CREDIT DEPARTMENT

Credit department is considered as backbone of the bank because it is earns revenue for
the though lending of money to corporate, SME & individual customers. It is one of the
assets of the bank. The credit department manages the credit portfolio of the branch by
maintaining the required diversification to minimize the risk of the branch. This
department performs two major functions:

 Credit Marketing
 Credit Administration

These both functions are performed by same personnel in this branch. In other branches
or banks these functions are performed by two credit marketing department, credit
administration department. Credit marketing department works as front end and credit
administration department as back end.

Credit Marketing
Credit marketing is concerned with
 Generation of borrowers (customers)
 Collection of basic documents/information
 Defining terms & conditions for advances
 Preparation of proposal

Credit Administration
Credit administration is concerned with
 Execution of terms & conditions settle by credit marketing
 Preparation of legal documents
 Markup recovery
 Monitoring loans
 Make arrangements for disbursement of loans
 Maintenance of borrowers files
 Classification of Credit Facilities

CREDIT

Funded Non-Funded

Running Finance L/C

Term Finance L/G

FAPC

FAFB

FBP
IBP
PAD

FATR

FIM

Explanation of Credit Facilities

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

1. Credit Administration
This facility is provided to customer for a specified time period to meet the
working capital requirement of business. The customer can over drawn up to
credit limit sanctioned by the bank. The mark u is charged on amount actually
utilized by the customer. After the expiry of the specific period if the customer
and bank both agree to continue the facility then customer get it renewed from
bank. Bank can also adjust the facility on demand.
Some classifications under this head are as follows:

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

continue beyond seven days from the date of sanction.
 b. Clean: Where the overdrawing is allowed only against a demand promissory
note signed by the account holder.
c. Security: In cases of running finance clean, the promissory note acts as
security for the extension of the credit.
d. Secured: Where the facility is secured additionally against deposits/tangible
assets.

2. Cash Finance
This type of finance is allowed to the borrower against the hypothecation or
pledge of stock of borrower. The inventory pledged/hypothecated operated as a
security for advance. The agreement with regard to the pledged/hypothecated
goods is executed with the customer. If the risk is high additional security may
also be obtained. This facility is also extended to fulfill the working capital needs
of customer’s business.

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

4. Finance Against Packing Credit (FAPC)

This facility is provided to exporter after the evidence LC/Contract received by
him from the importer (buyer). This credit facilitates the exporter to purchase raw
material for the manufacturing of finished goods to be exporter. Such finance is
allowed to exporter for packing the goods to be exporter. The loan is advanced
against the security of inventory purchased by the borrower. It is important that
Hypothecation Agreement with respect to such inventory be executed by the
customer. Additional security is also taken depending upon the risk element.

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

 Part-I Refinance Scheme:

This facility is provided to exporter at presentation of evidence of
receiving LC/Contract from the importer.

 Part-II Refinance Scheme:

This facility is provided to exporter who has already availed the part-I scheme &
showed the good performance. The main criteria set by SBP for sanctioning the
part-II scheme is export performance that is measured through EE statement.

5. Finance Against Foreign Bills (FAFB)

A loan advanced against a foreign bill (i.e. a bill drawn outside the country),
payable accompanied by “documents of title to goods” at sight or at usance. The
loan is advanced against the security of the foreign bill in local currency. The
bank has “document of title to goods”, which operated as additional security. The
loan is adjusted on receipt proceeds from the drawee bank. If however, the bill is
 not honored by the drawee bank can have recourse against the customers to whom
the loan was extended and also the goods whose, “documents of title” are in the
possession of the bank. Additional securities are also taken depending upon the
risk element.

6. Foreign Currency Export Finance (FCEF)

A loan advanced against a foreign bill (i.e. a bill drawn outside the country),
payable accompanied by “documents of title to goods” at sight or at usance. The
loan is advanced against the security of the foreign bill in foreign currency. The
bank has “document of title to goods”, which operated as additional security. The
loan is adjusted on receipt proceeds from the drawee bank. If however, the bill is
not honored by the drawee bank can have recourse against the customers to whom
the loan was extended and also the goods whose, “documents of title” are in the
possession of the bank. Additional securities are also taken depending upon the
risk element.

7. Foreign Bills Purchased (Documentary)

Same as foreign bill purchased except that the bill of exchange is accompanied by
the documents of title of goods.

8. Foreign Bills Purchased (Clean)

Amounts advanced against the purchased of foreign instruments (it means
cheques, drafts, promissory note). The bill becomes the property of the bank,
which arranges for collection. The advances adjusted on realization of proceeds.

9. Inland Bills Purchased (Documentary)

It is same like local and foreign bills purchased out only the difference is that bill
of exchange is accompanied by documents title to goods.

10. Inland Bills Purchased (Clean)

It just like the foreign bill purchased except that the negotiable instrument is
purchased in local rather than foreign currency and draw in country.

11. Payment Against Document (PAD)

The bank being the issuing bank on the customer’s behalf of a letter of credit, act
negotiating or advising bank and debits the PAD account, till its payment by
customers. Until the realization of the amount a full set of documents representing
title to the shipped by the Foreign Exporter, is held by the bank as security.

12. Finance Against Trust Receipt (FATR)

Document of Title to the goods imported through the letter of credit may be
handed over the customers against a trust receipt to be signed by the latter
signifying that the customer holds the goods in trust for the bank. The objective
being that the customers hall discharge the loan from the sale proceeds of goods.

13. Finance Against Imported Merchandise (FIM)

 This facility empowers the importers to import the goods. The imported goods act
as security for the advance. Under this facility documents of title to the goods are
handed over to the approved agents for the clearance of goods. Goods are released
after receiving the payments from the borrower. The bank can have recourse to
these goods, if the customer fails in the discharge of its obligations. Additional
security can also be taken depending on the risk element.

14. Banker Acceptance Purchased

An advance guaranteed against purchase of a bill originally drawn or accepted by
the bank for the remaining period of its tenure. Other bank’s acceptance may be
purchased if an advance is guaranteed against a bill, accepted by another bank for
the remaining period of its tenure.

Contingent Facilities

1- Letter of Credit (LC)

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

 Sign letter of credit

 Usance letter of credit

The sight LC call for the draft to be drawn “at sight”. Documents negotiated and
received against sight are held as security till their retirement. Drafts drawn under
usance or for a tenure specified in the LC and are payable by the customer on due
date.

2- Letter of Guarantee (LG)

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

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

a) Financial Guarantee
Where the bank guarantees the fulfillment of a financial commitment on
behalf of the customers. Under this guarantee the bank is called upon to pay in the
event of a breach of terms on the customers.

b) Performance Guarantee
Under this guarantee, the bank guarantees due fulfillment of a contract
undertaken by the customer. The amount of guarantee is usually up to the extent
of the value of the contract.

c) Shipping Guarantee
 Under which the bank issues guarantees in favor of the shipping company
to enable the importer to obtain delivery of the goods without production of the
bill of lading.

Principles for Accepting Securities

In the employment of his funds, a banker generally attaches great significance to the
consideration of security. Banker largely depends on borrowed funds it means deposits:
therefore, it can’t afford to take undue risks. To safeguard its interest by bank take
securities against advances. Great care is required on the part of banker while accepting a
security for securing its loans. While guarantying advances because of securities offered
by the customer the bank should observe the following basic principles:

 Adequacy of margins
 Liquidity of securities
 Completion of documentation
 Reliability
 Durability

Types of Securities

Primarily bankers rely on the character, capacity and capital of the borrower 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 the bank funds. But
the bank can hardly afford to take nay risk in this regard and hence reliance is
placed on the tangible assets of the borrower. In case of default by the borrower
in repaying the loan, the banker’s interest is safeguarded if he over the tangible
assets of the borrower. Loan with such rights conferred upon the banker are
called secured advances. In secured advances charges are created on the
tangible assets in several ways depending upon the nature of assets.

 Pledge
 Hypothecation
 Mortgage
 Lien
 Charge

Pledge

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

promise is called pledge. The relationship of a customer and banker in this case
is that of a pledger (customer) and pledge (banker). The person who acts on
behalf of the bank is called MUQADDAM. This is more risky for bank point of
view as compare to Hypothecation. The owner of the goods pledged remains
 with the borrower while the possession is with the banker. The possession may
be actual or constructive.

a) Actual Possession
When the goods are actually delivered to the bank for example in the case
of pledge of shares, share certificates are actually delivered to bank.

b) Constructive Possession
When the documents of title to the goods are delivered to the bank, duly
endorsed in favor of bank while the actual possession remains with a third party
for example storage company.

Hypothecation

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

conferring possession is called hypothecation. The goods are charged as a
security for a loan from the bank but ownership and possession remains with
the borrower. The security is granted by the borrower to the lender by a letter of
hypothecation, which contains the terms and condition of the hypothecation
agreement.
As physical possession of goods remains with the borrower, the banker seeks
periodical stock reports from the borrower conforming full description and
value of the stock hypothecated.
In order to prevent loss of stock by fire, theft and decoit etc. the borrower is
asked to get his stock insured. The hypothecated stock is liable to be inspected
by bank authorized person. In case of need, the banker may issue a stop order
against the trading stock. The creditor has the right to take possession of the
hypothetical goods as and when desired.

Mortgage

“A mortgage is a charge which a borrower gives to a lender upon part or the

whole of his property”.
Mortgage is the transfer of an interest in specific immoveable property of
securing the payment of money advanced or to be advanced by way of loan,
existing or future debt or the performance of an engagement, which may give
rise to a pecuniary liability. The transfer is called a mortgager and the
transferee mortgagee. The principle money and the interest of which the
payment is secured are called the mortgage money and the instrument by which
transfer is affected is called the mortgage deed.
The main characteristics of the mortgage can be put as follows:

 The mortgage does not transfer the ownership of property to the mortgage. He
(mortgagee) transfers only some of his rights as an owner.
 Mortgage only relates to immovable properties, properties mortgaged should
be specified by the mortgagee in the deed.
 The object of mortgaging the property is to give security for the loan to be
taken or already taken or performance of an engagement-giving rise to the
pecuniary liability.
 The mortgage needs not to be always given the actual possession of the
property.
 The mortgager gets back all the rights regarding the mortgaged property on
payment of the loan with interest due thereon.

Principles for Accepting Securities

1. Equitable Mortgage
where a person delivers to a creditor or his agent documents of title to
immovable property with the intention to create a security thereon, the
transaction is called a “Mortgage by title of Deposit deeds”.

2. Registered Mortgage
Under this mortgage the entry of mortgage in the registrar (Patwari) is
necessary. In his registrar he marks the property as mortgaged. So it cannot be
used further to raise loan.

Lien

Lien has been defined as the right of a person to retain the asset of the borrower
until a debt due from him is repaid. Lien gives a person only a right is retaining
the possession of the asset and not the pwer to sell unless such a right is
expressly conferred by statute. There are two kinds of lien.

a) Particular Lien
b) General Lien

a) Particular Lien
It is attached to some specific goods. It is the right to retain possession over
those specific goods on connection with which the debt or liability arises. This
type of lien is restricted to those goods, which are the subject matter of the
contract and are liable demands of the person in the possession of these goods.

b) General Lien
A general lien entitles a person to retain possession of goods belonging to
another for a general balance of outstanding liabilities. It entitles the person in
possession of goods to retain them until all claims or accounts of the person in
possession against the owner of the goods are satisfied.

Charge

Charge refers to the level of payment to the bank incase of liquidation of

specific assets. Incase of company charge is recorded with SECP. The form
 which is used for the recording of charge is known Form 17 is used. To get the
information of charges on the assets of the company the bank is dependent on
search report which is available with SECP.
There are of the three sorts:

 1st Charge
 Pari Passu Charge
 Joint Pari Passu Charge

1. 1st Charge
If an organization has raised credit from only one bank such bank has first
charge in case liquidation or inability to repay loan.
2. Pari Passu Charge
If an organization has credit facilities from two banks the second bank can
create 1st pari passu charge after receiving the NOC from 1st bank. Now incase
of liquidation the bank that have 1st pari passu charge will recover its amount 1st
then 2nd bank and so on. The concept of creating so much charges is called
ranking.

3. Joint Pari Passu Charge

When more than one bank are involved in financing for an organization or
project, in this case all the banks create joint charge on the asset of the
organization and claim the amount in their proportion of financing.

Principles of Lending

Lending is very important portfolio of a commercial bank, which requires great

vigilance and technical skill on the banker. Some basic principles must be
strictly adhered to for successful lending and recovery of the funds advocated.

1. Safety
In this regard, following points must be considered to ensure good credit
decision.
a. Character of the borrower:
• Nature of the business
• Past record of borrowing and repayment
• General reputation enjoyed by the borrower
• Honesty and integrity of the borrower

b. Capacity of the borrower

c. Capital of the borrower
d. Collateral Security
e. Conditions
f. Complacency
g. Carelessness
h. Communication
i. Contingencies
j. Competition

2. Liquidity of the Security

It means the possibilities of recovering the advance in case of emergency
because all the money lent by a bank is repayable on demand. If borrower does
not provide it on demand the banker must be asked to provide most liquid
securities at the time of lending to him.

3. Dispersal
The bank must lend to diversified sectors of the economy so that in case of
recession in one or two sectors, the loan may become doubtful of bad.

4. Repayment
The modes and source of repayment of borrowed funds from the borrower to
the banker must be determined and decided before advancing money. Cash
flow statement in respect of borrower’s business must be prepared and other
financial statements must be analyzed properly.

5. Remuneration
as a banker lends from the deposit of the public, the bank will have to pay cost
of the deposits in the form of profit on deposits (saving, term, special), although
current deposits are received free of cost. Bank has to meet various expenses
from the mark upon advances, communication recovered on various banking
transactions and return on investment. As mark up on advances comprises
major part of the bank’s income, the rate of mark up must be at such level
which may enable the bank to meet such all expenses after keeping a
reasonable margin.

6. Suitability
The bank’s advances besides being extended to carefully selected borrowers
must confirm to the national economy policies devised by higher authorities. It
should not for speculative or hording purpose.

7. Duration
Commercial banks are required to meet the short-term working capital
requirement of a business enterprise. Therefore, the duration of the loan should
one to two years. Long-term loan should be discouraged by the commercial
banks. Long-term loan violate the matching principles. Recovery and
management of short term credit is more convenient for a commercial bank.

Documents Required for Request

1. Request letter from customer describing following heads

• Business Profile
• Business Strategy
• Management Structure
• Product Mix
• Distribution & Selling terms
• List of Suppliers
• Affiliated Companies & their Liabilities

2. Borrower’s basic fact sheet

3. Audited financials for last three years
4. EE statement in case of FAPC II. (if applicable)
5. List of Suppliers
6. Resolution of Board of Directors
7. Certified copy of memorandum & articles of association/partnership deed
8. Certified copy of certificate of incorporation/acknowledgement of registration of
partnership
9. Certified copy of certification commencement of business (for Public Ltd.
Company)
10. Copy of NTN & Sales Tax Registration Certificate
11. Certified copies of ID cards of Directors/Owners of property
12. Form A, Form 29 & search report (for limited companies)
13. Copy of import/export registration
14. Membership certificate (Chamber/Association)
15. Limits and Outstanding liabilities with other banks
16. Business with other banks
17. Total business projection with MCB Bank Limited

Documents Required for Request

LC at Sight
In this LC the time period is not involved, the bank has to make the payment
within 7 days of presentation of documents after scrutiny of documents.

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

Irrevocable Letter of Credit

An irrevocable letter of credit cannot be amended or cancelled without the
consent of the issuing bank, the conforming bank, importer and exporter. This
letter of credit gives more security to the exporter as compared to the revocable
letter of credit. But on the other side importer remain dependent on the
undertaking of the foreign bank.

Import Department
 The main function of import department is to open letter of credit
execution of international transaction at low risk.

Opening of Letter of Credit

Followings requirements are required by the bank from the
importer:

• Importer should be a account holder

• Credit limit holder
• Request letter for opening LC
• LC application form
• Insurance policy
• Performa Invoice from Indenter (for specified period)
• Form I

Important Contents of LC Application Form

• Application and expiry date
• Applicant’s name, address
• Beneficiary’s name, address
• Advising bank / Exporter’s bank
• Transshipment and partial shipment
• Margin
• Financing Position

Modes of Dispatching LC

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

Important Clauses of LC

• LC kind (Revocable/Irrevocable)
• LC no.
• Date and place of issue
• Expiry date
• Applicant bank
• Beneficiary name, address
• Applicant name, address
• Currency code
• Last date of shipment
• Goods code
• Description of goods
• Certificate of Origin
• Packing list/shipping mark
• Original documents
• Period of presentation

Banks Involved in LC Process

1. Negotiating Bank
2. Advising Bank
3. Reimbursing Bank
4. Issuing Bank
5. Confirming Bank

PAD (Payment Against Documents)

After receiving the documents under LC at sight the issuer bank takes 7 days
for the scrutiny of documents if there is no discrepancy in documents. the
intimates the importer about documents and importer also certify the genuiness
of the documents. After this if the importer fails to make payment against LC
then bank lodge the documents in PAD and charge markup on fund involves in
this transaction to date of receiving cash from customer.

Margin

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

Bank Commission

Bank charge commission on this service.

Diagram of LC Working

Request Letter

Transmit (issuing to exporter)

Advisory Bank

Document Preparation
 Presentation of documents
Revolving LC
Negotiating/Lodgment

Reimbursing Bank

Documents at importer bank

Importer Accept Documents

Payment (sight)/wait for maturity (usance)

Import Department

LC for Export

When the exporter received LC from importer he starts to prepare

the goods according to the specifications of LC because he is sure
about the payment. After preparation of good according to
specification he shipped the shipment with preparation of
followings documents:

 Commercial Invoices
 Shipping Bill
 B/L
 Form E
 Packing List
 Certificate of Origin

Normally above mentioned documents are prepared by the exporter. GSP and
export license were also the requirement in the past. Now EPB has eliminated
these documents.

Form “E”

E-Form means export form. This is the first and most important requirement of
export. In this form every description regarding goods, quantity, price, term etc
and mentioned.
 E-Form is the document on which all exports have to submit to the SBP.
Without this form the goods are not exported from Pakistan. In Pakistan, E
form of the export is certified by the bank.

Parts of Form

There are three parts of “E” form.

First Part:
First part is filled by the exporter in which the particulars regarding the export
of goods, country vessel etc is mentioned.

Second Part:
Second part of the E-form is filled by the bank, in which the bank is providing
the guarantee that the above particulars, which are filled by the exporter, are
correct.

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

Copies of “E” form:

The E form consists of four copies:

• Original copy is for custom & SBP later on

• Duplicate copy is for the exporter’s bank
• The bank sends triplicate copy to the SBP at the time of realization
• Quadruplicate copy is for the customer’s record.

Post Shipment Facilities

FBP (Negotiation)

Negotiation means discounting of bill of exchange. The bank

provides additional facility to its clients by providing the facility in
the form of negotiation of a bill. The bank purchases the bill
through negotiation and provides the funds against bill. The bank
provides this facility after satisfying that there is discrepancy in the
document because after this facility this bill becomes the banker
property. The bill is discounted with full value of the invoice. The
negotiation is also called the FBP (Foreign Bill Purchased).
Now the question arises “Why the exporter discounting the bills of
exchange”? The reason is being that the exporter is sometime in the
shortage of funds after the shipment. The goods are exported to
other countries on a sight or usance based LC. The LC negotiation
is in the case of usance based LC in which time period involved.
Meanwhile the exporter has to make the various payments and meet
the various expenditure so in order to meet the need of business
requirement. The exporters avail this facility and discount the bill.
After discounting the bill the amount is credited to the parties
account. The discount amount is the expenses of the party and on
the other side is the income of the bank.

FAFB (Finance Against Foreign Bill)

This facility is available to the customer only if he has line of credit under
FAFB with bank. Bank proffered to give this to the customer when the export
is on contract basis instead of LC or there is discrepancy in the documents. The
bank provides finance equal to the 90% of the invoice value.

FDBC (Foreign Bill)

Bank provides this facility to exporter when he has neither negotiated the bill
nor avail FAFB facility from the bank. The bank sends the documents for the
purpose of collection from the importer. When the amount is collected it is
transferred to the customer account after deducting some service charges.

Pre Shipment Facilities

FAPC (Own Sources & Refinance)

Finance against packing credit is pre shipment finance facility to fulfill the
working capital requirements. The exporter can avail this facility from the bank
as well as SBP refinance scheme one (FAPC I) the exporter can get loan
against the security of LC at cheaper rate from the bank. The refinance scheme
two (FAPC II) the loan is provided on the export efficiency basis. Which
submitted by the customer’s bank to the SBP on annual basis called EE
statement. The SBP can recall this facility if the efficiency is not according to
its standards.

Normally following deductions are made by the export department.

 EDS @ 0.25% on FOB value

 Withholding tax is deducted from export proceeds at the prevailing
rates

Common Incoterms
 CFR: This term means cost and freight. It means that the invoice value consist of
cost & freight.
 CIF: This term means that invoice value consists of cost, freight & insurance.
 FOB: This term stands for “Free on Board”. It means value excluding the freight
from invoice value.

Deposit Department

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

or Time Accounts and Saving Accounts. This classification is based on the
duration and purpose for which the accounts are to be kept at the bank before
they can be withdrawn by the depositors.

Current Account

Every commercial bank maintains current for its customers. A current account
is a running account which is continuously in operations, by the customers on
all working days of the bank. The customers can withdraw the current deposits
without previous notice to the bank. The bank has to honor the cheques
provided they are within the limits of the account. The customers who need a
liquid balance maintain current deposit in the banks.
In short, in current account, the banker incurs an obligation to honor all
cheques drawn by the customer so long as there is enough money to the credit
of the customer. The obligation may be extended by an agreement to the
amount of overdraft agreed upon between the banker and the customer.
The bank does not pay any interest on these deposits as they ca be withdrawn
without notice. The bank here acts only as the custodian of money. It cannot
employ these funds due to fear of withdrawal. It has to keep a higher reserve
ratio to meet the demand liabilities.

Facilities Provided Current Account

The following facilities are generally provided to the current account holders
by the bank: Bank collects properly endorsed cheques, bills etc. on behalf of
the current account holders. The bank may allow the facility of overdraft on
prior arrangements to the trustworthy customers. Loans and advances may be
sanctioned to the credit worthy current account holders with ease. Summing up,
the current account does not earn but serves the cause of industry, trade and
commerce.

Requirements Opening Current Account

 Name
 Occupation
 Full Address
  Specimen’s Signature
 Introductory reference
 Copy of National Identity Card
 Declaration to the effect that he or she has read the rules and will
follow them.

Features of Current Account

1. No interest is paid on this account

2. Operation is allowed for any/number of cheque
3. The account is to be opened with minimum account of Rs.5,000/-
4. It can only be introduced by another operation current account holder having good
manage.
5. Specimen signature is to be obtained on CD specimen’s signature card.
6. A separate account opening form is to be filled in and signed.

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

 Proprietorship
 Partnership
 Limited Company

Saving Account

Saving deposit account is an ideal account for those who have money to save
but cannot invest it profitably anywhere else, as the amount is too small. Saving
deposit account is an important sources of fund for the commercial banks. It is
opened to encourage thrift among the person of small means. The school
children, workers, employees, firms usually keep their savings by opening a
saving account in the bank.

Withdrawal of Amount

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

only twice a week. If a customer want to withdraw a large sum of money from
his account, he then has to give a prior notice of 7 to 15 days in writing to the
bank. The can safely invest the deposit of the saving account. The bank knows
it by experience that only a small percentage of this account is withdrawn by
the customers. The bank will keep a minimum amount in reserve for meeting
the customers demand upon this account and the balance will be safely utilized
for investment by the bank.
 Payment of Mark-Up

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

PLS Saving Account

In Pakistan the profit and loss sharing (PLS) saving account was introduced in
January 1982. the main rules of the PLS accounts at MCB Bank Limited are as
under:

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

2. The bank has full right to make investment of credit balances/deposits
in the PLS saving account.
3. Withdrawal from a PLS saving account are allowed not more than 8
times in a calendar month and for a total amount not exceeding than 30,000 in a
month. For withdrawals of larger amounts, 7 days notice in writing is required to
be given.
4. Withdrawals can only be made by means of cheque issued by the
bank.
5. Statement of account will be supplied to the account holder at
periodical intervals.
6. The profit/loss earned/incurred on PLS saving account will be
credited/debited as determined by the bank on the basis of its net working results.

Requirement for Opening of PLS Account

 Name
 Occupation
 Full Address
 Specimen’s Signature
 Introductory reference
 Copy of National Identity Card
 Declaration to the effect that he or she has read the rules and will
follow them.

Fixed or Time Deposit Account

Fixed and Time Deposit accounts are major source of funds of a commercial
bank. Fixed or time deposits, as the name implies, are deposit kept with a bank
for a certain period of time. They are not payable on demand like the current
deposit. They can only be withdrawn by the depositor after the specified period
of time which ordinarily various from three months to five years. The person or
firms, trust, religious bodies that have surplus funds keep the money with fixed
deposits with bank. The rate of interest on fixed deposits is higher than that of
saving deposits and it varies with the time of deposit. The longer the duration
for which the amount the higher is the rate of interest and vise versa. The bank
on receipt of funds for time deposits issues a fixed deposit (FDR) receipt on a
specially printed form. This receipt is marked not negotiable.

Time deposit is kept with the bank by the customer to earn interest. At the
maturity of the loan, the bank pays the principle along with the interest with the
stipulated period to the holder. The money kept in the time deposit is thus a
safe investment. The FDR’s are marked not negotiable which means that it
cannot be transferred by merely endorsement and delivery of the receipt.

Payment on Fixed Account Before Maturity

Sometimes the bankers oblige the customers by allowing the withdrawal of

fixed deposits before the due date, but this is not the good practice and impairs
the bankers own cash resources. In such situations the customers forego the
interest around on the deposits or borrows the required money against the
security of its fixed deposits at a rate of interest, which is generally 2% higher
than allowed rate on deposits.

Fixed deposits in joint names

Fixed deposits may be the joint names of two or more persons; the payment to
either of them will not discharge the bankers, unless authorized by all the joint
depositors.

Remittances Department

Outward Bill for Collection

Clean Bills

These are negotiable instrument drawn on outstation branches banks

sent for collection on behalf of the customer i.e. cheques, dividends,
warrants and treasury bills etc.
 Documentary Bills

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

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

Inward Bill for Collection

Clean Bills

These are the bills/cheques etc. that is collected locally; they are
received from outstation branches banks and party drawn on
received or other banks of parties.

1. Against Cash
2. Against Cheques
3. Against letter instruction
4. The coded message is typed. The office in charge checks the coded
and decoded message typed and then signs the coded message.
Confirmation letter is also dispatched to the draw branch, i.e. draw
“Test Agreed” is fixed on the telegram and signed by the officers
holding test keys. The proceed of telegraphic transfer are credited in
the respective account or telegraphic transfer receipt is issued to the
customer.

Mail Transfer (MT)

Funds are also transferred through mail. Mail Transfer advice is

issued against cash receipt cheques and letter of instruction, MT
advice is prepared and the test number is written on the MT advice.
The advice is given to dispatch for onward transmission.

Pay Order

When the payment is required to make within city.

Documentary Bills
 These are bills received from outstation branches banks or parties
and collected locally.

Demand Draft

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

branch of bank and another branch of the same. Demand draft is an
order instrument being capable of transfer by endorsement couple
with delivery. Demand draft can be issued to customer as well as to
non-customer against cash receipt, cheque and against letter of
instruction.

Telegraphic Tranfer (TT)

May be issued in three possible ways. The customers use the

instrument. The issuing branch makes the payment of payment
order. All pay order is issued as cross instrument unless some
genuine reasons for issuance of an open pay order. The pay order is
issued against each receipt, cheque or letter of instruction.

Remittances Department

Following books are maintained in the cash department:

1. Receiving cashier books

2. Paying cashier books
3. Scroll books
4. Cash balance books

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

receiving cashier book. At the close of the day these are balanced
with cash other. When the cheque at any negotiable instrument is
presented at counter for payment, it is entered in the token book and
payment is made to payee. At the close of the day, the token book
and paying cashier book is balanced. The consolidated figure of
receipt and payment of cash is entered in the cash. Balance book
and drawn closing of cash. Opening balance of cash plus receipt is
equal to payment closing balance. The entire book maintained in
this department are checked by an officer.
 Account Department

Generally there are two ways of maintaining an account.

1. Journal System
2. Voucher System

Under Journal system entries are journalized in journal book and

then posted to main Ledge number voucher is prepared. This is in
practice in some commercial and industries accounts. In banking
account, voucher system is in use. For every transaction there has to
be voucher, either in cash or in transfer or in clearing. In banks there
are quite a number of vouchers which relate to one head of account.
All vouchers are summarized and consolidated into one figure. So
that posting in cash-cum-day book is facilitated.
One sheet upon which these vouchers are summarized. Transaction
vise and consolidated into one figure is called supplementary:

a) Debit supplementary
b) Credit supplementary

Debit supplementary is used for all debit vouchers and credit

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

Following books and registers are used in the account department

1. Cash-cum-day book
2. Journal Ledger
3. Subsidiary Ledger
4. Voucher Register
5. Transfer book
6. CD/SB summary books
7. Old record register
8. Balance book
9. Bank Ledger
10.Fraud and Forgery Register
11.Comparative statistics cards of deposits
12.Advances, Profit and Loss

Accounts department is responsible for maintenance and handling

of vouchers. The consolidated figure of each hand of account is
postdating cash-cum-day book. The individual figure of subsidiaries
will be posted straight to subsidiary ledger from individual voucher.
These are exceptions to the above rules. The posting and
expenditure account, miscellaneous account and suspense account
are sundry.

Retail Banking Division

Retail banking division is providing valuable financial solution

tailored to fulfill the individual’s different need. Presently it is
offering following products:

 Personal Finance
 Smart Cash
 Business Finance
 Mortgage Finance

The setup of retail banking establish just during the last few days of my
internship so I have no more exposure about them.