives of socio-economic nature the bank perform following important
functions:

Accepting of deposits: This function is performed by the bank by opening of the

different type of accounts which are as follows:
i. Saving Account
ii. Current Account
iii. Fixed Deposits
iv. N.I.D.A. account

Advancing of loans: Different types of loans are granted to different type of people and
industries these include:
i. Running Finance
ii. ii. Over Draft
iii. Demand Finance Gold
• Payment of cheques: Cheques drawn against various deposits are honored and paid
in cash
• Payment of pensions: This function is performed by N.B.P. as a govt. treasurer all
the pensions of federal govt. provincial government and semi government employees
is paid by NBP
• Salary management of different governmental institutions: The salary of govt.
and semi govt. employees is first credited to the account of NBP and is then credited
to there personel accounts
• Issuing of traveler’s cheques: The traveler’s cheques are issued by NBP for secure
transfer of money from one place to another, without charging any commission.
• Collection and sale of prize bonds: The national prize bonds are purchased and sold
at the branches of the NBP according to the rules formulated by the SBP.

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• Collection of fees and money from people proceeding on Hajj pilgrimage:

National Bank collects the fee from the people proceeding for hajj and act as there
agent.
• Transfer of funds from one place to another: Money is transferred from one place
to another by different means like:
i. Bank Draft
ii. Mail Transfer
iii. Telegraphic or Telephonic Transfer
iv. Travelers Cheques
• Collection of chalans: Various Govt. revenues are collected by NBP in the form of
chalans
• Issue Guarantee And Indemnity
• Collection Of Negotiable Instruments
• Act As Income Tax Advisor
• Act As An Agent Or Representative Of His Customer
•

PROGRESS MADE BY BANK IN CRITICAL AREAS:

Brief views on the progress made by the National Bank of Pakistan in certain critical regions are
discussed as under.

Corporate and Investment Banking:

Corporate banking is a dedicated business and is being very well received by the corporate sector.
The bank was mandated as a lead manager in significant capital market transactions. Through a
combination of large direct equity portfolio as well as 25% holdings in NIT, the Pakistan’s largest
mutual fund, the NBP has a largest portfolio in the country.

Operations:
The N.B.P has redefined its monitoring system to collect and utilized feed back from branches
within the country and abroad. In this regard, the concept of compliance officers has been
introduced.
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Retail Banking:
To positions the bank for capitalizing on the requirement of the relatively lower banked sector, a
dedicated Commercial and Retail Banking Group was created. Within a short span of time a
number of retail products have been launched and the response of the customers in this regard is
very encouraging. New retail banking product is going to be introduced to cater to large
diversified customer base of over 9 millions, the largest in the country. The success of the retail
banking is critical to maintain interest revenue and enhanced fee income. With large customer
base and delivery capabilities, the bank will emerge as a market leader in the retail/consumer
business in very near future.

Treasury/International Banking:
The bank is focusing on expanding its market share in trade finance, home remittances and
foreign investment related forex- denominated flows. For overseas operation, focus continued to
be on trade financing activity to take the advantage of bank presence in most countries (16
countries, 20 branches/offices), which are Pakistan’s major trading partners. In 2003, the also
established wholly owned subsidiary in Almaty. Presently the bank is present in four of the
Central Asian countries and its

unique representation should provide the bank with major competitive edge in the coming years as
the Central Asian countries will realize their economic potential.

Human Resources Function:

To meet the challenges of positioning the N.B.P as a market leader, training of personnel is
considered as a critical factor for success. Training has been restructured to make it more need
based and aligned with corporate vision of inculcating customer focus and developing core
competencies under a program “Gearing Up For Excellence.” A strategic training management
plan was developed keeping in view stakeholders expectation. While training is a continuous
process of improvement. The bank has received significant results thus far. Furthermore to boost
the staff motivation level and to ensure that they are showing a marked improvement in

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performance are adequately rewarded for their efforts, a merit-based culture is being promoted
through revamping manpower recruitment, retention and performance appraisal system.

Non-Performing Loans:
Special Assets Management Group (SAMG) at the head office with full coordination between the
field functionaries and the head office is performing Non Performing Loan (NPLs) and deals with
classified portfolio of bank along with remedial management, legal framework, statistical analysis
of classified accounts, revival of sick industrial units, consortium financing and Ex Mehran Bank
Limited affairs, etc. at the end of June 30,2003, total NPLs were RS41378 millions which is
26%of the total advances.

RISK FACTORS:
Major risk factors that may affect the profitability of the bank are summarized as under:
a. Liquidity Risk:
Assets And Liability Committee (ALCO) through Treasury Management Group (TMG)
manages the bank liquidity position. ALCO/TMG monitors the maintenance of balance sheet
liquidity ratio, depositor’s concentration in both overall funding mix and avoidance of undue
reliance on large individual deposits and liquidity contingency plan.

b. Yield/Interest Rate Risk:

Interest rate risk is the risk that the value of the financial instrument fluctuates due to
changes in the market interest rate. The bank is exposed to mark-up/interest rate risk as
results of mismatch or gaps in the amount of interest/mark-up based assets and liability that
matures or re-price in a given period. The bank manages this risk by matching/re-pricing of
assets and liability. The bank is not excessively exposed to interest/mark-up rate risk as its
assets and liabilities are re-priced frequently. The ALCO of the NBP manages the interest
rate risk with the objective of limiting the potential adverse effects on the profitability of the
bank.

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c. Currency Risk:
Currency risk arises where the prices of the financial instruments changes due to the change
in the foreign exchange currency rates. In order to manage the currency risk exposure, the
banks enters into ready, spot forward and swap transactions with SBP and inter bank market.
The bank’s foreign exchange exposure comprises of foreign contracts, purchase of foreign
bills, foreign currency in hand, balances with bank abroad, foreign placement with SBP and
foreign currency assets and liability. The net open position is managed within the statuary
limits, as fixed by SBP. Counter-parties limits are also fixed to limit risk concentration.
Appropriate segregation of duties exits between the front and back office function while
compliance with net open position the limit is independently monitored on an ongoing
basis.

d. Credit Risk and Concentration Credit Risk:

Credit risk exposure in respect of earning asset and off-balance sheet financial instruments
represents carrying value of assets and contingencies which could be impacted as results of
failure by the bank’s counter-parties to discharge their obligation under financial instruments
and cause the bank to incur financial loss. Concentration of credit risk arises from exposure
to customers having similar characteristics in term of industry in which they are engaged and
geographical location in which they operate such that their liability to discharge contractual
obligation may be similarly affected by change in political, economical and other orders.
Credit risk is managed in term of lending policy, approved by board of directors and other
laid down procedures outlined in the Standard Procedures Manuals and related circulars.
Credits limits are established for all counter parties after a careful assessment of their credit
worthiness. An effective credit granting procedure, which requires pre-sanctions evaluation
of credit proposal, adequacy of security and pre-disbursement of examination of charge
documents has been established and management by

Risk Management Group(RMG) at head office. Where possible, loans and credits are backed
by collateral to mitigate credit risk. RMG is also responsible for continuing review and
monitoring of borrowers accounts and effective compliance of Prudential Regulations. The
bank maintains a sound portfolio of advances which are diversified in order to minimize the
risk. Assets are also diversified not only industrially but also geographically. Cross border
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exposure are managed by the bank by considering country/sovereign risk and these are
updated on regular basis. SA &RMG of bank are responsible for monitoring the stuck up
advances. It negotiates with borrowers and takes legal actions against delinquent borrowers.

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CHAIRMAN

Board of Directors

Executive Committee

President

Regional Headquarter

Regional
o Manager

Regions

Branch Managers

Cash Deptt. Admn. Deptt. Banking Deptt. Finance Deptt.

Officer Officer Officer Officer

MANAGEMENT AND ORGANIZATION OF BANK:

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Board of Directors:
In the management of the bank the board of directors is at the top of the controlling bodies. Since
there are no private share holders, so there is no general meeting of share holders and no directors
are elected. The board consists of a nominated president, a secretary and 6 other members. After
nationalization in 1974 most of the powers have been transferred to the executive board.

Executive Board:
It is also called the management committee. The general direction and supervision of the affairs of
the bank lies in their respective executive boards. The president, secretary and 6 other members of
the board are appointed by the federal govt. The president being the chief executive controls the
affairs of the bank.

Chief Executive:
The president is the administrative head of the bank. He manages and controls the affairs of the
bank. The president holds the office at the pleasure of the federal government.

Regional Manager
In order to improve the performance of the banking system, the bank has appointed regional
managers also. The regional chief has the powers of sanctioning finance and other credit facilities.

Number of Directors
In Pursuant to the section 11 of the bank (Nationalization) act 1974 no of directors of bank shall
not be less than the 5 and will not be more than 7, excluding the president. The Federal
Government may, if it deems necessary, appoint the chairman of the board in respect of the bank.
At present, board consists of 6 directors and a president who is the chief executive of the bank
over the meeting of the board.

Voting Right: Upon the show of hand every member present in person or by proxy shall have
one vote for every 10 shares held by him subjects to the maximum of the 10 votes. The Federal
Government being a share holder may also appoint a person to vote on his behalf.

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BRANCH MANAGER

5 SECOND OFFICERS
3 CASHIERS

3 ASISTANTS

3 MESSANGERS
3 ARMED
GUARDS

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D eposits are as important to the bank as a backbone is to the body of a man. These are the
lifeblood of the bank. National Bank of Pakistan and all other commercial banks perform
the function of deposit accepting from the general public by offering suitable rates of
interest on them, or on simply a promise to repay on demand

OPENING OF ACCOUNT BY AN INDIVIDUAL:

After entering into bank premises the person goes through the following steps for opening an
account in the bank and for becoming a bank customer.

An Introduction:
The first important step to take place in bank is to get satisfactory introduction of the person, who
wants to become bank’s customer. This introduction is made from the person /party who are
respectable and honorable and have an account with the bank. In N.B.P (Main Branch) the
concerned officer takes great care of this step and gets introduced with the person himself. His
main intention is to determine the prospective customer’s integrity, respectability, occupation, and
nature of business he is doing at the time of opening an account.

Account Opening Form and Specimen Signature Card:

Now the person is provided with an application form known as Account Opening Form. This
form contains:

I. Title of account
II. Address
III. I.D. Card number
IV.Telepnone.No. (Office and Residence)
v. Introductory reference (all above mentioned particulars of introducing him )
VI. Signatures of the applicant
VII. Amount deposited
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VIII. Check book series No.

The customer will attach a copy of National Identity Card with the form.
Specimen Signature Card:
Specimen of signatures will be obtained from depositor at the time of opening his account. A
specially designed card is used for this purpose; the card must be countersigned by an official of
the bank not below the rank of an officer.

Account Opening Register:

Now the name of the customer will be recorded in account opening register, and from here the
account no. of the customer will be written on (top most corners) account opening form and on
specimen signature card.

Issuance of Cheque Book and Pass Book:

The Cheque book will ordinarily be issued to all customers desiring to have chequing facility.
Cheque book consists of 10, 25, 50, or 100.00 leaves depending upon customer
requirement. Customer can withdraw money by signing a cheque and writing the
amount he wants to withdraw from his account. A special cheque book register is
kept to enter the name of the person having cheque book.
Pass Book:
PASSBOOK is another important type of book handed over to the customer as he opens the
account with the bank. The withdrawal and deposit of money is recorded date wise in this book.
Recording into General Ledger:
The concerned officer records the name and amount deposited with the bank in to general ledger.
Separate ledgers are maintained for different types of accounts e.g.

a. Current Account Ledger

b. Saving Account Ledger
c. Fixed Deposit Account Ledger
d. Call Deposit Account Ledger
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As and when customer will deposit the money, amount will be credited in general ledger and the
withdrawal will be followed by a debit entry in the ledger.

TYPES OF ACCOUNTS MAINTAINED BY NATIONAL BANK OF

PAKISTAN (CANTT BRANCH)

Current Account:
This account is also known as running balance account .Simply we can say “A bank account
which may be used to lodge payments or to withdraw money on demand.” Its main purpose is to
serve the businessman. Form number F-53 is provided to the person to open the account. It is a
statutory requirement to maintain current account. Its main features are:

1. Minimum amount for opening this account is Rs.500

2. Any person can open the account with the bank
3. According to inter banks agreement interest is not paid on current account.
4. Bank act as custodian of money
5. Over draft facility is provided to t\e customers
6. Customer can withdraw money through cheque supplied by bank
Numbers of depositors in current account in National Bank of Pakistan up to 31-8-
2001 were 900 approximately.
Profit and Loss Sharing Account:
In general it is also called saving account .To provide Interest free banking facilities in Pakistan,
this type of account was introduced in January 1982 after the islamization of banking. The main
features of this account are:

1. Instead of having fixed return in the form of interest the deposited money will be shared
in profit and loss of the bank.
2. One can open the account by depositing minimum Rs.100

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3. Withdrawal is allowed 8 times in the month total not exceeding Rs.15000.

4. To withdraw a large amount a notice of 7 days to the bank is necessary.
5. There is not any kind of interest is provided on money deposited.

6. Rate of profit is declared at the close of each half-year.

Number of depositors in PLS account in National Bank of Pakistan up to 31-8-2001 were
4000 approximately.

Fixed Deposit Account:

This account is the major source of funds for the banks. This account is best for people who have
surplus money and don’t need such funds in nearer future. The money is deposited for a fixed
period of time. Main features of this account are:

1. Fixed amount is deposited for fixed period.

2. Amount of profit can be obtained after each six months.
3. Higher will be the time period, higher will be the rate of profit, and vice versa.
4. A receipt is used for the amount deposited called fixed deposit receipt.
5. Period of deposit can vary from 3 months to 5 years.

The amount can be withdrawn before maturity after surrendering interest.

N.I.D.A. Account:
The NIDA Account can be opened in N.B.P. N.I.D.A. stands for National Income Daily Account.
The features of this account are same to the features of the saving or PLS account except the
following ones:

1. In this account the minimum balance required to acquire the benefits of this account
is Rs 2 million, and the maximum limit is 5.0 million.
2. When the above condition is fulfilled, then the bank will pay interest on daily basis,
which is that if the deposit is minimum of 2 million than the mark up rate is
5.2%p.a.and if it is at maximum that is 5.0 million than the rate is 7.00 %p.a.
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3. In this account the daily balance of account is taken, products are calculated and the
interest is calculated on that balance.
4. If the balance on any day comes below the lower limit which is Rs 2 million then
interest will not be given.

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N
ational bank of Pakistan maintains a separate finance section. Its purpose is to grant loans to
the needy people, small & large business concerns, and to industries.
Advances in the form of money are the most remunerative use of bank resources. The
management of the bank will be very careful while granting the loans.

The person/proprietor of the business will go through a long process of application,

documentation, securitization etc. while requesting for loan. After proper satisfaction from
the party concerned the bank will grant loan to the party. Under the Islamic modes of
financing from 1982 onwards, National bank of Pakistan gives loans on the basis of “Mark-
up” instead of interest. Mark-up rate is different depending upon the type loan.

Procedure for Granting of Loans:

The following procedure is maintained by National bank while granting loan to any person:
1. Loan Application Form & Specimen Signature Card: The bank
provides a prescribed application form to the borrower. The borrower will fill the
form. In that form the borrower will tell about:
• Type of the loan.
• Amount of the loan he needs.
• Period of time.
Applicant will also be provided a specimen signature card, which he will fill.
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2. Declaration of Properties Form:

This form will provide the information about the business he is involved, and also
provide the information about his properties in Pakistan.

3. Investigation:
Now the bank after analyzing his application, investigate about the applicant’s credit
worthiness, and also the information’s he provided about his properties. In case of
business

owner’s request for loan, investigation will be made on following ways for different
businesses:
Sole Proprietorship: Investigation will be about:
• Personal reputation of the borrower
• Nature of the business
• Types of properties (shop, houses, and land) their locations with their
present market value.
• Cash, jewelry, shares, security, bonds etc.
• Stock in trade
• Their liabilities
Partnership Firm
• Name and addresses of the partners
• Partnership deed
• Branches if they exist
• Nature of the business
• Amount invested in the firm
• Purpose of the loan
• List of assets and liabilities
• Import export registration

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Private and Public Ltd. Companies

• Name of the company
• Addresses with telephone numbers
• Whether private or public
• Date of incorporation
• Nature of the business
• Branches if any
• Authorized capital
• Paid-up capital
• Financial highlights of the company
•

• Details of security offered to other banks under each head and charges
created against fixed assets.
• Certificate copy of memorandum of association
• Copies of certificates of incorporation
• Certificate of commencement of business
• Auditor’s certificate regarding paid-up capital
4. Granting of Loan: After detailed investigation, and documentation if the finance
section finds the party well satisfactory and feasible then they sanction the finance to
the party concerned.
TYPES OF SECURITIES
The word security means any thing given to protect or safeguard the repayment of an
advance and to justify this term the thing so given should itself be safe; otherwise the object
for which it is given is defeated. The National Bank of Pakistan usually has three ways in
which securities can be made available in the bank against finances. These types are:
1. Pledge
2. Hypothecation
3. Mortgage

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In each case the bank does not become the owner of the, property but the bank has only the
right over the property until the borrower makes payment of his debt.
1. Pledge: In a pledge, the possession of the property but not the ownership passes to the
creditor. The pledgee is entitled to the exclusive possession of the property until the debt
is repaid but the ownership remains in the pledgor subject to the pledgee’s right.
2. Hypothecation: In case of hypothecation, the property in goods is charged as
security for a loan from the bank. But the ownership and possession is left with the
borrower. In case of hypothecation, neither the property in goods and nor the possession
of property pass to bank, but only the security is granted in a form of letter of
hypothecation, which usually gives the banker'’ charge on the hypothecated goods.
3. Mortgage: In a mortgage, the property in the thing mortgage is conveyed to the
mortgagee conditionally. The possession, until default in repaying the loan, generally,
remains in the original owner subject to the mortgagee’s rights.

TYPES OF LOANS
National Bank of Pakistan provides various types of loans depending upon the requirement of the
borrowers. Some of the important types of loans are:
1. Demand Finance: Under a demand loan arrangement, a fresh demand loan account
is opened through the borrower may be having other deposit accounts with the banks.
The amount of loan has to be drawn by the borrower in lump sum and is to be repaid in
installments or as agreed upon. The borrower can not operate a demand loan account by
depositing and withdrawing amounts periodically.
2. Demand Finance Gold:
Characteristics:
Security: Gold is used as a security.
Recording: Single debit entry is recorded at the time of granting loan.
Loan type: Short term loan
Rate of markup: 43.84 pptdp (paisa per thousand on daily product)
Required Documents:
1. Application form
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2. Introductory reference sanction advice

3. Valuation certificate by gold smith
4. Insurance letter
5. IB-12 (Promissory Note)
6. IB-26 (Letter of Pledge)
7. IB-6A (Agreement Form)
8. Delivery letter(f.205)
NOTE: Only N.B.P. performs the function of advancing of loan against pledging gold. No
other bank advance gold pledged loan.
Running Finance:
a. Clean Running Finance
b. Secured Running Finance

Clean Running Finance:

Loan is granted mostly to the employees of the bank without demanding any type of security
from them.
Characteristics:
Type of loan: Short term loan
Number of transactions: Frequent transactions are made.
Rate of markup: 43.84 PPTDR
Repayment: Monthly installments
Payment of balance: It will be made in lump sum.
Documents:
1. Account Opening Form
2. Specimen Signature Card
3. IB-12
4. IB-6
5. IB31 (sale and buy back agreement)

3. SECURED RUNNING FINANCE: Secured running finance is the type of loan in which
some guarantee or security may be obtained from the borrower.

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Characteristics:
Rate of return: 43.84 PPTDR
Type of loan: Short term loan
Payment: In installment or lump sum as mentioned in conditions.

4. CASH FINANCES: Under this type of credit N.B.P grant loan to its customers in cash.
Under the cash credit arrangement a customer is granted an advance up to certain
limit, which he can draw time to time as required by him. In this case, a new cash
credit account is opened in the name of customers. These are long term loans.
Securities:
1. Hypothecation of stock
2. Mortgage of properties
3. Personel guarantees of all the partners of directors.

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M oney or some thing equivalent to money sent by any person to another on another
station, either in cash, money order, postal order, bill of exchange, cheque, bank
draft, etc is known as a REMITTANCE. The National Bank of Pakistan, now-a-
days provides this facility to its customers and to the general public in general in the following
modes:

1. Bank drafts.
2. Mail transfer.
4. Telegraphic transfer.
5. Traveler’s cheques.

Now I will explain the procedure and importance of each type of remittance.

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Bank Draft: Bank draft can be defined as: “An un-conditional instrument in writing drawn by
a bank in favor of any person on a branch of its own bank or any other bank to pay a certain sum
of money to his order, for value received.”

From the definition it is clear that the draft is payable to the beneficiary himself or to his
order. The beneficiary or payee has to prove his identification at the paying office of the
bank, which sometimes causes inconvenience to the public.

a. Draft is the most popular and common form of remitting funds from one place to
another.
b. Drafts can be purchased by any person who may or may not happen to be the banks
customer against payment of bank charges. It is considered to be a source of income
for the
bank.

Procedure: In National Bank of Pakistan the drafts are issued on submission of

application form (always printed) filled in and signed by the purchaser with his full name
and address.
The following particulars are generally required in the application form:

1. Date
2. The Name of the Office on Which It Is Drawn
3. The name of the beneficiary
4. Amount in words and figures
5. Bank exchange rates
6. The signature and address of the applicant

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The draft is issued after the applicant tenders the money. Draft is always signed by two
authorized signatories of the bank.

A separate book “Draft issued register” is kept to record the particulars of the draft
issued. The drawing branch of the bank will give credit to the drawee branch on the same
date the draft is issued; through their account for settling inter branch transactions.
Usually all the banks insert special code number known as CHECK SIGNAL on the
relative draft advices for all the drafts for more than Rs.5000/-. National bank of Pakistan
does not pay the drafts before the receipt of relative advice. On receipt of relative advice
the drawee branch will credit the

amount into their “draft payable account” and each time a draft is paid this account will
be debited with the amount of the draft paid.

In case the draft advice is not received, the draft will be paid “ex advice” duly entered in the
"ex-advice register” and the entry in the said register will be marked off on receipt of the
relative advice.

Issue of Duplicate Draft: In case a draft is lost or destroyed by mistake, its duplicate
can be issued at the request of the purchaser after obtaining indemnity bond on “stamped”
paper of appropriate value. This is done to cover the risk of double payment by mistake.
Drafts of most banks in Pakistan are valid for a period of six months only. After the expiry
of this period the draft will have to be revalidated from the issuing branch of the bank.

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Mail Transfer: The same application form is used for drafts and mail transfers generally
in National Bank of Pakistan. The mail transfer instrument is not delivered to the purchaser
but instead it is sent by the issuing office to the beneficiary’s branch on its own risk and
responsibility. This type of remittance facility is provided only when the beneficiary happens
to be the customer of the bank.

The amount is directly credited to the beneficiary’s account and as such loss of mail transfer
has no concern with the applicant. A bank customer can very conveniently remit the funds
from one place to another regularly if he so desires by giving standing instructions to his
bank.
Also the credit balance of a customer’s account is transferred from one branch to another
branch with the help of this instrument in case the customer so desire.
The applicant desiring to remit the funds by way of mail transfer can either deposit cash or
he may ask the bank to debit his account with the cost of mail transfer including bank
charges.
An exchange memo is issued to the applicant in case he desires to have some sort of receipt
from the bank for his office record.
The participants of mail transfer are recorded in the mail transfer issue register just like
drafts while at the paying branch the instrument is treated as branch voucher for credit into
the beneficiary’s account.

Telegraphic Transfer: The money sent by mail has been described as “mail transfer”
which takes three to four days, or more depending upon the distance between the two
branches.
When the applicant wants to save the time wasted in transit of the instrument, he can request
for transfer of funds by means of a telegraphic transfer. In this case he will have to bear the
telegram charges in addition to usual bank exchange. The amount so remitted will reach its
destination within 24 hours.

Business community generally avails of this facility in order to save time in their business
dealings. The funds so remitted are either credited directly into the account of the beneficiary
or paid by means of pay order in case he is not keeping his account at the paying office of
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the bank. It should be noted that such remittances are affected between two stations having
telegraph office.
The remitting office sends the message by telegram in code language instructing “check
signal” number at both ends of the message for security purpose. As check signal books are
supplied to all the branches of the bank in order to verify the genuineness of the message.
All banks have their separate “check signal” apparatuses. The entries at issuing office are
recorded in the telegraphic transfer issued register while at the other end it is entered in the
T.T. Payable register.
The papers pertaining to such transfer are properly kept in separate files “telegraphic transfer
issued and paid files” and kept in the custody of an officer (Accountant/Manager). In case
“check signal” number turns out to be incorrect at the paying office, the message is got
repeated till such time it is found correct. It is therefore, necessary to be vigilant at the time
of calculating the “special numbers” otherwise the very purpose of urgency is defeated and
the bank will be responsible for the delay.

Travelers Cheques: When a traveler proceeds from one place to another he needs
money at different places. The remittances explained so far will be available to the
beneficiary only at a particular place, and that too all in one time; where as the requirement
of a traveler may be
otherwise.

National Bank of Pakistan has designed its own traveler’s cheques to be used in Pakistan
only. For different denominations their colors are different.
The denominations of travelers cheques provided by National Bank of Pakistan are:

Rs.5, 000/-
Rs.10, 000/-
Rs.50, 000/-
Rs.100, 000/-

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The face of Traveler Cheque consists of:

#. Signature of the purchaser
#. Name of the purchaser
#. Name of issuing office and the date of issue
On the back of the cheque this can preferably be done by means of small rubber stamp.
Application for the purchase of the cheque application forms is taken. The original remains
with the issuing office as voucher and the duplicate is passed to the main branch of the bank
where account of bank is kept.

Recording: The issuance of cheque is recorded in the travelers cheque issue register .The
total amount of T.C. sold is credited to the main branch of the bank and the exchange
charged credited to the branch exchange account.

Delivery: The traveler’s cheques are delivered to the purchaser in thick cardboard cover
for their safety.

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D
uring my internship period at National Bank of Pakistan .I found out certain problems, which
are written below along with their solutions, which need proper attention of the top
management. These are given below:

INFORMATION TECHNOLOGY

This age is the age of information technology. Today the world has become a global village and
the fastest mediums of communication are adopted all over the world. And it is a fact that more
the latest technology and methods of work are adopted more will be the productivity.
In the National Bank of Pakistan (Corporate Branch Islamabad) only clearance counter is
computerized.

I suggest that every counter of the bank should be computerized and they should be interlinked
together (NETWORKING) so that various services provided by the bank can be provided in a
more efficient and fast way.

EVENING BANKING
I observed that the bank is closed for public dealing after 12:30PM and then the staff do their
own banking jobs. I suggest that at least one counter should be specified for the customer
services till evening. In this way, the people having jobs in other offices can get benefit from this
counter.

STAFF SHORTAGE

I discussed with bank personnel and they gave their views about staff shortage. They told me
that staff is very short and all the staff is overloaded with work. That’s why the staff posted in
the branch has to face many problems to finish its daily work.

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I suggest that number of staff in the branch should be increased so that they can meet their
customers’ requirements quickly and efficiently.

TRANSFERS

I observed that staff members of the Bank are frequently transferred not only from one branch to
another but from one city to another and sometimes from one province to another.

I suggest that no one is to be transferred to another city or province without the consent and will
of the employee and if transferred, the facilities like residence etc should be provided to them.

PROMOTION

I observed that employees, particularly officers are not satisfied with promotion policies. There
is no clear-cut promotion policy of National Bank.

I suggest that there should be a clear-cut policy about the promotion of employees, particularly
for the officers and they must aware of it that is polices must be communicated. When policies
are communicated to the employees then they can perform their task more efficiently and will
utilize their full efforts.

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1. Annual reports of the bank.

2. Discussions and Interview with the bank staff especially with the manager of the
branch.
3. Economic bulletin of the bank. Published by the economic and business research wing of
the bank.
4. Surfing the website of the National Bank of Pakistan (www.nbp.gov.pk)
5. The Bank Book of Instructions for the National Bank of Pakistan (B.B.I).

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