Escolar Documentos
Profissional Documentos
Cultura Documentos
INTRODUCTION
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1.2Objective of Report
After the completion of internship program, it is required to prepare the report to be
acquainted with what the student have learnt in the host organization over the
internship period. It helps to share the experience of student along with problem faced
by them.
The main objective of the study is to highlight the activities carried out in Himalayan
Bank Limited and to get the practical exposure to the organizations environment and
gaining the practical knowledge to deal with the real management problems through
various managerial skills. The specific objectives of this study are:
To provide a brief synopsis on the present scenario of Nepalese banking sector.
To enlighten the task performed in HBL under various departments.
To comprehend the operational system of HBL.
To give details of the product and services provided by the HBL.
To built self confidence and experience in preparing the report.
To fulfill the partial requirement of BBA program.
1.3Methodology
This internship report is based on research methodology. It helped to analyze the data
in finding the causes and effects of relationship to see how bank is performing. Since,
research is a scientific discipline; it needs much more attention on the part of the
researcher.
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human resource department of HBL. After screening my resume by the Human
Resource Department of HBL I was selected for internship placement. HBL has
well developed intern culture which helped me to learn and gather experience
about real banking environment, working procedures, etc. that would be very
helpful in uplifting my career. It has really helped me to obtain insights about
career opportunities through interactions, observation and work experience in the
organization. Those two months period as intern in HBL was highly educative and
cherish able.
1.3.2 Placement
The duration of internship period has been declared for minimum 8 weeks by
FOM, Tribhuvan University for the partial fulfillment of the requirements for the
degree of Bachelor of Business administration that an eight semester student
should complete to acquire six credit hours. As per the requirement, the internship
was carried out from June 05, 2011 to August 4, 2011 in HBL, Thamel branch
from 10:00 am and to 5:00 pm in different departments. In this period I was
placed in various departments so that I could develop knowledge about various
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activities performed in each department making me able to achieve practical;
disclosure to functioning process.
Departments/ Weeks 1 2 3 4 5 6 7 8 9
Bills and Remittance
Customer Service
Letter of Credit
Customer Relation
Credit management
and administration
Table 1.1 Duration of Internship
Secondary sources
a. Internet surfing
b. Reports and Brochures
c. Publications and journals
d. Newspapers, bulletin, booklets
During internship period for two months, my placement in various departments helped
me to gain knowledge regarding various operational activities carried in the banking
institutions, built self confidence and experience organizational environment. I
accomplish the task as per the requirement of different departments. The activities
assigned to me in HBL under different departments are listed below:
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Customer service department is the part of bank where customers are
pleased with interaction, a phone call, self-service systems (e-banking, SMS banking)
or by other means. Hence, customer service is the process of ensuring customer
satisfaction with a product or services of the banks while performing a transaction for
the customer, such as opening an account, providing cards facilities, issuing cheques,
etc. Banks have worked hard to increase their satisfaction levels through direct
interaction with customers that form customers optimistic perceptions towards the
bank as a whole.
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1.4.2 Bills and Remittance department
Remittance simply refers to the transfer of funds from one place to another i.e.
from one country to another or within the country through various means of fund
transfer.
Bills and remittance department of HBL perform various fund transfer operations such
as ID payment, domestic money transfer, clearing, fixed deposits and fund transfer,
international cheque collection, credit advice for advance payment, etc.
ID Payment Section
ID payment is the process of providing cash to the customer that is received through
remittance after verification of receiver. It is a transfer of money by a foreign
worker to his or her family or making domestic payment. HBL has facility for both
international payment (For eg: Himal Remit of HBL) and domestic payment
(Domestic Money Transfer (DMT) facility by HBL).
It does the all tasks related to international banks cheque, traveler's cheque (TC)
i.e. making TC and bills purchase and collection, entry on Nostro and Vostro
account, sending to international bank about payment against TC, etc.
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Manual entry of Traveler's Cheque., international cheques collection and
purchase in registers.
Observation of procedures for forwarding Traveler's Cheque.
Stamping Traveler's Cheque that are purchase and collected which are to
be presented to Americans Association for Traveler's Cheque.
APC does the transaction related to transferring of funds from one account to
another account but only receivable of information of credited account that is
done through SWIFT mechanism. It is basically used by customer involved in
exporting goods to receiver advance payment for making supply.
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The activities done in fixed deposit and fund transfer are:
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Bank Guarantee is the non fund based fee generating service which provides the
assurance that if the debtor fails to settle a debt, the bank will cover it and enables the
customer (debtor) to acquire goods, buy equipment, or draw down loans, and thereby
expands business activity.
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Observation of CICL (Credit Information Centre Ltd.) report of the clients.
Detailed valuations of the property.
Calculation of market value of the shares for renewal of loan against shares.
Preparation of reminder letter for renewal.
Observation of financials of latest fiscal year of different corporate clients as it
was end of the fiscal year during internship period.
Participation in site visits for valuation of collateral and renewal of the credit
facilities.
Conduct five pillars analysis of credit facility i.e. industry environment,
financial condition, management quality, technical strength, security
realization.
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Every activity is chase by the boundaries and limitations. So, the same tendency happens
while preparing this internship report. Some constraints were faced while preparing this
report. Such problems are listed below:
CHAPTER TWO
After commerce and the arts had revived in Italy, the business of banking was
resumed. The word "bank" is commonly regarded as derived from the Italian word
'Banco', a bench - the Jews in Lombardy having benches in the market-place for
the exchange of money and bills. And people around the world start to use different
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words for their convenient like in French 'Banque', Latin 'Bancus', and German 'Bank'. At
ancient times, bank means moneylenders who sat in the bench for keeping, lending and
exchanging of money in the market place.
In simple, bank is an institution which deals with money and credit. A bank is
a financial institution that serves as a financial intermediary, who bridges gap between
the savers of the fund and users of the funds. Nowadays, a bank has broadened its scope
by providing financial as well as non-financial services to its customers. To give specific
meaning of bank is very difficult task however following are the few definitions given by
different authors.
"Bank is an establishment for the custody of money from or on behalf of its customer's
essential duty to pay their draft on its profit arises from its uses of the money left
unemployed by them." --The Shorter English Dictionary
"Banking means the accepting for the purpose of lending or investment of deposits of
money from the public, repayable on demand or otherwise and withdrawal by cheque
draft order or otherwise." --Indian Banking Company Act 1949
"Bank is an organization established for the purpose of exchange money deposit lending
money and participation in transactions." --Commercial Bank Act of 2031
"Bank is a financial institution, which provides financial services that may be in the form
of accepting deposits, advancing loan, providing necessary technical advices, dealing
overt foreign currencies, remitting funds, etc." Nepal Rastra Bank Act 2002
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From the above definitions, we draw the conclusion that a bank is a financial
intermediary that accepts deposits and channels those deposits into lending activities,
either directly or through capital markets. It is the most important financial institution
dealing with money, receiving it as deposits from customers, honoring customers drawing
against such deposits on demand, collecting cheques for customers and lending or
investing surplus deposits until they are required for repayment.
Thus, bank receives demand deposits and time deposits, honors instruments
drawn on them, and pays interest on them, makes loans, and invests in securities, collects
cheques, drafts and certifies depositor's cheques and issues drafts and cashier's cheques.
The different in interest rate on lending and deposit, interest rate spread, is the major
source of income for the bank. Interest on lending is higher than the deposits.
The history of banking is nearly as old as civilization. In the Babylon, at the time of
Hammurabi, in the 18th century BC, there are records of loans made by the priests of the
temple. The concept of banking has arrived. When the word bank is used it is meant for
commercial bank. Before 1960 there was no such word as banking. However, in the
temple Babylon the practices of safeguarding and saving flourished as early as 2000 B.C.
Chanakya in his Arthashastra written in about 300 B.C. mentioning about the existence of
powerful guilds of merchants bankers received deposits, advance loans and hundies.
Merchants and goldsmith were ancestors of bank.
The 'Bank of Venice', established in1157 A.D. is supposed to be the ancient bank.
Originally, it was not a bank in real sense being simply on office for the transfer of the
public debt. Venice, after being possibly the first city to found a bank for the keeping of
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money on safe deposit and the clearing of cheques, is also a pioneer in the involvement of
a bank with state financiers. In 1617 the Banco Giro is established to solve problems
encountered by the earlier, which has got into trouble through the making of unsecured
loans. Subsequently, 'Bank of Barcelona' (1401) and 'Bank of Geneva' (1407) were
established.
During the 18th century the Bank of England gradually undertakes many of the tasks now
associated with a central bank, The 'Bank of England', first English Bank, was established
in1964 A.D. It organizes the sale of government bonds when funds need to be raised. It
acts as a clearing bank for government departments, facilitating and processing their daily
transactions.
History apart, it was the Merchant bank that first evolved the system by trading in
commodities than money. They used to do their trading activities by remitting the money
from one place to another. The next stage in the growth of banking was goldsmith. An
honest goldsmith was also trusted with billions money and ornaments by merchants in
neighborhoods. He started charging for acting as custodians of these valuables. As an
evidence for receiving valuables he issued a receipt, which in turn became like cheques
as a mode of exchange. He started advancing the coins on loan by charging interest. He
started to keep some reserve as a safeguard. In this way the goldsmith money lender
become a banker who started performing the two functions of modern banking that of
accepting deposits and advancing loans.
Banking service is the oldest service industry in Nepal. It has gone through various stages
of evolution and development since the Vedic times (2000 to 1400 B.C.). In the Nepalese
chronicles, it was recorded that the new era known as Nepal Sambat was introduced by
Shankhadhar, a Sudra merchant of Kantipur in 879 or 880 A.D.
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The banking in the form of money leading can be traced back in the reign of Gun Kam
Dev towards the end of 8th century. According to the historical evidence in 723 Gun Kam
Dev, the king of Kathmandu had borrowed money to rebuild and to rule Kathmandu.
In the 11th century, during Malla regime, there was an evidence of professional money-
lenders and bankers. It is further believed that money-lending business, particularly for
financing the foreign trade with Tibet, became quite popular.
Another historical example as to the pre-modern banking system is found when Rana
Prime minister Randip Singh was administering Nepal in 1880 AD During his regime one
financial institution name by "Tejarath Adda" was establish to give loan facilities to the
governmental staff and to afford loan facilities to the public in general in the term of 5%
interest. The credit facilities of "Tejarath Adda" were also extended outside the valley
during the Prime Minister ship of Chandra Shamsher Rana. Although this institution did
not accept any deposits, it had played an important role in the development process of
banking system in Nepal. Modern banking business started in the country just before the
Second World War. In 1938 state financial institute which supply credit or loan against
security.
His Majesty King Tribhuvan inaugurated first commercial bank i.e. Nepal Bank Limited
on Kartik 30, 1994 B.S... In the year 1994 B.S. as a semi government organization with
an authorized capital RS.10 million of which 51% share are owned by government, this
marked the beginning of an era of formal banking in Nepal. Until then all monetary
tractions were carried out by private dealers and trading center.
The need to regulate financial and monetary system increased enormously resulting the
establishment of Nepal Rastra Bank in 2013 B.S. In order to cater the demand of banking
system, Rastriya Banijya Bank was established in 2022 B.S with 100% government
ownership.
Later some development banks and financial institutions were established to provide
medium and long-term credit facilities to the industry and agriculture. In this contest,
Nepal Industrial Development Corporation was established in 2016 BS to provide the
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financial and managerial assistance in the field of industry and to help private sector in
the field of industry. In order to provide service to the agriculture sector, Agriculture
Development Bank Ltd. was established in 2024 B.S.
The government of Nepal adopted liberal economic policy to accelerate country's growth
and development. Foreign investment and participation of private sector were
encouraged. The government then enacted "Joint Venture Banking" policy. Commercial
Banks should operate under the Commercial Bank Act 2031, Nepal Rastra Bank Act 2058
and Contract Act 2056. Nepal Arab Bank Ltd. (currently known as NABIL) is the first
bank established in joint investment in Nepal in 2041 B.S. With the passage of time
several other joint venture and private bank has been established such as Indosuez bank
Limited (Nepal investment bank) in 2042 B.S., Nepal Grindlays Bank (Standard
Chartered bank) 2043 B.S., Himalayan Bank Limited in 2049 B.S. and so on.
Financial system is the set of financial institutions, financial market, and financial
instruments along with regulations and laws. Financial system facilitates resources
transfer and mobilizes savings to the productive sectors thereby contributing to the
economic development.
Financial institutions are the organization that channelizes the savings of government,
businesses and individual into loans and investment. It consists of:
Depository Institutions
Depository institutions are the banking institutions which collect amount through
deposits accounts and sold bulk amount through loan account. In Nepal, NRB has
classified depository institutions as follows:
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Table 2.1 List of no. of depository institutions
Non-depository Institutions
Non-depository institutions are an intermediary who does not accept the deposit
directly from the customers. They are insurance companies, investment banks,
pension funds, etc.
Commercial Banks are the heart of our financial system. A commercial bank (or business
bank) is a type of financial institution and intermediary. It is a bank that
provides transactional, savings, and money market accounts and that accepts time
deposits. They hold the deposits of millions of persons, governments and business units.
They make funds, available through their lending and investing activities to borrowers,
individual business firms and government. Therefore the task of commercial banks in an
under developed countries is almost self-evident. Their purpose is to provide a collecting
point for savings of a relatively small average amount from a large number if individual
source so long as the to utilize savings safely and profitably.
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Hence, commercial bank is the financial institution authorized to receive both time and
demand, to make loans of various types, to engage in trust services, to issue letters of
credit, to accept and pay drafts, to rent safety deposit boxes, and to engage in similar
activities and ventures.
1. Primary functions
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2.5.2 Agency and General Utility Services provided by Modern Commercial Banks
Besides these two main activities, commercial banks also render a number of ancillary
services. These services supplement the main activities of the banks. They are essentially
non-banking in nature and broadly fall under two categories:
I) Agency Services
Agency services are those services which are rendered by commercial banks as agents of
their customers. They include:
General utility services are those services which are rendered by commercial banks not
only to the customers but also to the general public. These are available to the public on
payment of a fee or charge.
They include:
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As the time passed Rastriya Banijya Bank was established in 1966 A.D. in order to
play a major role not only in domestic banking services but also in foreign trade. As
the country followed economic liberalization, there was massive entrance of foreign
banks in Nepal. Nepal Indosuez Bank was established as a joint venture between
Nepal and France in 1986 A.D... Similarly, Nepal Grind lays bank (Standard
Chartered bank) was established in 2043 B.S. and Himalyan Bank Ltd. was also
established in 2049 B.S. with joint venture with Habib Bank Ltd., Pakistan.
Till 2067 there are many commercial banks as well as development banks that have
been working smoothly in Nepal. The licensed commercial banks according to the
central bank of Nepal i.e. NRB are 31 and they are listed with their paid up capital in
annex 1.
CHAPTER THREE
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confirms our claim. Other awards and recognitions received by the bank in the past 6
years also ranks the bank in high positions with awards like:
Best Presented Account Award- 2008 awarded by The Institute of Chartered
Accountants of Nepal.
Number 1 bank of Nepal-2006 awarded by the Bankers Almanac, Britain
Number 1 bank of Nepal-2003 awarded by the Bankers Almanac, Britain
National Excellence Award- 2003 awarded by federation of Nepal chambers of
Commerce and Industry.
All Branches of HBL are integrated into Globus (developed by Temenos), the single
Banking software where the Bank has made substantial investments. This has helped the
Bank provide services like Any Branch Banking Facility, Internet Banking and SMS
Banking. Living up to the expectations and aspirations of the customers and other
stakeholders of being innovative, HBL very recently introduced several new products and
services. Millionaire Deposit Scheme, Small Business Enterprises Loan, Pre-paid Visa
Card, International Travel Quota Credit Card, Consumer Finance through Credit Card
and online TOEFL, SAT, IELTS, etc. fee payment facility are some of the products and
services. HBL also has a dedicated offsite Disaster Recovery Management System.
Looking at the number of Nepalese workers abroad and their need for formal money
transfer channel; HBL has developed exclusive and proprietary online money transfer
software- HimalRemitTM. By deputing our own staff with technical tie-ups with local
exchange houses and banks, in the Middle East and Gulf region, HBL is the biggest
inward remittance handling bank in Nepal. All this only reflects that HBL has an outside-
in rather than inside-out approach where customers needs and wants stand first.
HBL's VISION
HBL's MISSION
To become preferred provider of quality financial services in the country. There are two
components in the mission of the Bank; Preferred Provider and Quality Financial
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Services; therefore HBL believe that the mission will be accomplished only by satisfying
these two important components with the customer at focus. The bank always strives
positioning itself in the hearts and minds of the customers.
HBLs Objective:
"To become the Bank of first choice" is the main objective of the Bank.
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member of Clean up the World. Clean Up The World in partnership with the
United Nations Environment Program (UNEP) works for inspiring & empowering
communities to clean up & conserve environment through waste removal, tree
plantation, water & energy conservation projects.
2010: Active participation in the opening ceremony of Nepal Tourism Year 2011
organized by NTY 2011 Coordinating Committee in coordination with Nepal
Tourism Board.
2009: Entered into agreement with Dairy Development Corporation (DDC) for
extending financing opportunities of up to Rs.1 million to the local dairy product
processing centers for the installation of hi-tech equipments.
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2008: Charity to various orphanages and physically challenged poor children
The Capital structure of Himalayan Bank has been briefly summarized in the Table
below:
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Local Promoters 51%
Foreign Partners (Habib) 20%
Employee Provident Fund 14%
(EPF)
General Public 15%
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Fig
Object 5
Himalayan Bank Limited has a very typical organization structure where the top level
management includes the CEO, Senior GM and GM. Under them are the various
departments of the bank with one person heading each department. The major decisions
are taken by chief Executive Committee. The organizational structure of Himalayan bank
is shown below:
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Secretary to chairman
Secretary to BOD Audit Committee
Chairman & Board of directors
Public Relation Officer
Secretary to CEO 2
Shares
Chief executive officer Press
Secretary to GM 1
General Manager HRD
MFD
CMAD
Consortium Cell
Credit Card Center
All Branches PPDD
Branches
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A. Deposit product
B. Loans
Loan facilities provided by HBL are:
1. Corporate Loan
Corporate loan of HBL is classified in two categories. They are:
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Bonds of Bank
Loan against First Class Bank
Guarantees
Loan against Shares
D. HIMAL Remit
Himalayan Bank Ltd. is a pioneer in the field of retail money transfer business
with over a decade long customized service delivery experience in the field.
HimalRemit is a state-of-the-art web-based online money transfer system. It is
easily accessible through website of HBL. It can be directly accessed by all
branches and network thus ensuring prompt execution of the remittance. The
product is monitored and serviced 24/7 by Remittance Promotion Department of
HBL dedicated to deliver fast and reliable services to the customers. Himal Remit
has the largest payment network covering all cities, towns and villages of the
country and is capable of paying at more than thousand locations across Nepal
which is in ever growing trend as per the demand of local customers and service
providers.
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Salient Features:
Temporary Locker Facility for client Going Abroad Period: 3 months to
less than 6 months 50 percent of annual charge
Temporary Locker Facility for client Going Abroad Period: 6 months to
less than 1 year 75 percent of annual charge
25 percent Discount on Annual Rent to PSA Holders
100 percent rebate on key deposit and 50 percent on annual rent to HBL
board of members, chairman, advisor to BODs, staffs and their spouse.
F. Cards Services
HBL provides various card facilities to the customers can withdraw cash as well
as purchase goods from several merchants. Customers use these cards at any ATM
terminal of HBL networks as well as SCT network also. HBL provides ATM
services to their customer, which is open 24 hours, a bay, 7 days a week, and 365
days a year. The cards facilities by HBL are:
ATMs Card
Credit Card (VISA/Master card)
Prepaid Card
VISA Debit Card
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3.8 HBL Branches and Networks
HBL have totaled 36 Branch networks including branches inside and outside the
valley which does operational activities of the banks. Corporate office located at
Kamaladi, Kathmandu does all the management activities only. There are 33 ATM
locations inside Kathmandu valley and 23 outside Kathmandu Valley. The list of HBL
branch and ATM networks are shown in annex 3 and 4.
CHAPTER FOUR
Letters of credit are often used in international transactions to ensure that payment
will be received. Due to the nature of international dealings including factors such as
distance, differing laws in each country and difficulty in knowing each party personally,
the use of letters of credit has become a very important aspect of international trade. The
bank also acts on behalf of the buyer (holder of letter of credit) by ensuring that the
supplier will not be paid until the bank receives a confirmation that the goods have been
shipped.
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The rapidly changing world of today is becoming progressively more dependable
on technology and networking. Considering the fact, trades between two parties (buyer
and seller) are made secured by going through the authorized intermediaries i.e. banking
institutions.
International trade is defined as exchange of goods and services between two or more
parties from different countries (an exporter and an importer). Because no country is
self-sufficient and international trade helps in getting comparative cost advantage.
To receive the correct quantity and quality of the goods purchased or services
required.
To receive goods purchased or services required in a timely manner and at the
correct place.
Assurance that he does not have to disburse the seller until he is certain that
the seller has fulfilled his obligations properly.
Assurances that he will be paid in full within the agreed time limit.
To deliver the contracted goods or services as quickly as possible.
Thus, documentary credits were emerged for meeting the objectives of the buyers
and sellers and mitigate the complexities in international trade. It builds assurance among
the buyer and seller by the involvement of certified financial intermediary. The main
purpose of LC is convergence of objectives of both buyer and seller. It convergence
includes:
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The buyer will need to know that he has paid for the goods and getting the right
goods.
The seller's interest is to get promptly paid for the goods.
L/Cs call for the exporter to present to a bank documents evidencing shipment or
dispatch of the required merchandise for which, if the documents are in order, he
will be paid.
4.1.3 Advantages of LC
LC provides a specific transaction with an independent credit backing and
a clear cut promise of payment
Reduces or eliminates the commercial credit risk since payment is
assured by the bank which issues an irrevocable LC . the seller no longer
needs to rely on the willingness and capability of the buyer to make
payment
Reduces certain exchange and political risks while not necessarily
eliminating them
LCs is usually governed by International Chamber of Commerce's Uniform
Customs and Practices for LC. These rules which are periodically have been
in effect since 1933 and are the set of universally recognized rules governing
LC operations.
The buyer is assured that the documents presented will be examined by
banking personnel knowledgeable in LC operations.
The buyer is confident that the payment will only be made to the seller after
the terms and conditions of the LC and UCP rules are complied with.
Hence, letters of credit are common in international trade because the bank acts as
an uninterested party between buyer and seller. For example, importers and exporters
might use letters of credit to protect themselves. In addition, communication can be
difficult across thousands of miles and different time zones. So, letter of credit spells out
the details so that buyers and sellers objectives are fulfilled. A letter of credit is a
promise to pay. Banks issue letters of credit as a way to ensure sellers that they will get
paid as long as they do what they've agreed to do.
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4.2 Basis for the handling of LC
Apart from this, the Nepal Rastra Bank (NRB) has also issued some directives relating
import and export that are to be compulsorily observed by the commercial banks while
preparation of documentary credits.
"DC mean any arrangement, however named or described, whereby a bank (the
Issuing Bank) acting at the request and on the instructions of a customer (the applicant)
or on its own behalf,
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There are thirteen INCOTERMS that are used by businesses and are used in four
different areas as E, F, C and D, designated by the first letter of the term (acronym).
They are:
E EXW Ex Work
In practice, trade terms are written with either all upper case letters (e.g. FOB, CFR, CIF,
and FAS) or all lower case letters (e.g. fob, cfr, cif, and fas). They may be written with
periods (e.g. F.O.B. and c.i.f.)
Many importers and exporters worldwide are accustomed to and may still use
the INCOTERMS 1980, the predecessor of INCOTERMS 1990 and INCOTERMS
2000.
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4.3 Parties to Letter of Credit
The various parties involved with a letter of credit are described below using letter of
credit terminologies:
iii. Issuing Bank - The applicants bank that issues its written undertaking to the
beneficiary in the form of the letter of credit.
iv. Advising Bank (Correspondent bank) - The bank usually in the beneficiarys
country, which informs the beneficiary, that another bank has issued a letter of
credit in its favor. It proves the beneficiary that the credit is genuine, since the
advising bank has to satisfy itself that the credit is properly authenticated by the
issuing bank. It has no liability on the part of advising bank to honor the credit.
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4.4 Types of Letter of Credit
All Letters of Credit are issued in either a revocable or an irrevocable form and an
either confirmed or unconfirmed. The applicant should mention the required type at
the time of opening the Letters of Credit. But various types of LC issued they are
discussed below:
Revocable Letter of Credit: LC that may be amended or canceled any time by the
buyer (the account party) without the approval of the seller (the beneficiary) up to
the moment of payment by the bank, then it is said to be revocable LC. A revocable
letter of credit cannot be confirmed. Since it does not provide any protection to the
seller, it is rarely used. Some banks even refuse to issue such LCs because of the fear
of getting involved in the possible legal action between the buyer and the seller.
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iii. Sight and Deferred Letters of Credit
Sight Letter of Credit: Letter of credit that represents an obligation by the issuing
bank on a designated third party (the beneficiary), that is contingent on the failure of
the bank's customer to perform under the terms of a contract with the beneficiary. It is
also called a performance bond. In case of Sight LC, payment should be made to
supplier or beneficiary within seven workings days after the receivables of documents
after arrival of goods.
Deferred Letters of Credit: A letter of credit that is paid after a fixed number
of days (for e.g. after 90 days) after shipment or presentation of
prescribed documents, then it is said to be deferred LC. It is also called Usance LC. It
is used where a buyer and a seller have a close working relationship because the seller
is financing the purchase by allowing the buyer a grace period for payment.
A deferred payment letter of credit differs from a sight LC in that no grace period is
provided, the payment is guaranteed on the stated date. Under this credit, the payment
is made in installments for purchase of heavy machine and other capital goods.
Deferred payment LCs may be opened up to 1 year. Usance LC allows 7 business
days to review the documents for discrepancies before accepting or rejecting the
documents.
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act as purchasing agents for buyers in another country. It carries a provision that is
written or typed in red ink which allows a seller to draw up to a fixed sum from the
advising or paying-bank, in advance of the shipment or before presenting the
prescribed documents.
Transferable Letter of Credit: An irrevocable letter of credit with two (and only
two) successive beneficiaries that permits the beneficiary of the letter to make some
or all of the credit available to another party, thereby creating a secondary beneficiary.
The party that initially accepts the transferable letter of credit from the bank is
referred to as the first beneficiary. In this arrangement, the first beneficiary (an
intermediary or importer's foreign representative) can assign part or whole of the
L/C amount to a second beneficiary (the supplier or manufacturer). The transfer of
credit must be clearly outlined in the documentation of the letter and the bank issuing
the letter of credit must approve the transfer.
Back-to-Back letters of Credit: It is a seller financing tool where seller goes to his
bank for amendment of the master LC and gets issued another LC in favor of the
main supplier. It is an arrangement in which one irrevocable letter of credit serves as
the collateral for another. It is a LC where main buyer does not get to know that that
main supplier and the advising bank of the first LC becomes the issuing bank of
the second letter of credit.
Letter of credit where negotiations are restricted to the bank chosen by the bank
issuing credit, and then they are called restricted documentary credits. Under this, the
reimbursing bank will release payment only to the negotiating bank. Any other bank
willing to negotiate the document under the letter of credit should seek consent of the
issuing bank.
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4.5 Important Documents Required in LC Operation
These refers to documents that exporter has to prepare in order to send the
goods to other country for the other person. In case of international trade documents
required for trade operation are described briefly below:
ii. Export / Import Licences: This is the proof that the appropriate governmet
has given authority to company for import and export of the goods.
iii. Airway Bill: Airway bill is issued by the transporting airlines as a receipt of
the merchandise for delivery up to the specified point.
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vii. Promissory Note: This note is drawn up by the buyer and given to the seller.
It states that the buyer is liable to pay the amount of goods he/she has
imported within the specified period of time.
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4.6.1 Letter of Credit Opening Procedures
The processes involved in letter of credit issuance are diagrammatically shown and
discussed below:
The detailed about issuing procedure of letter of credit are briefly explained below
indicating addressing HBL as issuing bank and beneficiary's bank as advising bank.
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The buyer (known in the Letter of Credit as the "Applicant") informs the
seller (known in the Letter of Credit as the "Beneficiary") that the purchase order
is acceptable. The seller sent the pro Forma Invoice to the buyer. Buyer and seller
agree to terms including means of transport, period of credit offered (if any), and
latest date of shipment acceptable. The seller will communicate the letter of credit
terms to the customer, and ask further to open it.
The buyer arranges for the issuance of the letter of credit visiting his bank.
The request for opening of Letter of Credit should is made by the customer in
writing in the prescribed Letter of Credit Application Form. The application form
should be filled up clearly and precisely and preferably typed or legible
handwritten (all capital letters) along with signature and stamp. They should
follow the instruction of filling up the application which is either given by
employees or follow written rules in the application form and a copy of
application form should be handed over to the customers requesting opening of
Letters of Credit.
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degree of risk element for the bank in case of the failure on the part of the
applicant to pay the amount to the bank. Therefore, safeguard against such
possibility that the bank should seek collateral security and some amount in cash
margin. For carrying out this process, approval sheet is forwarded to credit
department (i.e. customer relation department of HBL) for approval of the credit
limit of the customer for opening the LC.
The required margin, commission and swift or telex charges for opening
LC has to be agreed with the customer before opening LC, which will be
approved by the competent authority. A copy of swift LC with necessary stamps,
authorized signatures will be handed over to the applicant together with debit
advice of the client accounts for the margin, commission and other charges.
After transmission of the message, it is the duty of the letter of credit department
to monitor receipt of original message of opening of LC transmitted to
correspondent bank or advising bank. If not, message should be send through
other mechanisms. If any difference in message is noted by the advising bank, it
will be informed to the supervisor for initiating immediate action for making
necessary rectification and improved LC message is forwarded again to the
advising bank.
The necessary filling of the LC opened is made for the future reference of bank. A
separate file should be maintained for each documentary credit opened. It includes
letter of credit application form, pro-forma invoice copy, and import license copy
if any required and other related documents and check list, approval sheet and
charge sheet for L/C opening/amendments and SWIFT message will be filed
serially on such file.
Once the Letter of Credit is in order and the shipment is ready for export, the
beneficiary ships the goods to the freight forwarder. The seller can now begin
preparation of documentation required under the Letter of Credit terms. After
goods have shipped, the transport document is acquired by the beneficiary, is
checked for accuracy, matched up with other created documentation, and
presented to the Negotiating Bank (the Negotiating Bank may or may not be the
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same as the Advising Bank, depending on the requirements of the Letter of Credit
and the wishes of the Beneficiary.) The Negotiating Bank checks over the
documentation and advises any problems they may find with the paperwork.
The Advising Bank (if advising bank and negotiating bank is same) checks over
the documentation and advises any problems they may find with the paperwork.
They issue payment to the beneficiary. Advising bank, then forward the
appropriate documents to the Issuing Bank for payment, depending on the terms
of the Letter of Credit.
The bank shall accept LC documents received through the correspondent bank
only. The L/C Department shall examined the document so received thoroughly
and verify with the terms and conditions stipulated at the time of opening the L/C.
In case the discrepancies are waived or accepted by the applicant or the
discrepancies are corrected by the beneficiary and documents presented again
after necessary correction made or in case of clean documents presented, the
documents will be fit for payment.
Against the receipt of requisite cash or approved credit limit from the customer,
the documents should be handed over to the applicant. Bank releases the all the
documents (including transport document), so that the buyer can claim the goods
from the carrier. The copy of Letter of Credit, BBN form No. 3 and 4, cheques for
goods release required for customs purpose including copies of amendments also
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are provided with duly stamped as certified copy of original L/C to the
applicant.
The Issuing bank debits the buyer or applicant account and credited the advising
bank account. After the release of payment to the advising bank import LC
procedures finish.
If the client finds a need of change in the LC then the amendment is required. For
this the client has to request for amendment and the letter should be signed by the
authorized person. HBL clearly check whether the amendment do not violate any NRB
directives and hold a valid reason with it. B. B. N. No 3 should be filled and signed
properly. In an LC there may be a discrepancy in the Pro-forma invoice and the
commercial invoice and it cannot be considered then the amendment is required. The
revised/additional Pro-forma Invoice has to be submitted. The amendment form
containing the Reference No. of LC, the detail information about the beneficiary is also
required. This form is basically filled if there is a need of change in the extension in
latest shipment date, negotiation date, the increment or the decrement in the LC by
certain amount remaining other terms and conditions unchanged.
Since the LCs opened in HBL basically are Irrevocable in nature the LC cannot be
cancelled through just one party, for the cancellation of LC the consent of both parties is
required. The buyer can cancel the LC before the goods have been shipped by the seller,
but if the seller has shipped the goods then he would not agree to cancel the LC. There
can be various personal as well as business problem which lead him to cancel and LC.
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Bank Guarantee is the non fund based fee generating service of the bank. Bank
Guarantee is used as an instrument by business partners to strengthen and/or secure an
obligation in their contract. Generally, the parties involved in business transactions may
seek security for their transaction / contract / commitment. To fulfill this requirement,
bank issues the guarantee, at the request and on behalf of its customer, to the party,
committing that the bank will pay up to guarantee amount upon claim of the party as per
terms and condition mentioned of the guarantee.
In other words, a guarantee from a lending institution ensuring that the liabilities of a
debtor will be met, if the debtor fails to settle a debt, the bank will cover it. A bank
guarantee enables the customer (debtor) to acquire goods, buy equipment, or draw down
loans, and thereby expand business activity.
Bank / Issuing Bank - The bank who issues guarantee to the beneficiary.
The request for issuing of guarantee should be made by the HBL account
holding customer in writing in the prescribed bank guarantee application form. A
guarantee application is completed by the applicant and is submitted to their bank.
The applicant requesting for bank guarantee shall clearly indicate the type of the
bank guarantee and the relevant document (of the beneficiary) supporting demand
for such guarantee.
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failure on the part of the applicant to fulfill the specified obligation. Therefore,
HBL request for collateral or margin deposits for issuing the bank guarantee
depending upon bank policies and creditworthiness of the customer.
CHAPTER FIVE
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Financial development has accelerated economic liberalization initiated in the
country in the mid-eighties. Currently, the financial system consist more than 270
financial institutions licensed by Nepal Rastra Bank. Along with the expansion of
the financial institution, a number of challenges have emerged. Banks are the
financial intermediaries which bridges gap between the savers and users of fund.
Although primary function of banks accepting deposits and advancing loan, it is
not narrowed to that much. It is involved in various activities such as trade
operation, remittance facilities, providing utility servicers, etc.
Himalayan Bank Ltd. (HBL) is one of the leading commercial bank in Nepal at
present. It has been in operation in Nepal since 1993 when it was registered as a
joint-venture operation with Habib Bank Limited of Pakistan. It has promoters with
51% shares, Habib Bank 20%, Employee Provident Fund with 14% and remaining 15%
by the general public's.
This report is prepared on the basis of internship done in the Thamel Branch of HBL, for
two months. It is therefore focused on the activities learned in Letter of Credit department
among the different departments of HBL. The internship done at HBL was great
experience to learn theoretical aspect of banking and finance; I got to learn various
activities in banking business. However, my focal point of study was the Letter of Credit
department.
Letter of Credit Department is the trade operation centre of the HBL. This department is
concerned with issuing letter of credit for domestic and international trade and issuing
bank guarantee. LC department of Thamel branch is corporate section for trade related
activities that is facilitated by bank. It is one of the strength of HBL as it provides
very critical service to public and generates good revenue for the bank. The major
units at HBL are LC issuance, export, payment and guarantee and among them I
have shown my keen interest on LC and guarantee. The bank has been providing
very proficient and complete service to the customers.
As the Nepal is the member WTO, it needs to have strong economic growth to compete
in the global market. To do this HBL has been positioning itself in the hearts and minds
of the customers. The main mission of the bank is to become the preferred provider of
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quality financial services in the country and to become a leading bank of the country by
providing premium products and services and then ensuring attractive and substantial
return for the stakeholders.
During my stay in the letter of credit department of HBL, I found that trade operation
centre render proper services to the customers along with generating suitable proceeds for
the bank. But, I also found that there were a lineup of applications for international
banking, as the trade operation of HBL were centralized and found the problem of lack of
space. Overall I had a great experience while doing internship in HBL with cooperative
staffs and other intern friends and learnt the functioning of banking business.
This internship report is based on internship done at HBL, Thamel Branch from June 5,
2011 to August 4, 2011 to know the various processes and working environment of
banking in real life. I have gained lot of experiences from the internship in HBL, which
was my first experience in banking sector. This internship program helps me to learn
professional attitude for future prospects and to learn practically apart from academic
courses. During this period, I was able to learn different services and products that are
delivered by bank, organizational culture, nature of organizational problems, etc.
Among the different services, HBLs trade service has played a vital role in the
development of international trade of the country. The LC and guarantee operation of the
bank has served the general people and business houses in import and export of goods
and services. In Nepal's case, in recent years; trade operations have been playing a vital
role in the country's economic development by relaxing the foreign exchange constraints
and strengthening the balance of payments, among others which is acknowledged after
doing internship.
The following are the major lessons learnt basically in letter of credit department and
other departments during internship period:
Acquired good communication skills required for handling customers at the bank.
Learned about time management skills in organization.
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Learned how to prepare different documents such as to operate office equipments
like fax, photocopies, scanner, cheque writer, etc required in operation of various
activities in banks.
Learned to be communicative with experts and various natured people as well as
built self confidence.
Learned about functions of different departments such as customer service, bills
and remittance, customer relation and credit management and administration
along with products and services of HBL.
Learned the information filling and scrutiny process of the application forms and
other documents of LC and guarantee required in HBL.
Learned the preparation of Approval Sheet, account movement advices, B.B. Ni.
Forms, LC messages, etc. which are required in trade operation center in HBL.
Understanding the organizational culture of banking institutions.
Learned the chronological filing of documents.
Many other minor things which we ignore count most in an organization. HBL is
growing in the Nepalese market by providing very efficient services to its clients.
Overall, it was great experience doing internship in HBL for accumulation of practical
exposure in the banking sector.
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