Você está na página 1de 51

Askari Commercial Bank Limited (ACBL) works as a Unit of Army Welfare Trust was

established for the Welfare of Army Officials. The office of Army Welfare Trust is
situated at AWT Plaza, Rawalpindi. AWT offers the “AWT Saving Scheme” to the army
officials only. AWT has its units as under:

1. Askari Associates.

2. Askari Leasing.

3. Askari General.

4. Private Business.

5. Textile Mills.

6. Cement Industry.

7. Askari Commercial Bank.

Askari Commercial Bank Limited was incorporated on October 9, 1991, as a Public


Limited Company, and is listed on Karachi, Lahore and Islamabad Stock Exchanges. The
bank obtained business commencement certificate on February 26, 1992 and started
operations form April 1, 1992. Askari Commercial Bank is scheduled Commercial Bank
and is principally engaged in the business of banking as defined in the Banking
Companies Ordinance 1962.

Askari Commercial Bank Limited continues to scale new heights in all areas of its
operations. The safety and security of depositor’s funds, high productivity and optimum
use of technology are the hallmarks of its corporate strength.

ACBL is the first and so far the only Pakistani Bank in private sector to have been rated
as A1+ for short term category and A+ for long term category by PaCRA(Pakistan Credit
Rating Agency). The rating of A1+ is the highest category and stands for “obligations
supported by the highest capacity for timely repayment”

In 1994, ACBL earned international recognition as Asia Money Award and the title of
“Best Commercial Bank of Pakistan” for the year 1994, while Euro money declared the
bank as best domestic bank of Pakistan for the year 1995.

A financial institution has to give due emphasis to its network expansion because with the
passage of time the graph of growth through existing network attains the point of
saturation. ACBL has its head office in Rawalpindi. In view of deteriorating operating
environment, bank slowed down the expansion plan and added one branch in 1998
making a total number of branches 27. In 2001, the total number of branches increased to
30 all over the country (Pakistan).

CREDIT DEPARTMENT

To give credit is to finance directly or indirectly the expenditure of others against future
payment.

Lending or financing is one of the basic functions of banks of all categories, through
which they gain major part of their profits. A bank accepts deposits of money and repays
cash to its depositors on demand. But this is not to say that; bank gives this service for
nothing. Bank borrows money at a lesser rate of interest and lends to the borrower at
higher rate of interest. And the difference between these two is the profit of the bank.

Credit department deals with all the activities related to giving credit to customers.

CREDIT MANAGEMENT CYCLE:

Credit Management is composed of six steps:

1. Proposal

2. Processing

3. Decision

4. Documentation

5. Disbursement

6. Review
Diagram of Credit Management Cycle

Review

Disbursement Proposal

Documentation Processing

Decision

PROPOSAL:

The first step in the Credit Management is receiving a credit request, which is a lending
proposal for the bank each borrower has a purpose for borrowing. Some borrow to fulfill
their working capital needs, others wants to finance any project. The customer presents
his idea to the banker and wants the information on bank’s facilities. Then after collecting
information if the customer deems it beneficial he makes a loan request.

This bank customer relationship should be mutually beneficial.

PROCESSING OF LOAN PROPOSAL:

Managing a safe, healthy and profitable credit portfolio depends on the quality of
judgment exercised by the officer and the depth of their risk associated with the nature of
the borrowers business. The banker is supposed to make a judicious judgment, which
should be based on a critical study of advance proposals. It is very much necessary that
the banker should have a complete confidence in the integrity and ability of the customer
to use the money to his advantage and repay it within a reasonable period. Information
must be collected and confirmed by investigation and negotiation duri9ng processing of
the proposal.

In respect of fresh (ending proposal, the CLP is the end result of a series of internal and
external investigation exercises following the identification of a potential customer,
beginning with the first call on the customer.

EVALUATION:

To assess the risk and estimate the potential of a particular business, a series of
investigative exercise is undertaken. This evaluation stage include knowing the purpose
of borrowing, knowing business prospects of a customer, visiting the business place,
analysis of financial statement, visiting the collateral securities etc.

PURPOSE OF BORROWING:

The borrower must disclose factual purpose for seeking financial accommodation from
bank without such, the proposal should not be given due consideration.

1. The possible purpose may be as follows:

2. Export Financing / Packing Credit.

3. Import Trade Financing.

4. Working Capital need for Trade and industry.

5. Fixed Investment for Industry (Project Financing).

6. Purchase of Industrial or Commercial Vehicles.

7. Construction of Residential, Industrial and Agricultural

8. Buildings.

9. Finance for movement of Goods / Crops within the country.

10. Purchase of Agricultural Machinery.

11. Development of Agricultural Land.


Different Advance Facilities are offered according purpose of borrowing. Some facilities
may be used for specific purposes because of their very nature and therefore, risk
involved in extending them can be accurately identified; for example; an LC Facility can
be used only for imports and depending on the items being imported, risk can be assessed
reasonably and accurately. But other facilities however may be used for a variety of
purposes and it may not be possible to assess the risk as accurately. It is, therefore,
important that in all cases facilities are extended only after understanding precisely the
use to which they will be put, and monitoring systems devised to ensure that their use is
confined to disclose purposes only. Because without these safeguards, risk involved in
extending them would not remain the same as envisaged at the time of extending he
facility.

KNOWING THE BUSINESS PROSPECTS OF THE BORROWER:

Fortunes of business enterprises fluctuate with changing trends in their respective


business and industrial sectors. All businesses grow in spite of individual weaknesses and
shortcomings. But during recession in an industry some companies suffer more then other
because of their particular circumstances such as flaws in sourcing of materials, structural
weaknesses in manufacturing process or distribution arrangements, sales and receivable
management, sales and receivable management and more often financial management.

Aside from fluctuating market conditions caused by temporary imbalances in demand


and supply, which result in unusual growth or slump in sales, there is a gradual impact of
the natural life cycle of industries and their products. Product life cycles are characterized
by an initial period of rapid sales growth followed by the period of decline in growth rate
signifying weakening of demand, either slowly or rapidly, forced by any one or all of the
following:

1. Market saturation due to increased competition.

2. Innovation or the development of better / cost effective substitute.

3. Technological changes, which render older models obsolete.

4. Changes in import / export tariff which affect pricing structure.

Thus while preparing CLP, the concerned officer must look at these trends to identity
both short term as well as long term prospects of the business of the borrower in the
market place and the economy as a whole. He must also satisfy himself about capacity of
the borrower to survive these shocks as and when they surface before recommending
establishment of a lending relationship.
RISKS INHERENT IN LENDING:

Lending money to a borrower amount to exposing the bank to risks inherent in the
borrowers business. These risks can be broadly categorized as follows:

MANAGEMENT RISK: which is associated with the managerial capability of


owners/managers, their attitudes, organizational hierarchy, business practices and
knowledge of the market.

MARKET RISK: which is present because of continuing changes in demand-supply


relationships in the market caused by any number of factors and, as such, would affect
growth or decline of the borrowers business.

EARNING FLUCTUATION RISK: which arises due to significant variations in cost and
expenses of the borrowers operations primarily due to nature of operations and
technology being used and the extent of flexibility the borrower has in altering its sales
prices accordingly to shift the burden on the consumer.

DEFAULT RISK: which is the risk of the borrower not being able to repay on time either
because of adverse business circumstances or simply because of a lack of commitment to
repaying bank liabilities.

MARKETABILITY RISK: is the risk associated with major fluctuation in the values of
collateral securities pledged to the bank, which could expose the bank to possible losses
if the only option for adjusting credit facilities was disposal of collateral securities?

The assessment of each of these risks in the context of the borrower and its business is
imperative. All risks except marketability risk need to be assessed from the audited
financial report of the borrower, for at least last three years. Sales Growth and
Profitability, Structural Liquidity, Liquidity or Cash Management, Asset Management
and Debt Servicing Ability.

While these trends may indicate a reasonable credit risk involved in lending to the
borrower, the performance should be appropriately discounted keeping in view the
expected conditions to prevail in the industry of the borrower. The exercise may identify
some unanswered questions, to arrive at a final recommendation, relevant authorities in
the borrowers management be contacted to seek clarifications and in the light of replies
received, the analyst must submit his findings to the bank’s management for a decision t
pursue the proposal further.

VISITING THE CLIENTS BUSINESS PLACE:

(Things to Observe During the Visit)

Of the risks described earlier, first three cannot be assessed unless the Proposal Initiating
Officer thoroughly familiarizes himself with the business operations of the borrower. It
is, therefore, essential that the premises where the actual trading or manufacturing
operations of the borrower are carried out, is visited to ascertain the true extent of these
risks.

During the visit, the following things should be observed carefully:

Are the premises easily accessible; this is particularly relevant for manufacturing units.

Is the business process flowing smoothly? Or are there bottlenecks because of poor
facilities, inadequate staffing, and lack of skills or responsible behavior on the part of
those involved in management functions.

Are the production facilities being properly maintained, the assets can deteriorate if
proper attention is not paid to their maintenance. Are there proper storage facilities for
both raw material and finished goods?

What kinds of distribution arrangements are there? Own or hired? If product does not
reach the market, there would be no sales revenue out of which borrower will repay.

What sort of organization is it? Progressive and outward looking? Conservative and
highly centralized?

FINANCIAL ANALYSIS:

The purpose of analysis of Financial Statement (FS) is to examine past and current
financial data so that a company’s performance and financial position can be evaluated
and future risk and potentials can be estimated. The analysis can yield valuable
information about trends and relationship, the quality of company earnings and its
financial strengths and weaknesses.

Financial Statements among other things include balance sheet and income statement.
Balance sheet represents assets and liabilities of the business at a given data. Besides
showing the ability of the business to service the loans on the strength of its financial
structure. It also helps in evolving secured basis for extending financial support. Apart
form showing the profitability of a business, income statements disclose how the business
has been conducted and determines factors behind a rise or decline in the net worth.

RATIO ANALYSIS:

The figures in financial statements are not meaningful. To obtain meaningful


information, relationship between relevant figures must be examined.

Ratios provide the means of showing the relationship, which exists between figures on
the Balance Sheet and Income Statement. The analysis is undertaken to assess important
characteristics of business like liquidity, solvency and profitability. A study on these
aspects enables drawing conclusion as to financial requirements and capabilities of
business units. Sound conclusion cannot be arrived at from single ratio or measurement.
But adequate investigation of financial data.

LIQUIDITY RATIOS:

These ratios are used to measure the ability of the business to meet its maturing
obligations or current liabilities e.g. Current Ratio, Acid Test Ratio.

LEVERAGE RATIOS:

These ratios help to measure the financial contribution of the owners compared with that
of the creditors and also the risk of debt financing e.g. Debt to Equity Ratio, Fixed Assets
to Net-worth, Interest Coverage Ratio.

TURNOVER OR ACTIVITY RATIOS:

These ratios enable measurement of the effectiveness of the usage of the resources e.g.
Total Assets Turnover Ratio, Inventory Turnover Ratio, Accounts Receivable Turnover
Ratio.

PROFITABILITY RATIOS:

These ratios are intended to measure the end result of the business operations e.g. Net
Profit Margin, Return on Assets, Return on Equity.

COMMON STOCK RATIOS:


These ratios help prospective investors in making their decisions about purchase or sale
of shares of a particular company e.g. Earning per Share, Dividend per Share, Price
Earning Ratio, Yield per Share.

VALUATION OF COLLATERAL SECURITIES:

Valuation of collateral securities is an area which is fraught with dangers because there
can be errors of judgment or deliberate over estimation for ulterior purposes. As far as
cash and other liquid securities are concerned, there is not difficulty in disposing them of
because their merits are self-evident. However, in respect of real estate, there are some
important aspects, which need special examination.

An additional problem with collateral securities are that there is many security types
whose valuation remains subjective because of the fact that there are no verifiable market
prices quoted for them.

When any asset of the customer is taken into charge with the bank, the concerned officer
visits the security and examines the suitability of the security for the facility required by
the borrower. Banker must also check whether there are any existing charges on the asset
because is that case the institution which has registered the charge first will have prior
claim on the proceeds on the event of borrower’s liquidation.

After that a surveyor examines those fixed assets and estimates their value. It should be
remembered that not every surveyor is competent to value every type of asset. So reliable
experts competent to assess particular type of asset must carry out valuation.

NEGOTIATION:

While processing a loan proposal, a banker has to do a detailed negotiation with the
customer, to have first hand knowledge about certain things and then confirm them. The
negotiation phase is very important for creating a safe credit portfolio. The information
collected in this phase may include the type of advance, the mode of creating charge over
securities, the source of repayment and period for which the facility is needed.

FUND BASED LOAN:

In this type of loan, funds are directly involved.


RUNNING FINANCE: (R/F)

It is popularly known as overdraft. It is offered for working capital requirement of the


customer. It is created in current account adjustment from time to time finally on expiry
date. This facility is normally issued against hypothecation of immovable property. It is
allowed to the borrower under a pre-sanctioned limit. A current account is opened and the
conduct of this account is kept under review for a period of three to six months. The
borrower can draw cheque on his account maximally up to the amount of limit sanctioned
to him. The amount outstanding against the borrower is mark-up will be changed on the
basis of the amount outstanding. This facility is issued on revolving basis repayment
should be completed by the maturity date. Repayment in monthly installments is not
required.

CASH FINANCE: (C/F)

It is also offered for the working capital requirement of the customer. It is the type of loan
in which client is given cash in lump sum it is offered against the pledge of moveable
property or stock of borrower. In majority of the cases this finance is allowed against
pledge of stock. The amount of finance is credited to borrowers CD account and he/she
utilizes it for business purposes. Repayment is not made by monthly installments.
Adjustments are linked with delivery of goods kept under bank’s pledge. Goods are
depledge when the payment is done on delivery order of the bank. Goods released are
equivalent in value to the repayment amount and remaining goods are stills kept in pledge
with bank for further recovery. Goods are released on the Delivery Order (DO) by the
bank to the Godown Officer.

TERM FINANCE: (T/F)

Term finance is offered to client for investment in any project or business. It is issued for
fixed time period. The amount of finance is credited to borrowers personal account by
debiting the Term Finance Account. The amount of finance is credited to borrowers
personal account by debiting the Term Finance Account. The amount of Finance is
disbursed in lump sum. Partial transactions are not allowed in the Term Finance account.
The repayment of Term Finance is usually in installments and with other documents a
letter of installments is taken from the borrower at the time of disbursement. By that
letter, the borrower binds him to pay the installments at regular intervals. Monthly
repayment amount is calculated by dividing the principal amount by time period plus
mark-up.

FINANCE AGAINST IMPORTED MERCHANDISE:

This type of finance is offered to the importer to finance their needs for meeting the cost
including freight, insurance, and customs and excise duty payable on the imported
merchandise. The lending bank mostly pledges the imported goods. The merchandise is
released for the use of the importer (borrower) upon repayment of the bank’s finance and
charges either fully or partially, on production of the Delivery Order issued by the banker
in favor of the borrower.

NON-FUND BASED FACILITIES:

These are those types of facilities in which funds are not directly involved.

LETTER OF CREDIT:

Letter of Credit issued by the bank can broadly be classified as under: -

Sight letter of credit.

Usance letter of credit.

The sight L/Cs call for the draft to be drawn ‘at sight’. Documents negotiated and
received against sight are held as security till their retirement. Drafts drawn under usance
are for a tenure specified in the L/C and are payable by the customer on due date.

Credit line proposal must clearly state the type of letter of credit the branch is intended to
issue.

LETTER OF GUARANTEE:

Guarantees issued by the bank can be classified under two broad categories.

(1) FINANCIAL GUARANTEE:

Bank guarantees the fulfillment of a financial commitment on behalf of the customer.


Under these guarantees, the bank is called upon to pay in the event of a breach of terms
on the part of the customer.

(2) PERFORMANCE GUARANTEE:

The bank guarantees the due fulfillment of a contract or other work as specified in the
guarantee, by the customer. The amount of guarantee is usually up to the extent of the
value of the contract.
(3) SHIPPING GUARANTEE:

Bank issues guarantee in favor of the shipping company to enable the importer to obtain
delivery of the goods without production of the Bill of Lading.

MODES OF CREATING CHARGE OVER SECURITIES:

Primarily bankers rely on the character, capacity and capital of the borrower in ensuring
the safety of his funds. The viability of the project itself and its cash generating capacity
ensure to a large extent the safety of bank funds. But the banker cannot afford to take any
risk and hence the reliance is placed on the tangible assets of the borrower. In case of
default by the borrower in repaying the loan the banker’s interest if safeguarded if he
possesses change or right over the tangible assets of the borrower. Loans with such rights
conferred upon the bankers are called secured advances. In secured advances, charges are
created on the tangible assets in several ways depending upon the nature of assets. Modes
of creating such charges are as follows:

1. Lien

2. Pledge

3. Hypothecation

4. Mortgage

Lien:

Lien has been defined as the right of a person to retain the property of the borrower until
a debt due from him (borrower) is repaid. In ordinary lien, the ownership of the property
under the lien remains with the borrower, although its actual or the lien remains with the
borrower, although its actual or constructive possession is with the creditor, though the
creditor does not have any right to sell it. This is not the case with banker’s lien, as a
banker’s lien is an implied pledge and the banker has the right to sell the securities under
lien after giving a reasonable notice to the borrower in case of his default.

Pledge:

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


called pledge. The relationship of a customer and a banker is this case is that of a pledger
(customer) and a pledgee (banker). The ownership of the goods, pledge remains with the
borrower, while the possession is with the banker.
Bailment is the delivery of goods by one person to another for some purpose, upon a
contract that they shall, when the purpose is accomplished be returned or otherwise,
disposed off according to the direction of the person delivering them.

Mortgage:

A mortgage is the transfer of an interest in specific immovable property for the purpose
of securing the payment of money advanced or to be advanced by way of loan, existing
or future debt.

The transferor is called a mortgagor and the transferee a mortgagee. The principal amount
and the interest of which the payment is secured are called the mortgaged amount and
instrument (if any) by which transfer is affected is called the mortgage deed.

The mortage does not transfer the ownership of the property and the actual possession of
the property is also not transferred. He (mortgagor) transfers only some of his rights as an
owner e.g. He now cannot sell the property without the consent of the mortgagee.

Hypothecation:

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


possession is called hypothecation. The goods are charged as security for a loan form the
bank but ownership and possession remains with the borrower. The security is granted by
the borrower to the lender by a letter of hypothecation, which contains the terms and
conditions of the hypothecation agreement.

As physical possession of goods remains with the borrower, the banker seeks periodical
stock reports from the borrower confirming full description and value of the stock
hypothecated. In order to prevent a possible loss of stock by fire, theft, dacoity, and the
borrower is asked to get his stock insured. The hypothecated stock is liable to be
inspected by bank’s authorized person. The creditor (Banker) has the right to take
possession of the hypothecated goods as and when required.

Repayment of the Credit: (Identify the source of repayment)

The banker’s most important single consideration should be on time repayment of the
credit extended t a borrower from the normal business operations of the borrower.
Availability of collateral securities although essential should never be considered for
extending credit. Any proposal, about which repayment from normal business operations
of the borrower is uncertain, even though it is supported by good securities, is unfit for
consideration. Bankers obtain collateral securities from borrowers for recovering credit if
market conditions make it impossible for the borrower to repay, not as a protection
against borrower’s dishonesty. If the borrowers intentions are doubtful, better not lend at
all because auctioning borrowers collateral is not your business.

It is, therefore, important that the CLP must mention the scenario for repayment and
identify the sources of repayment after negotiation with the borrower.

First source of the repayment is the revenue generated by the business of the borrower.
For this, the likely market demand scenarios must be estimated.

Second source of repayment is the general cash flow of the borrowers business arising
out of operations other than the sale of specific goods.

Third and the least derivable source of repayment is encashment of collateral securities.

Period of Financing:

The period for which the finance is issued is called the maturity period. It may be for a
month two months, 3 months, 6 months and for a maximum period of 1 year. If the
facility of advance is allowed up to 3 months then it will be considered as temporary
accommodation and if it exceeds to 6 months t 1 year, then it will be a permanent limit.

Making a Lending Decision:

Bank credit decision for any proposal has to be very rational one, because there are many
restrictions on monetary and credit expansion by the State Bank of Pakistan and it is no
longer within the power of banks to distribute it freely. Credit office must learn to make
the best use of the bank’s available deposits by deploying them in the most productive
advances. To make a prudent decision it is required that decision should be made only
after comparing the benefits available from several competing proposals and agree to
finance the proposal which offers a risk-reward combination closest to the standard set
out in the Bank’s Credit Policy. Before recommending facilities for any customer, banker
must ask himself the question “Why should we lend to this customer in particular? Why
not the next one?”

Consideration for Lending Decision:

Usually, the two major considerations for recommending fresh credit facilities are the
business anticipated from the borrower in relation to the funded facilities and projected
earnings from facility utilization by the borrower. In case of renewal of existing facilities
the consideration is the business received in the past and earnings and that promised by
the borrower for the following year.
Besides these, there could be other supplementary considerations such as deposits of the
borrower, including title, amount, period and profit / interest rate being paid on such
deposits is important in order to ascertain the profitability of the overall relationship.

The entire information will help the decision maker in reaching a conclusion about the
relative importance of the customer for the bank. But for making a profitable and safe
decision, the information on which the decision is based should be gathered carefully and
checked that the figures are correct.

After receiving the proposal and processing it by analyzing it’s all risk-return
characteristics, the credit officer prepares CLP. CLP is the input of the decision stage,
which is used for approval of the proposal. Once the CLP is prepared, first Branch Credit
Committee approves it and then it is forwarded to Head Office, from where the final
decision is made. The Credit Officer first uses his judgment and recommends potential
proposals. Then Branch Credit Committee further screens out risky proposal. In this way
a profitable portfolio is maintained.

DOCUMENTATION:

Document shall include any matter written, expressed or described upon any substance
by means of letters, figures or marks or by more than one of those means which is
intended to be used for the purpose of recording that matter.

Obtaining the proper documents, legally valid and enforceable, is a prerequisite for the
disbursement of an advance by bank. The type of document to be obtained mainly
depends on the following aspects:

· Type of Borrower.

· Nature of Facility.

· Kind of Security.

· Mode of Charge.

Rights and liabilities of the parties involved in the credit transaction are mainly
established from the contents of the documents executed by the parties. The banks
resorting to the court of law would only be benefited if the documents are properly
executed and they are valid and enforceable at law. If there is any defect in execution of
the documents, the bank may lose its claim. So, it is very essential to have proper
documentation before the loan is disbursed to the borrower.

Nothing is better proof than the documents themselves for the banker in pleading for his
claim. Therefore, utmost care should be taken in execution of the documents.
The banker must take care of the following:

1. The documents must be properly stamped with full value.

2. The parties should sign according to their usual specimen signatures; initials of the
parties are not enough.

3. Each page of the document is requi9red to be signed by the executing person.

4. There should be no cutti9ng, alteration, overwriting or erosion in the documents. The


executing person under his full signature if any, must authenticate the cuttings.

5. Documents must be completed in all respects. Blank and undated documents


sometimes pose serious problems for the bank.

6. Documents when executed should be:

· Properly diaries.

· Placed in Safe.

7. Documents should not be punched or torn out.

8. Documents where required must be duly registered.

Documents For Credit:

ACBL – DOC.1

Agreement for Financing for Short/Medium/Long Term on Mark-up basis.

ACBL – DOC.2

General Financing and Collateral Agreement.

ACBL – DOC.3-A

Demand Promissory Note.

ACBL – DOC.3-B
Letter of Continuity.

ACBL – DOC.4-A

Memorandum Confirming Deposit of Title Deeds.

ACBL – DOC. 4-B

Agreement to Create Registered Mortgage.

ACBL – DOC.4-C

General Power of Attorney.

ACBL – DOC.5

Mortgage Deed.

ACBL – DOC.6

Pledge Agreement.

ACBL – DOC.7

Letter of Hypothecation of the Receivables.

ACBL – DOC.7-A

Hypothecation Agreement.

ACBL – DOC.8

Trust Receipt.

ACBL – DOC.9

Letter of Lien Advance Against Shares, Stocks and Securities.


ACBL – DOC.10-A

Floating Charge.

ACBL – DOC.11

Directors/Shareholders Guarantee.

ACBL – DOC.12

Corporate Guarantee.

ACBL – DOC.13

Guarantee.

ACBL – DOC.14

Letter of Set-Off.

ACBL – DOC.15

Agreement for Discounting/Negotiation of Bills.

ACBL – DOC.16

Authority for Encashment.

ACBL – DOC.17

Board Resolution.

ACBL – DOC.18

Counter Guarantee.
Maintaining and Balancing the Documents:

Among other activities, maintaining and balancing the documents is also an important
activity of the Credit Department. These documents carry a substantial value and create a
great problem if any dislocation occurs. Different documents are of different values.
These documents are counted, stamped and properly placed in the strong room of the
branch. A separate ledger is maintained for these blank documents for accounting
purpose. After a short time period, the total value of actual documents is matched with
the balance in the ledger.

Disbursement:

Procedure of Loan Disbursement:

1. Proper documents, which are legally valid and enforceable at law, are obtained.

2. The concerned Credit Officer in the branches prepares proposal (CLP), it is also known
as Credit Sanction Advice (CSA). The purpose of making CLP is to record the required
information on it and having approval of the Branch Credit Committee and Head Office
on it.

3. Credit line proposal include the following information:

· Date of opening.

· Date of maturity.

· Nature of the business.

· Type of facility.

· Purpose of facility.

· Securities.

· Source of repayment.

4. There is a Branch Credit Committee in each Branch. Committee holds a meeting and
takes decision whether to give loan or not. This decision is taken by keeping in view all
the risks associated with that borrower.

5. New account with a new account number is opened. These account numbers are
previously fed into the computer if the system is online.
6. The Drawing Power (DP) is issued to each borrower. Drawing Power depends on the
amount of loan and the period of financing.

7. There are two accounts maintained for each borrower, Credit Account and the
borrowers account. In the start, the credit account has a credit balance equal to the
amount of loan.

8. After all other requirements are fulfilled; the loan is actually transferred to the
borrower by debiting the credit account and crediting the customer account.

9. Now the borrower can draw the amount from his account according to his allotted
Drawing Power (DP).

10. After a fix time period, on each installment date, borrower has to repay the principal
and mark-up. Loan repayment installments are deducted by debiting the customer
account and crediting the credit account.

Account Monitoring Loan Status Review:

Account monitoring system is an evaluation technique intended to provable a basis for


reviewing over all condition of an existing borrower. It will help in identifying symptoms
of possible problems in the areas of financial or business management and indicate the
need for corrective action to prevent the account form becoming slow moving or
eventually delinquent. This exercise of monitoring alerts the amulets or account manager
to the need for appropriate corrective action starting with a detailed discussion with the
borrower to understand the borrower’s point of view on the areas high lighted by the
analysis of the account.

Account Status Review:

In this section, different things about the current status of the account are checked. For
instance, what is limit of the account? What drawing power was allotted to the borrower?
What is the outstanding balance? Since when the account is inactive? What is the Net
Asset Value?

Account Conduct Review:

This section includes monitoring the account conduct. These questions are answered for
this purpose. Cheques of what maximum value are drawn by the borrower? Is post dated
cheques drawn by the borrower frequently or not? Is there a default on interest or mark-
up payment?
DEPOSITS DEPARTMENT

Deposit is the functional unit of a Commercial Bank. No bank can run its operations
without deposits. Main function of a commercial bank is to channelize saving from the
savers to the ultimate users of funds. The process of collecting saving is called Deposit
Mobilization.

Two board categories of deposits with reference to time period are:

Demand Deposit:

These are payable on demand. They include current account, sundry deposit (e.g. margin
account) and call deposit receipt. No profit is given on demand deposits.

Time Deposit:

Payable on demand with certain maturity. Attracts profit with respect to time.

OPENING OF ACCOUNTS:

At the time of opening accounts, officers should tactfully obtain as much information as
possible about the integrity and character of the person, his correct name, address and
occupation. This in fact will be the only opportunity when they will be able to talk to the
prospective customers in a friendly and frank atmosphere. It is, therefore, necessary that
due care and proper procedure be followed for opening different types of account for
various types of customers.

Askari Commercial Bank Ltd. has the following classification of accounts

a. INDIVIDUAL ACCOUNTS

b. PARTNERSHIP FIRM ACCOUNTS

c. JOINT STOCK COMPANY ACCOUNTS

d. AGENCY ACCOUNTS

e. CLUBS, SOCITIES AND ASSOCIATIONS ACCOUNTS

f. EXECUTORS AND ADMINISTRATORS ACCOUNTS


g. TRUSTS

h. LOCAL BODIES ETC.

i. PROPERITORSHIP

j. JOIN ACCOUNT

k. OTHER MISC. ACCOUNTS.

INFORMATION:

As much relevant information as possible must be elicited from the prospective customer
relating to his means, line and place of business etc.

FORMS TO BE FILIED IN CAREFULLY:

Each and every column of the account opening from should be neatly and correctly filled
in with necessary details.

INTRODUCTION OF ACCOUNTS:

Account must be properly introduced. In this concern, the following precautions are to be
observed.

i. As far as possible, the person introducing the account should attend the Bank
personally with the prospective customer. This would serve the dual purpose.

· The branch manager shall have the opportunity of eliciting vital information as to the
standing, respectability and the means of person he is introducing.

· The identity of the customer must be properly established beyond any doubt.

ii. In case the person introducing the account does not call at the bank, extreme care
should be taken while verifying his signatures and genuineness.
iii. Introduction from persons having doubtful dealings with the bank should be discreetly
declined.

iv. Current account holders can introduce both types of accounts viz. saving Bank
Accounts and Current Accounts. However, introduction from Saving Banks, account
holders should not be accepted for opening current accounts. Exceptionally, introduction
by customers of good standing may be accepted in cases where they maintain substantial
balances and these accounts are sufficiently old and operative.

v. The staff members generally should not introduce the account. They will introduce
accounts only for those persons who are personally known to them and whose credentials
are absolutely clean.

vi. Under the law, a bank manager opening the Account of a Drug Dealer is liable for
imprisonment. A bank manager must make sure that the customer does not deal in drugs
or has any other illegal business.

As for as possible, the account opening form should be completed by the prospective
customer in presence of the introducer who is then aware of the particulars furnished and
can corroborate the same.

Specific information concerning the profession or occupation of the prospective customer


should be recorded in the Account Opening Form. The description “Private Service” or
“Businessman” is insufficient.

Signatures on the account opening form as well as specimen signature cards must be put
by the customer in presence of the Bank Officer/Manager who will admit them preferably
in the presence of the introducer. Signatures are recorded for verification, which can be
done manually or by computers. In ACBL, SS Card is scanned for verification in the
future.

No Chequebook should be issued to the new account openers unless their accounts are
properly introduced.

Account may be opened with cash or cheque. In case, when cheques form initial deposits,
it is incumbent upon the Branch Manager to satisfy them, additionally that title of the
account holder is genuine for the cheque deposited. However, prudent bankers avoid
opening new accounts with cheques.
Letter of thanks should be sent to the introducer the day the account is opened. This
precaution would accomplish the purpose of intimating the introducer that the account
has been opened on strength of his introduction thereby inviting disclaimer if untrue.

A letter of bank should be sent to the new account holder, preferably through registered
mail, to verify his address.

As for as possible, in the evening, the officer of the branch should visit the customer’s
area to establish that the address given by the customer is correct and he commands
respect and honor in the neighborhood/vicinity he is living.

Number of the customer’s National Identity Card should be correctly recorded in the
account opening form and the copy of it should be kept on record and attested.

No account should be opened in the name of an undiscouraged insolvent.

The account opening form is signed and stamped by the concerned officer.

The title of account is entered in the registered and the corresponding account number,
which was previously entered into the register, is allotted to the account opener.

Account opener deposits the opening amount in cash in the allotted account.

TYPE OF ACCOUNTS:

Let us now turn to procedures to be followed in cases of each type of account.

Individual Account:

Such accounts may be classified and gentlemen

i. Account of literate ladies and gentlemen.

ii. Account of illiterate ladies and gentlemen.


iii. Account o Parda observing ladies.

iv. Joint Account.

v. Minor Account.

i. In case of illiterate ladies and gents, the following precautions are observed in addition
to those provided in the above guidelines.

a. Two photographs are to be obtained. One to be pasted on account opening form and the
other on specimen signature card.

b. Instead of signatures, left hand thumb impression to be obtained on the specimen card
from gents and right hand thumb impression from the ladies.

c. Each time such customer should attend the bank personally and will put their thumb
impression on the cheques before the passing officer.

d. Such customers should be advised not to issue cheques payable to 3rd parties.

e. Cheque should be marked “Payment in person” to ensure even if the cheque is


presented through clearing that particular cheque can only be paid in person.

ii. The problems arise particularly in case of parda observing ladies. Some serious
complications are involved in this concern. As for as possible, they should be encouraged
to open a joint account with their close family members.

iii. When more than one person opens account but the relationship between them is
neither of trustees nor partners, it would be termed as joint account.

Whenever such account is opened, definite instructions regarding operations on the


accounts and payment of balance in case of death of any one of them should be obtained.
In absence of any instructions for the accounts operations, all the joint account holders
should sign the cheques for withdrawal of amount from their accounts. Likewise, definite
instructions must also be obtain for payment of balance in the account in the event of
death of any of the joint account holders. For this purpose all the joint account holders are
required to sign account opening form as well as either or survivorship declaration.

In operation of joint accounts, following important points are required to be remembered:


i. Any member of the joint account may lodge stop payment instruction of any cheque
with the bank and the bank shall honor such instructions. However, all the members must
sign removal of these instruction.

ii. The member of joint account may wish to delegate authority to any third person to
operate upon the accounts. However, such a mandate is necessarily to be signed by all the
members.

iii. Any mandate, reference to which is given herein 2nd above, becomes automatically
rescinded or cancelled when the bank come to know of death, insolvency or insanity of
any of the members of the joint account.

iv. In case, any of the members of the joint account becomes insolvent or insane
operation on the account should be stopped and instruction to be required for payment of
the balance amount from the remaining solvent and same members.

v. In case, any of the member of the joint account dies, operation on the account must be
stopped and balance in account is to be paid as per instructions recorded with the bank.

Account of Partnership Firms:

While opening accounts of the partnership firms, the partnership deed from registered
firms is required to be obtained in addition to account opening form and specimen
signature card. The partnership letter is incorporated in the account opening form, which
must also be signed by all the partners of the firm weather registered or un-registered.

In these accounts, the following points are required to be remembered.

For Example:

1) The account opening form must be signed by all the partners.

2) The names of persons authorized to operate the account must be neatly and correctly
given in the account opening form. For partnership concerns carrying on the business
under impersonal names, it is generally described that the title of account should show
name of the partners of Managing Partners.
3) Any partner has the implied authority to stop or countermand payment of any cheque.
All the partners, however, should sign the removal of such instruction.

4) A cheque payable to the firm should not be accepted for credit to personal accounts of
the partners without the written authority of all the partners.

5) Operation on the account should get stopped in event of change taking place in
constitution of the firm.

6) When the entire firm is adjudicated as insolvent the operation on the account is
stopped. In such an eventuality, personal accounts of each and every partner will also
become inoperative in terms of Section 99 of the Partnership Act.

7) The maximum number of partners in general business is 20 and the minimum is 2. For
banking firms the maximum number of partners is 10. In Pakistan, however, bank cannot
be opened by the partnership concern.

8) Since these are business concerns they will be allowed to open current account. No
savings bank accounts should be opened in partnership name.

Accounts Joint Stock Companies:

Joint stock companies includes (1) Private Limited Companies and (2) Public Limited
Companies.

The following documents should be obtained while opening accounts of joint stock
companies:

Copy of Resolution:

While opening the company’s account, the manager must ensure that Board of Director
the company is properly constituted and request for opening the account comes through
resolution of the Board of Directors. The resolution for account opening should bear
company seal and signed by the chairman of the meeting where such resolution is passed
and counter-signed by the company’s secretary or authorized Director must be submitted
to the bank before an account can be opened.
a. Memorandum of Association

b. Article of Associate

c. Certificate of Incorporation

d. Certificate of commencement of Business (only required for public Limited company)

e. National identity cards of Directors

f. List of Directors with their shareholding

In case of companies’ accounts, the following points are required to be remembered.

1) For public Limited Company, in absence of the Certificate of commencement of


Business, any contract made by the company is provisional and not binding on the
company.

2) Any act of the company, which does not fall within the purview of it Memorandum of
Association is considered illegal.

3) If a conflict arises between the Memorandum of Association will always hold good.

4) Since the companies are recognized as legal entities, as such no introductions required
from them for opening of their accounts.

5) Death, retirement or dismissal of any director does not effect operation on the account.
However, death, retirement or dismissal of the directors authorized to operate upon the
accounts temporarily put embargo on operations of the account. In such an eventuality,
fresh resolution authorizing another person to upon the account is to be called for from
the company.

6) The cheques signed by the directors before their death, retirement or dismissal should
be honored since they are considered valid instruments. In case of their doubtfulness, the
matter may be referred to the company.
7) Winding up of the company in any manner terminates its career. At this stage,
operation on the account should be stopped. Thereafter, no cheque is to be honored.

Accounts of Agents:

An agent is the person who is authorized certain acts in behalf of another person. The
person for whom he has to carry out the business is called the principal.

Power of attorney:

Banking accounts are opened in the name of agents on behalf of the principal. The agents
will operate upon the account in the manner and the way prescribed in the Power of
Attorney granted to them by their principals.

Operation of Account and power of Attorney:

In addition to account opening form and specimen signature card, the power of attorney
must also be obtained from the agent and copy of this be retained on the files. Operation
on the account shall be allowed strictly in accordance with the provision contained in the
power of attorney on strength of which the account bas been opened.

Power of attorney can either be revocable or irrevocable and it can general or specific.
Banks should insist on irrevocable specific power of attorney.

Points to remember;

1) Since the accounts are opened primarily for the principals, as such whenever it comes
to our knowledge of the principal’s death, insanity, insolvency, operation on the account
should be stopped and cheque signed by the agent be not honored.

2) Anything done by the agent outside the power of attorney is illegal and must not be
allowed under any circumstances.

3) All powers of attorney tendered for the purpose of account opening should be stamped
and signed by the authorized officers of the bank after proper scrutiny.

Accounts of Clubs, Societies and Associations:


Clubs, societies and associations concerns are non trading and non-profit in nature. They
have their own rules and their affairs are monitored by committees, which may be called
governing bodies or managing committee or executive committees.

Documentation Check List:

a. Account opening form

b. Specimen signature card

c. Resolution to be passed by their governing body wherein they will resolve that:

I. Banking account opened in their name with the Askari Commercial Bank Limited.

II. Name(s) of person to be specified for operation on the account

III. The manner in which the account shall be operated.

d. Certified copy of Rules and Regulations or Bye-n-laws

e. Letter of registration.

f. Letter of undertaking to the effect that as and when change takes place they will inform
the bank of such changes.

PLS Saving Bank Account:

Saving deposits were introduction to inculcate and encourage the of saving among people
of small means in order to achieves of Islamisation of the banking system in the country,
the government authorized the banks to accept Saving Deposit on profit and loss sharing
basis. Deposits received under this scheme are invested in non-interest bearing advances
and other avenue so as to eliminate the element of interest.

Points to Remember:

1. The PLS Saving Account may be opened in the name of an individual, or jointly in the
names of two or more persons. These accounts may also be opened by charitable
institutions or got provident fund and other funds of benevolent nature by local bodies,
autonomous corporations, companies, associations, societies and educational institutions.

2. PLS SB Accounts can be opened with initial cash deposit of not less than Rs.10000.
The amount of initial deposit should be mentioned on AOF. A minimum balance of
Rs.500 (or as per bank policy announced from time to time) will have to be maintained
for qualifying for sharing profit/loss.

3. Not more than one account may be opened in any one name except in cases where such
accounts are opened in the name of parent of guardian for more than one child.

4. Statement of PLS accounts are normally provided once in every six month as on June
30 and December 31.

5. No service charges shall be levied on PLS saving account as per SBP prudential
regulations.

6. Profit on PLS SB deposit is calculated on minimum monthly balanced standing from


6th of the month till the end of the month. The profit is paid on half yearly basis
announced by the Head officer after June 30 and December 31.

7. Zakat at the rate of 2.5% is deducted from the PLS SB account holders on the 1st
Ramazan-ul-Mubarik. Balanced below a certain limit that is announced by the
government every year is exempted form Zakat.

8. A withholding tax at the rate of 10% on profit is also recovered from the account
holders irrespective of the amount of profit.

9. The rate of return on PLS account vary with minimum balance. The rate of return is
2% on minimum balance of up to Rs.9,999, 6% on Rs.10,000–24,999, 7% on Rs.25,000-
99,999 and 8% on Rs.100,000 and above.

Current Account:

A current account is a running account, which is continuously in operation, by the


customer on all working days of the bank. The customer deposits without the current
deposits without previous notice to the bank.

Points to Remember:
1. Current account can be opened with an initial deposit of not less then Rs.5,000. The
amount of initial deposit should be mentioned on AOF. A minimum balance of
Rs.---------- will have to be maintained.

2. It is an open account for which there is no fixed period for deposit.

3. There is no restriction on making deposits in an d withdrawals from this account.

4. Bank do not pay any interest on these deposits as they can be withdrawn without
notice.

5. Cheques are used for withdrawals from these accounts.

6. Loans and credits may be sanctioned to the credit worthy current account holders with
ease.

PLS Term Deposit:

Fixed or term deposits are the major source of funds of a commercial bank. Term
deposits, as the name implies, are deposits kept with a bank for a certain period of time.
They are not payable on demand like the current deposit. The depositor can only
withdraw them after the specified period of time. The persons or firms trust, religious
bodies, which have surplus funds keep the money in fixed deposits with bank.

Points to Remember:

1. PLS Term deposit are grouped into the following categories: 1 Month, 2 Months, 3
Months, 6 Months, 1 Year, 2 Years, 3 Years and 4 Years.

2. Minimum balanced of Rs.5,000 is to be maintained in PLS Term Deposit.

3. Profit on this account is paid on maturity.

4. Because the deposited amount remains fixed during the period the profit is calculated
on that fixed amount.
5. The rate of interest on fixed deposits is higher than that of saving deposits and it varies
with time of deposit. Rate of interest is 6.5% on 1 Month, 6.75% on 2 Months, 7% on 3
Months, 7.5% on 6 Months, 8% on 1 Year, 8.5% on 2 Years, 9% on 3 Years, 9.5% on 4
Years.

6. The holder of Term Deposit cannot issue cheque for the withdrawal of the amount.

Cheque Book Issuance:

Cheque book is issued for only, current account PLS account and ASDA, FISDA and
FAIDA accounts. It is not issued for PLS Term Deposit and value plus Saving Accounts,
because in these accounts, amount cannot be withdrawn within a fixed time period.

Procedure or Cheque Book Issue:

1. Signatures on cheque book requisition are verified by matching with the signatures on
the SS card scanned into the computer.

2. The title of account and date of chequebook issuance is mentioned on the chequebook
requisition and the account opening officer signs the requisition leaf.

3. The next chequebook number that was previously entered in the register is allotted to
the account holder.

4. The title of the account is entered in the chequebook issuance register.

5. The chequebook of that number is taken out and filled in with the title of account,
account number, etc and signed by the officer.

6. Each leaf of chequebook is stamped with account number stamp.

7. Cheque book charges are deducted from the account according to the leaves of the
cheque books (Rs.2/- for each leaf.)

8. To deduct the chequebook charges, the debit voucher should be filled with that amount
and should be handed over to the account holder.
Categories of Cheque Books:

1. Ten Leaves:

It is used for value Plus, PLS account and FADIA account.

2. Twenty-five Leaves:

It can also be used for current deposit, value plus, PLS and FADIA accounts.

3. Fifty Leaves:

It is used for current deposit and ASDA account.

REMITTANCE DEPARTMENT

The need of remittance is commonly felt is commercial life particularly and in everyday
life generally. The main function of the remittance department is to transmit money from
one place to another. By providing this service to the customer, bank earns a lot of
income. Also customer is able to meet its day to day financial requirements.

Demand Draft:

It is an instrument payable on demand for which value has been received, issued by the
branch of the bank drawn i.e. payable at some other place (branch) of the same bank. If
two banks are involved then the DD is sent to other bank but in other case it is handed
over to the applicant.

Issuance Procedure:

· A demand draft application is given to the customer, he fills in relevant information and
signs it.

· The officer checks the information form.

· The bank charges such as commission, excise duty is charged as per effective schedule
of charges. If he fills the tax exemption form, tax is not charged.

· In case of cash deposit, the cashier counts the amount and signs the DD application and
enters it in the register.

· Then the officer of remittance department signs it and operation manager counter signs
it.

· The entry is made in the DD issuing register, DD is given to the customer.

· Vouchers are prepared and posted.

· DD advises are printed and mailed to the respective branch.

Payment Procedure:

· DD is received by the bank.

· The DD credit advice is received through mail. The numbers are checked and signatures
are verified.

· An entry is made on the DD payable register and the vouchers are made.
· DD credit is attached with the vouchers and given for posting to the computer.

· When DD is received the test numbers are checked and the payment is made.

· Vouchers are given for posting and the entry that was made in the register is closed i.e.
DD payable is Nil.

Telegraphic Transfer (TT):

It is the quickest way of transfer of funds from one place (Branch) to other place (Branch)
of the same bank. Generally, a mail transfer advice reaches the drawer branch the next
day through courier services. But sometimes, a customer demands that his funds should
be transferred through the quickest means. In such cases, transfer of funds message is
passed through telephone or telegram.

This mode of transfer was used before online. Online system is very effective for this
purpose now-a-days. In Askari Commercial Bank online system is used.

Issuance Procedure:

· The request of issuing TT is taken on the standard printed form.

· The customer fills the form properly and signs it.

· The Head of Remittance Department checks it, the charges such as commission, tax and
telex as per effective schedule and signs it.

· If he fills the tax exemption form then no tax is deducted.

· Then a TT is made on white slip. There are 3 copies, the original one is faxed to the
Branch, one to the Head Office and one is kept for record.

· The entry is made in the TT issuing register.


· When commission bill is received, it is attached to the TT office copy in the file.

Payment Procedure:

· When a TT arrives, the test numbers are checked and the signatures are verified.

· The entry is made in the TT payable register.

· If there is no account then the TT received needs revenue stamp and then payment is
made. TT receipt is strictly non-negotiable.

Pay Order:

It is an instrument issued for payment in same city. Pay order issued from on e branch
can only be payable from the same branch. It is normally referred to as banker’s cheque.
It is also called confirmed cheque, because bank issues this on it own guarantee.

Issuance Procedure:

· The standard form is given to the customer. He fills in the details and signs it.

· The concerned officer checks the form.

· Bank charges (or commission) as per the schedule of charges and the withholding tax of
0.3% are applied.

· The cash amount of the pay order is received.

· A cash memo is signed, stamped and handed over to the applicant as a receipt.

· Then the pay order receipt is filled accordingly.

· Counter foil is also filled.


· An entry is made in the pay order issue register.

· Then the authorized officer signs it after checking the pay order.

· The order is then handed over to the applicant after obtaining his signature on the PO
Form.

· A voucher is also made and posted at the computer.

Payment Procedure:

On presentation of the pay order receipt, two authorized officers of the branch sign the
receipt.

· PO entry is made in the PO issue register.

· Then the amount is credited to the account of the customer or pain in cash.

· PO is posted at the computer.

Pay Slip:

It is an instrument issued by the bank for the settlement of its own payment. It is used for
payment by the bank to anyone (may be employees) in this case only one bank is
involved. He is the issuer as well as the payer.

No Excise Duty

No Commission

Issuance:

· A credit voucher is sent from the account department to the remittance department.

· Pay Slip book is taken out and filled according to the credit voucher.

· It is entered in the pay slip register.


· It is signed by authorized Officer.

· A voucher is prepared and posted.

· Pay Slip is then handed over to the customer.

Payment Procedure:

· Pay Slip is just like a cheque and bank is liable to pay against pay slip.

· After that when the pay slip is received by the bank for payment, it is again transferred
in the register.

· Then payment is made and it is posted in the computer.

Outward Bills for Collection:

The bills, which are received by the bank and sent to other cities (branches) for the local
clearing in that city, are called Outward Bills for Collection.

Procedure:

· The cheques that are of other cities are separated.

· They are entered in the OBC Register and OBC numbers are given to them.

· The OBC forwarding schedules are prepared for different branches.

· The respective cheques are attached with the schedule.

· The office copy is filled and original schedule is mailed.

· On clearing, the respective banks send back the OBCs alongwith the IBCA (Inter
Branch Credit Advice).

· The OBC numbers are checked from the OBC register, after that entries are made.

· Commission charges are deducted from the account.

Inward Bills for Collection:


The bills, which are received by the bank from other branches out of the city for local
clearing are called Inward Bills for Collection.

Procedure:

· The OBC of other branches will be the IBC of this branch. So an OBC forwarding
schedule is received by mail.

· The cheques are entered in the IBC register. The IBC numbers are allotted to them.

· The cheques are lodged for clearing.

· After realization, an IBCA is prepared and mailed to the branch from where the cheque
was received.

· At the end of the day, two vouchers are prepared and posted.

CLEARING:

Meaning of clearing:

The word clearing has been derived from the word “Clear” and is defined as “a system by
which banks exchange cheques and other negotiable instruments draw on each other
within a specified area and thereby secure payment for their client through the clearing
house at specified time” in an efficient way.

Advantages of Clearing:

1. Since clearing does not involve any cash etc and all the transaction take place through
book entries, the number of transactions can be unlimited.

2. No cash is needed as such the risks of robbery, embezzlements and pilferage are totally
eliminated.

3. As major payments are made through clearing, the banks can manage cash payment at
the counters with a minimum amount of cash in vaults.

4. A lot of time, cost and labor are saved.


5. Since it provides an extra service to the customers of banks without any service
charger or costs, more and more people are inclined and attracted towards banking.

Clearing House:

It is a place where representatives of all scheduled banks sit together and interchange
their claims against each other with the help of controlling staff of State Bank of Pakistan
and where there is no branch of State Bank of Pakistan the designated branch of National
Bank of Pakistan acts as controlling member instead of State Bank of Pakistan.

Working of clearing house:

All the bank which are the member of clearing house maintain accounts with State Bank
of Pakistan by debit and credit to which the clearing settlements are made. If on a
particular day, a bank delivers cheques and other negotiagble instruments worth more
than the total amount of Cheque received by it that banks accounts with State Bank of
Pakistan will be credited with the differential amount. If on the other hand the total
amount of cheques and other negotiable instruments draw on a certain bank by other bank
is more than the total amount receivable by it from other banks, then this bank’s account
will be debited on that day.

The cheque delivered to the representatives of other banks for clearing are called outward
clearing, whereas cheques received from the representatives of other banks for payment
are called inward clearing.

Procedure of Settlement:

Presume that ACBL got the cheques which are drawn on HBL, NBP and MCB for
amounts Rs. 50,000/-, Rs. 15,000/- respectively, its total being amounts Rs.95,000/-, it
means that this amount is to be credited to ACBL A/C with S.B.P. on the other hand the
cheques drawn on ACBL are from HBL, NBP and MCB of Rs.15,000/-, Rs.75,000/- and
Rs.30,000/- respectively, its total being Rs.1,20,000/-, it means that this amount is to be
debited from ACBL account. The difference between Rs.95,000/- credit and debit
Rs.1,20,000/- debit is Rs.25,000/- debit which means the house is against ACBL for
Rs.25,000/-.

If we separately show it them.


1. ACBL has t receive Rs.50,000/- from HBL and to pay Rs.15,000/- to HBL so
difference is Rs.35,000/- credit.

2. ACBL has to receive Rs.30,000/- from NBP and to pay Rs.75,000/- to NBP so
difference is Rs.45,000/- debit.

3. ACBL has to receive from MCB Rs.15,000/- and to pay Rs.30,000/- to MCB so
difference is Rs.15,000/- debit.

GRAND TOTAL:

35000-45000-15000 = -25000

i.e. Rs.25000 debit.

Hence ACBL A/C with State Bank of Pakistan will be debited with Rs.25,000/- and the
contra will be other banks accounts respectively. This called as “Debit and Credit Rule”.

Outward Clearing At The Branch:

The following points are to be taken into condsideration while an instrument is accepted
at the counter to be presented in outward clearing:

1. The name of the branch appears on its face where it is drawn on

2. It should not be stale or post dated or without date

3. Amount in words and figures does not differ

4. Signature of the drawer appears on the face of instrument

5. Instruments is not mutilated

6. There should be no material alteration if so, it should be properly authenticated

7. If order instrument, suitably endorsed and last endorsee’s account being credited

8. Endorsement is in accordance with the crossings if any

9. The amount of the instrument is same as mentioned on the paying-in-slip and


counterfoil
10. The title of account on the paying-in-slip is that of payee or endorsee (with the
exception of bearer cheque).

If an instrument is in order then out bank’s special crossing stamp is affixed across the
face of the instrument. Clearing stamps is affixed on the face of the instruments, paying-
in-slip and counterfoil (The stamp is affixed in such a manner that half appears on
paying-in-slip and half on counterfoil). The instrument is suitably discharged, where a
bearer cheque does not required any discharge and also an instrument in favor of a bank
need not be discharged. The instrument along with paying-in-slip is retained while the
counterfoil is given to the customer duly signed. Then the following steps are to be
taken:-

1. The particulars of the instruments and the and the pay-in-slip or credit vouchers are
entered in the Outward Clearing Register.

2. Serial number is given to each voucher

3. The register is balanced, the credit voucher are separated form the instrument and are
released to respective departments against instrument and are released to respective
departments against acknowledgement in the register

4. The schedules are arranged bank-wise

5. The schedules are prepared in triplicate, two copies of which are attached with the
relevant instrument and the third is kept as office copy

6. The house page is prepared from schedules in triplicate

7. The schedules and house pages are signed by the officer incharge with branch stamp

8. The grand total of the house page is taken and agreed with that of the outward clearing
register

9. The instruments along with duplicate and house page are sent to the Main Office

Inward Clearing Of The Branch:

1. The particulars of the instruments are compared with the list

2. The instruments are detached and sort out department wise

3. The entry is made in the Inward Clearing Register (serial number, instrument number,
account number, amount of the instrument is written).
4. The instruments are sent to the respective departments against acknowledgement in the
Inward Clearing Register.

5. The instruments are scrutinized in each respect before honoring the same

FOREIGN EXCHANGE DEPARTMENT

Foreign Exchange Department works like the general bank departments with the
difference that it deals in foreign currency. This department deals with the following:-

Import

Export

Foreign Currency Accounts

Foreign Remittance

Submission of Monthly Reports to SBP

IMPORT:

The international trade transaction, in which one country buys goods from other country,
is called import.

The import trade in Pakistan is governed by import and export Act of 1950. Previously,
the regulating body of imports was controller of Import and Export. But this function has
been shifted to Export Promotion Bureau.

Foreign Exchange Departments of all banks are restricted to word under the rules and
regulations of government.

Import License and Registration:

The individuals and firms who desire to import goods from the foreign countries are
required to obtain import license. Import licenses are a type of artificial restraint on the
import trade of a country. To acquire import license, the importer has to submit
applications to the licensing authority. The importers can only get their merchandize
cleared from the custom authorities if they have the import license duly issued in their
names. The import licenses issued by the Import Trade Controller are required to be
registered with the State Bank of Pakistan.
Contract of sale:

After getting the license, the importer then negotiates with the exporter. When they reach
to an agreement on all terms of sale, they sign a contract. Thus contract includes all
information of terms and condition of sale.

Letter of credit:

Foreign trade payment problems are mainly solved by a letter of credit. A letter of credit
is issued by the importer’s bank. If guarantees payment to the exporter up to specified
amount of money provided the terms and conditions laid down the L/C are fulfilled.

A letter of credit is a commitment on the part of buyers bank to pay or accept draft drawn
upon it, provided drafts do not exceed a specified amount.

A letter of credit thus is a (I) written undertaking by an importer’s bank to exporter’s


bank. (II) that it will pay or accept draft drawn upon it up to a stated amount with a
specified time. (III) the payment will only be made to the exporter if he compliers with
the terms of credit.

Parties to a letter of credit:

There are four parties involved in letter of credit.

1. Account party: The buyer or the importer on whose account and request the letter of
credit is opened is known as account party or opener.

2. Issuing bank: The bank which issues or opens a letter of credit at the request of
importer is called issuing bank.

3. Exporter or seller: The seller or the party in whose favor L/C is drawn is the exporter.
He is also called beneficiary.

4. Negotiating bank: The paying bank in the exporter’s country, on which the draft is
drawn is called negotiating bank or paying bank.

Opening of letter of credit:

The main steps involved in the opening of the letter of creditor as follows:

Application for letter of credit:


The importer will request his own bank or any other bank, which deals in foreign trade
transactions to issue a letter of credit in favor of the exporter. He will prepare an
application on the prescribed form available from the bank. The information, which are
supplied in the application are based on the contract of sale and include only the
important feature of contract, such as value of merchandise, port of shipment, documents
to be presented, port of unloading, brief description of goods, import license etc.

Scrutiny of application:

Before issuing a letter of credit, the bank will scrutinize whether the importer is of good
financial standing, possesses the import license issued by import control. Authorities, the
amount available covers the letter of credit applied for, market demand of goods,
collateral offered to cover the credit etc.

Cash margin:

The bank asks the importer to deposit cash or securities with the bank. The proper margin
of cash or securities to be deposited is decided by the bank depending upon the credit
worthiness of the importer.

Issue of the letter of credit:

The importer bank after being fully satisfied will issue a letter of credit in favor of the
exporter. The L/C may be sent directly to the exporter or the advising bank in the
exporter’s county. In such a case, the advising bank will inform the exporter about
opening a letter of credit.

Shipment of goods:

When the exporter receives L/C, he examines it to ensure that it conforms to the terms of
contract of sales. He then shifts the goods and presents all required documents along with
the bill to negotiating bank.

Role of negotiating bank:

The negotiating bank after receiving all the documents and the bill from the exporter will
scrutinize them whether these conform with the terms of letter of credit. If the documents
of title accompanying the bill are in order, these will be sent to the importers bank for
payment.
Liability of the issuing bank:

On receipt of documents and the bill, the issuing bank will examine them. If the
documents on the face appear to be in order, the payment would be released by the bank.
In case any defect is found in the documents and the draft is honored by the issuing bank
the importer can claim damages on the issuing bank. The issuing bank is only
accountable for the completeness of documents, not to see whether goods conform to the
contract of sale.

Payment by importer to the bank:

First the importer pays all his obligations the bank then bank releases the documents. In
case of sight draft, the importer’s bank pays the amount on the same day charging the
importing customer’s account. In case of a time draft, the importer discharges his
obligations to the accepting bank on or before the maturity date of acceptance. The
accepting bank will then release all the shipping documents to the importer.

Payment to the exporter:

The exporter can obtain payment from the negotiating bank by discounting the draft
(L/C) immediately after shipping the goods and obtaining shipping documents.

EXPORT:

The international trade transaction in which one country sells its goods to other country is
called Export.

The controlling body of export in Pakistan is Export Promotion Bureau, it gives different
incentives to the businessmen for enhancing the exports and reducing the Balance of
payment deficit. It restricts the export of some goods and reinforces export of other.

The steps involved in import are described earlier from the importer’s point of view. The
procedure of export is same, as it can be described from exporters point of view. The
activities, which are different, described here.

Foreign bill purchased (FBP):

Following requirements must be fulfilled before the purchase of Foreign Export Bills.

Exporter should be account holder of the bank. Bank issues the Form-E. Form-E should
be filled correctly and then bank authenticates the E-Form. Exporter goes to the custom
authorities for custom clearance. Shipping Company issues Bill of Lading or Airway Bill.
Exporter should bring other documents like certificates of Origin, commercial invoice,
packing list etc. Bank scrutinizes the documents.

After fulfilling these requirements, bank purchases the export bill and makes payment for
the value of goods in Pak Rupee to the Exporter.

Lodgment:

Lodgment means making the payment to exporter by bank against the purchase of bill.
Two types of rates are used in evaluating the amount:

1. OD Buying rate/At sight rate:

It is the rate of export bill, payment of which is to be received within 12 days from the
date of lodgment.

2. Usance rate:

It is the rate payment of which is to be made at a future date, normally within 30, 60, 90,
120, 150, or 180 days.

Realization:

Realization means receiving the payment from the foreign bank for the export of goods.

Other activities:

In addition to Export and Import, there are also other activities performed in Foreign
Exchange Department.

1. Foreign currency accounts:

A depositor can open account in US Dollar, Pond, Japanese Yen and Euro with
nominated branches. For opening of account a Form is provided to the person/party,
introduction of the new account holder or by the Officer of the Bank. Procedure of
opening foreign currency accounts is same as other accounts. No Zakat is deducted on
these accounts, no income tax deductions, no wealth tax deduction will be there, these
incentives reinforce and motivate the people to invest in foreign currency accounts rather
to keep foreign currency idle.
2. Foreign remittance:

Bank also operates in Foreign Currency accounts. In accordance with instructions of


SBP, foreign currency accounts are opened in these currencies: US Dollar, Pond,
Japanese Yen, Euro. Funds are transferred abroad by Foreign Telegraphic Transfer Swift
MT-100 is used for this transfer. Askari Commercial Bank has its agency arrangements in
those countries, where its own branches are not established. Its agency arrangements with
Citi Bank, American Express, ABN Amro, Standard Chartered Bank.

3. Submission of monthly returns:

It includes reporting of Form-M and Form-E to SBP.

Reporting of Form-E:

Every Exporter is required to submit a declaration ot custom authorities for goods


exported. This declaration is submitted on prescribed Form-E in quadruplicate, which is
certified by authorized dealer. Four copies of Form-E are maintained. Form-E is reported
to SBP at the end of the month, in which the amount is realized. There is a prescribed
Performa used for the reporting of Form-E. It includes the reporting period, currency,
Serial No. of Form-E, amount, Code No. of country and commodity.

Reporting of Form-M:

Every foreign bank deducts some charges form the value of goods. It is for miscellaneous
purposes like foreign bank charges or foreign agent commission. Form-M is used to
declare this outflow of foreign currency. At the end of the month of realization of the
amount, Form-M is reported. It includes the list of Serial No. amount and purposes of
every Form-M.
SWOT ANALYSIS

SWOT (Strength, Weaknesses, Opportunities & Threats) analysis of ACBL is described


below:

Strength:

Ø ACBL has got a well-developed on-line system in most of its branches. Remittance
Department is working very dfficiently in transferring the funds of people due to this
system.

Ø The bank has also started ATM facility in most of its branches. 24-hour banking is new
trend in Pakistan and ACBL has also taken apart in this trend.

Ø One distinctive feature of the bank is that it is the only bank working for the welfare of
army officers, which was established by Army Welfare Trust.

Ø The productivity of the bank is very good. Bank is providing a high quality service to
its customers.

Weaknesses:

Ø ACBL has lesser number of branches as compared to many other branches. Due to this
problem, army officers can not avail the benefits of their own bank.

Ø The human resource department is not performing the function of selection and
recruitment very effectively. Selection process is not on merit due to which competent
persons cannot be selected.

Ø Bank is not introducing new products and new saying schemes. Bank should boost the
product development and increase the range of facilities offered for customers.

Ø Bank is weak in its credit management. Bank should lend to very sound parties and
increase its payment rate.

Opportunities:

Ø Govt. is taking very bold steps to promote IT in Pakistan. ACBL has an opportunity to
improve in technology.
Ø Stock exchange is very volatile and takes immediate effect. So, in the time of crises,
conservative investors return to saving deposits.

Ø ACBL is surrounded by many competitors. It has an opportunity to do aggressive


marketing to increase its business.

Threats:

Ø ACBL has many competitors, which are continuously increasing its products and
marketing aggressively. It may cause its customers to shift to competitors.

Ø Some other banks have competent taskforce, which is also a threat for ACBL. Because
human resource is the most valuable resource.

Ø Pakistan India relations often create a war danger. This chance of war may cause army
officer and their families to increase the frequency of withdrawals, which would decrease
deposits