CHAPTER 1

INTRODUCTION OF STUDY

1.1 Background of Studies

As part of the academic requirement for completing MBA (Banking and Finance) Master

Business Administration of the students are required to under go six months of internship with an

organization. The internship is to serve the purpose of acquainting the students with the practice

of knowledge of the discipline of banking administration.

This report is about National Bank Pakistan. NBP was established in 1949 and since then, it has

expended its network, becoming the largest commercial Bank of the country. It offers different

products of services to its customers.

1.2 Purpose of the Studies

The main of the study in hand is together relevant information to compile internship report on

National Bank of Pakistan.

To observe, analyze and interpret the relevant data competently and in a useful manner.

To work practically in an organization.

To develop interpersonal communication.

1.3 Scope of Studies

As an internee in National Bank of Pakistan the main focus of my study research was on general

banking procedures in one of the branches of NBP. These operations include remittances,

deposits, advances and foreign exchange.

Similarly different aspects of overall of NBP are also covered in this report.

1.4 Research Methodology

The report is based on my two months internship program in National Bank of Pakistan. The

methodology reported for collection of data is primary as well as secondary data. The biggest

source of information is my personal observation while working with staff and having discussion

with them. Formally arranged interviews and discussions also helped me in this regards.

Primary data:

Personal observation

Interviews of staff

Secondary data:

Manuals

Journals

Magazine

Annual reports

Internet

1.5 Scheme of Study

SECTION 1

Chapter 1:

An introductory chapter that discuss the introduction of study of report, its Background, Purpose,

Scope, Methodology, limitations and Scheme of the report.

SECTION 2

Chapter2

This chapter concludes brief history of banking in general, evolution of banking, banking in

Pakistan..

Chapter3:

This chapter consist Nationalization of banking in Pakistan, History of NBP, mission statement,

its objectives and functions of National Bank of Pakistan.

Chapter4: In this chapter the services of NBP were discussed.

SECTION III

Chapoter5: In this chapter the in this section the departmentation of NBP is explained, and also

NBP Hayatabad township branch.

SECTION IV

Chapter6:

It tells about Strengths, Weaknesses, Opportunities and Threats of i.e. SWOT analysis of NBP.

Chapter 7:

It consists of comprehensive performance of NBP through past several years. Ratio analysis and

those parties, which are interested in financial performance of Bank.

Chapter 8:

It covers the critical analysis of the bank. This chapter has been divided into four parts i.e.

Problems at the Branch, Functional analysis, Administrative analysis, and Personal Management

Analysis.

SECTION V

Chapter 9:

In this chapter recommendation for improvement on all aspects of the Bank are given.

Chapter 10:

Two implementation plans are given in this chapter. “Mare Gare Car Financing Scheme” and

Need for Telephone Operator.

CHAPTER # 2

EVOLUTION OF BANKS IN PAKISTAN

There are different opinions that how the word ‘Bank’ originated. Some of the author’s opinion

that this word is derived from the word ‘Bancus’ or Banque’, which means a bench. The

explanation of this origin is attributed to the fact that the Jews in Lombard transacted the

business of money exchange on benches in the market place; and when the business failed, the

people destroyed the ‘bench’. Incidentally the word ‘Bankrupt’s said to have evolved from this

practice.

Some of the authors are of opinion that the word ‘Bank’ is derived from the German word back,

which means ‘joint stock fund’. Later on when the German occupied major part of the Italy the

word ‘Back’ was italicized into ‘Back’.

In fact human left the need of bank when it begins to realize the importance of money as a

medium of exchange. Perhaps it where the Babylonian who developed banking system as early

as 2000 BC. At that time temples were used as banks because of their prevalent respect. During

the rule of king Hamurabi (1788 – 1686 BC) the founder of Babylonians Empire, loans were

started being granted for interest. The borrower has to provide guarantee or he had to pledge his

goods or valuables. King Hamurabi drew up a code wherein he laid down standards rules for

procedures for banking operations by temples and great landowners. Also in Greece, the temples

were used as banks, where the people deposited their money and other valuables for safe custody

and security. In Europe with the ‘revival of civilization’ (Renaissance) in the middle of twelve

century, trade and commerce started expanding and this development compelled the business

community to borrow the money from the Hebrew money lenders on high rates of interest and

usury. Seeing the great demand, these moneylenders started organizing themselves and bank

started up at the principle seaports of southern Europe. Soon Venice and Geneva became the

most important money markets of the time and banking though different from its present form,

flourished. What we know as ‘modern banking’ originated in the 14th century in Barcelona.1

2.1 Definitions of Bank

“Bank”

"A financial institution, which deals with money and credit. It accepts

Deposits from individuals, firms and companies at a lower rate of

Interest and gives at higher rate of interest to those who need them.”2

A financial establishment which uses money deposited by customers for investment, pays it out

when required, makes loan at interest, exchanges currency, etc.

J.W Gilbert in his principles and practice banking defines a banker in these words:

“A banker is dealer in capital or more properly, a dealer in money. He is intermediate party

between the borrower and the lender. He borrows of one and lends to another”.3

Sir John Paget defines banker in these terms:

“That no person or body, corporate or otherwise, can be a banker who does not

Take deposits accounts.

Take current accounts,

Issue and pay Cheques and

Collect Cheques crossed and uncrossed for his customers”4 (The law of Banking by

Sir John Paged, page 51).

The American defined the term banker in a very broad sense as under:

“By banking, we mean the business of dealing in credits and by a ‘Bank’ we include

every person, firm or company having a place of business where credits are opened by deposits

of collection of money or currency. Subjects to be paid or remitted on Cheques or order, money

is advanced or loaned on stocks, bonds, bullion, bill of exchange, promissory notes are received

for discount or sale”.5

2.2 Evolution of Banking in Pakistan

The first phase in evolution of banking in Pakistan sees very hard days for the whole banking

sector. Starting virtually from scratch in 1947, the country today possesses a full range of

banking and financial institutions to cope with various needs of the economy.

The area now constituting Pakistan was, relatively speaking, fairly well provided with banking

facilities in undivided India, in March 1947 there were 3496 offices of Indian scheduled banks

out of which as many as 487 were situated in territories now constituting Pakistan.

The Reserve bank of India was the central banking authority in India. At the time of partition it

was decided that in the interest of smooth transition it should continue to function in newly

emerging state of Pakistan, until 30th Sep.1948.

In 1947 due to uncertainty and unsuitability the banking sector suffer heavy losses.

This resulted in a negative effect on baking service in Pakistan. The banks, which had their

registered offices in Pakistan, transferred them to India. In an effort to bring about the collapse of

the new state by pushing a deliberate policy of withdrawals the Indian bank offices closed

quickly. Those banks, which stayed, operated only in name pending the winding up of their

business. The number of scheduled banks thus declined form 487 branches before independence

to only 195 branches by 30th June1948.5

2.3 Banking Growth during (1948-1970)

In this tense situation, a committee was immediately setup to formulate a scheme of central

banking legislation for Pakistan. Many specialists were of the opinion that in view of the acute

shortage of trained staff, any idea of establishing a central bank was I impractical and the best

that could be attempted was the setting up of a currency board until such times as sufficient staff

could be organize to operate a central bank.

The questions as to whether the institution should be only a currency board or a full-fledged

central bank had exercised the mind of the Pakistan government since independence. Through, it

was realized that the shortage of trained personal to run the central bank would present serious

difficulty in view of the tangible advantages that a central bank enjoyed over currency board, the

government ultimately decided to take the bold step of setting up a full fledged central banking

authority. Among other factors, which led to this decision, there was the fact the banking

facilities in the country had been totally disrupted and there was an urgent need for their

rehabilitation, which a central ban alone could meet. As there was hardly any time to pass as Act,

an order was drafted, known as the state bank of Pakistan order, which was promulgated by the

government of Pakistan on 12th may 1948. The state bank declared open on July 1, 1948 by the

father of the nation.

One of the first tasks of the state bank was to arrange for the replacement of the Reserve bank of

India notes, which had continued to circulate in Pakistan during the transitional period, by

Pakistan currency.

The first Pakistan notes were issued in October 1948 in the denominations of Rs. 5, 10 & 100.

An equally urgent task, which the new central bank had to address itself, was the creation of a

national banking system. To this end, while extending every help and encouragement to Habib

Bank to expand its organization, the state bank recommended the setting up of a new banking

institution to serve both as an agent to the state bank recommended the setting up of a new

banking institution to serve both as an agent of the state bank as well as the spearhead of its

credit polices.

Accordingly the NATIONAL BANK OF PAKITSN was setup under an ordinance in November

1949. It started with six offices in the former East Pakistan. In view of the special role assigned

to the new institution, contrary to traditional practices the Governor of the state bank was

appointed to head its board of Director in 1950. Under the fostering care of the state bank and the

support of the government, the new institution developed rapidly. By using its special powers,

the state bank made liberal advances to the new bank to help it expand credit facilities in the

country. By 1952, the National bank of India. Shortly, afterwards, in November 1952, the

governor of the state bank ceased to function as the president of National bank of Pakistan.

With a view to broadening the institutional framework of the financial system, the state bank also

sponsored the establishment of specialized credit institutions in the filed of agriculture and

industry. Banking companies (control) act was passed in December 1948 specifically

empowering the state bank to control the operations of banking companies in Pakistan.

Moreover realizing that the most serious limitation on the expansion of banking services in

Pakistan was the lack of trained personal, the state bank sponsored a banking training scheme,

which was repeated after year and turned out a large number of bankers.

As the Commercial Banking facilities continued to expand, a new Pakistani bank, the National

Commercial Bank was established and registered as a scheduled bank. In the filed of industrial

finance a new institution known as the industrial credit and investment cooperation was set up.

The year 1958 marked the completion of the first decade of the working of the State Bank of

Pakistan. When it was established there were only 195 bank offices in existence. At the end of

June 1958 their number had increased to 307, of which Pakistani banks accounted for 232

against 25 in mid 1948. Moreover at the end of June 1958. Pakistani banks held 60% of the total

banks deposits, and were responsible for 65 of total bank credit.

When the Ayub Government took over in 1958, the banking and monetary scene was

significantly affected by Developments such as the liberalization of imports, transfer of business

in food grains to the private sector, and the firming up of commodity markets. The demand of

funds picked up and there was a substantial expansion of bank credit to the private sector. The

pace of expansion in the institutional frame work of the country’s banking system quickened and

a new Pakistani, bank, namely the United Bank Limited was established.

Owning the five years 1960-65, the credit structure in Pakistan made rapid progress. The bank

extended its network by opening six new offices located at Chitagong, Peshawar, Quetta,

Khulna, Layallpur and Rawalpindi. The number of scheduled bank offices rose from 430 at the

end of June 1960 to 1591 in June 1965. Several new banks were added to the list of scheduled

banks.

Two principal additions were the commerce bank, and the standard bank. The number of

scheduled banks, which stood at 29 in June 1960 rose to 36 by June 1965.

Under the impact of economic growth and dear scope of private enterprises, bank credit to the

private sector rose from Rs. 1,458 millions to Rs. 5759 million. Thus the total expansion in bank

credit to the private sector during this period amounted to Rs. 4300 million, which gave a annual

expansion of Rs. 860 million compared to the annual average increase of Rs. 144 million over

the preceding five years. Banks deposits increased from Rs. 2,493 million to Rs. 6883 million

during the five years period ended June 1965 compared to Rs. 231 million in the proceeding five

years. Time deposits during this period increased from Rs. 946 million to Rs. 3228 million,

where demand deposits rose from Rs. 1997 million to Rs 3655 million. The increase in time

deposits was particularly rapid. The ratio of time deposits to total deposits in June 1965 stood at

49.6 percent age as against 32.01 percent age five years earlier. Another salient feature of

banking development during this period was that since the rate of increase in bank deposits

lagged behind the rate of expansion in bank credit, the banked has to depend increasingly on

central bank finance. They borrowing from the state bank rose from Rs. 11 million in June 1960

to Rs. 1688 million in June 1965. Owing keen demand for bank credit, bank’s investments could

not increase as rapidly as their advances. Their investments totaled to Rs. 1,874 million at the

end of June 1965 compared to Rs. 1,231 million in June 1960. Investments which were almost

equal to their advances in June 1960 were only about one third of the advances in June 1965.

The third plane period witnessed a further expansion of banking facilities in the country the total

number of scheduled banked offices increased from 1,591 at the end of June 1965 to 3133 at the

close of June 1970. During the same bank credit to the private sector rose from Rs. 5,789 million

to Rs. 9492 million. There was also a substantial growth in the bank deposits, which increased

from Rs. 6883 million June 1965 to Rs. 13147 million at the end of June 1970. A remarkable

change occurred during this period related to the composition of deposits. Time deposit becomes

greater than demand deposits forming about 54 percent age of the total deposits. As oppose to

what happened in the previous period, banks were able to finance a mush higher level of credit

expansion without having to increase their borrowings from the central bank.7

2.4 Banking Reforms 1972

After the assumption of office by a new government in 1971, may 1972 different reforms were

introduced to make the banks more responsive to the requirements of economics growth with

social justice. The reforms aimed at bringing about a more purposeful and equitable distribution

of bank credit, improving the soundness and efficiency of the banks, and securing greater social

accountability of the banking system as a whole.

The role of the banking system had been truly spectacular in mobilizing savings of the

community and meeting the credit needs of the economy. But at the same time, the banks had

generally neglected their role in promoting social justice and had failed to play an effective role

in ensuring a wider and more equitable dispersal of the benefits of economic growth. In

particular the inter locking of ownership with commercial and industrial interests had led to the

misuse of bank resources. There was a heavy concentration of credit in big accounts and in urban

area. Credit facilities for agriculture, small business, newly emerging exports and housing had

remained obviously inadequate while the banks indulged in capital financing in few selected

business sectors and issued guarantees on behalf of favored clients, term clients, term financing

facilities for industry were wholly absent.

Under the banking reforms introduced in May 1972 the state bank of Pakistan was accorded

wider powers. It was authorized to remove directors or managerial personnel, if necessary and

supersede the board of directors of a banking company and appoint administrators during the

period of such super session. It was also empowered to nominate directors on the board of every

bank. As regard bank directors, it was provided that anyone defaulting in meeting his obligations

to bank would forfeit his directorship. Moreover, it was laid down that no person could serve as

director of a bank for more than six years continuously. Each bank was required to have a paid

up capital of not less than 5 percent age of its deposits to be progressively build up to 10 percent

age over a period of time. The banks were also required to transfer 10 percentage of their profit

their reserves every years after the reserve became equal to the paid up capital. With a view to

diversity the ownership of the banks, the banks were required to raise new capital from the

market. Unsecured loans to directors, their families or firms and companies, were totally

prohibited.

The bank reforms also brought about the establishment of new institutions to achieve new

objectives.

A national credit consultative was setup under the supervise of the state bank with representation

form the government and the private sector. It was assigned the task of determining of

economy’s annual credit needs within the safe limits of monetary and credit expansion with

reference to the annual development plan. Such a credit plan was to cover the public and private

sectors. Alongside the National credit council and Agricultural Advisory Committee was formed

to allocate agriculture credit for various purposes, to coordinate the operation or the agriculture

credit agencies and to oversee the flow of credit to the designated targets. A standing committee

on exports in general and the new emerging exports in particular, was also established. With a

view to encourage the banks to extend credit to small borrowers, a credit guarantee scheme was

introduced under which the state bank under took to share any bonfire losses incurred by the

commercial banks in case of small loans of advances to agriculture.

At the same time two financing institutions were established. The people’s Finance Corporation

was designed to provide finance to people of small means while the National Development

Finance Corporation was setup of finance public sector owned and managed industries and

enterprises.8

REFRENCES

1 Siddiqi H Israr Law and practice banking in Pakistan.

2 Gilbert J.W principles and practice.

3 Sir Paged John The law of Banking, page 51.

4 Sir Paged John The law of Banking, page 51.

CAHAPTER # 3

NATIONALIZATION OF BANKS (1974)

The banking reforms turned to be transitional and interim step and when they were hardly

eighteen months old the government nationalized the banking systems, with the following main

objectives.

To enable the government to use the capital concentrated in the hands of a few rich bankers for

the rapid economic development of the country and the more urgent social welfare objectives.

To distribute equitably credit too different classes sectors and regions.

To coordinate the banking policies in various area of feasible joint activity without eliminating

healthy competition among banks.

The act passed for the nationalization of banks is known as the banks Nationalization Act 1974.

Thus under this act the state bank of Pakistan and all the commercial banks incorporated in

Pakistan and carrying business in or outside the country were brought under government

ownership with effect from Jan 1, 1974. The ownership, management and control of all Pakistani

banks stood transferred to and vested in the Federal government. The shareholders were provided

compensation in the form of federal government bonds redeemable at par anytime within the

period of fifteen years. Under the Nationalization act, the Chairman, Directors and Executives of

various banks, other than those appointed by federal government were removed from their

offices and the central boards of the banks and all local bodies were dissolved. Pakistan banking

council was established to coordinate the activities of the Nationalized Commercial banks. At the

time of Nationalization on December31, 1973 there were following 14 Pakistani commercial

banks with 3323 offices allover Pakistan and 74 offices in foreign countries:

National banks of Pakistan

Habib bank limited

Habib bank (overseas) limited

United bank limited

Muslim commercial bank limited

Commerce bank limited

Standard bank limited

Australia bank limited

Bank of Bahawalpur limited

Premium bank limited

Pak Bank limited

Sarhad bank limited

Lahore commercial limited

Punjab provincial co-operative bank limited

The Pakistan banking council prepared a scheme for the recognition of banks. The bank

(amalgamation) scheme 1974 was notified in April, providing for the amalgamation of the

smaller banks with bigger ones and following the five units in there phases:

National bank limited

Habib bank limited

United bank limited

Muslim commercial bank limited

Allied bank of Pakistan limited

The first phase was completed on 30th June. 1974. When the bank Bahawalpur was merged with

the National Bank of Pakistan. The premier Bank Limited with Muslim Commercial Bank

limited and Sarhad Bank Limited and Pak bank limited and renamed as Allied Bank of Pakistan

limited.

The second phase was completed on 31st Dec.1974, when the commerce bank limited merged

with the United Bank limited.

The third and the final phase were completed on 30 th June, 1975 when the standard bank limited

was merged with Habib Bank limited.

The nationalization was very smooth and gave very positive results.

The number of branches, which stood at 3397 on Dec31, 1973, reached on 7661 by end June

1992. The bank deposits which stood at Rs. 1925 corers at the end 1973 reached the highest

mark about 323 corers.1

3.1 Islamization of Banking

Another major development in the history of Pakistan Banking System was the introduced of

interest free banking in selected Commercial Banks with effect form Jan1, 1981. This followed

the effort to eliminated interest from the operation of Nation investment trust, the House

Building Finance Corporation of Pakistan. Certain amendments were made in banking and other

laws with the object of ushering in a new system of banking, which would confirm of Sharia. A

new law Modaraba Companies Ordinance 1980 was promulgated. Separate interest free counters

began to operate in all the nationalized commercial banks free counters began to operate in all

the nationalized commercial banks. The state bank provides finance against participation term

certificate and also against promissory notes supported by Modaraba certificate.

In order to cover interest free transactions certain banking definitions such as creditors, debtor,

and advances credits and deposits were revised. Stipulations concerning form of business in

which banking companies may engage may also have been modified schemes were introduced to

provide interest free loans to formers and deserving students.

A private Limited Company named as Bankers Equity limited was incorporated in 1979 to

provide financial assistance to the industrial sector primarily on interest free basis.

A scheme to extend interest free productive loans to farmers and fisherman has also been

introduced. Instead of interest, a system based on mark-up in price, exchange rate differential,

and profit and loss sharing accounts were introduced.

Different financial schemes introduced in the Islamization process are: 2

Musharika Financing.

Hire Purchase Financing.

Modaraba Financing.

Specific Purpose Modaraba.

3.2 Dis-Investment and Deregulation of Banking – 1991

When it was realized that the role of public sector in the economy is over extended and the

banking sector has more earning potential in the private sector the process of privatization

banking sector restarted in 1991 by the Muslim League Government. Muslim Commercial Bank

was Dis-invested in to two phases while ABL was sold to its employees. Since then allot of

investment is being made in the banking sector and several new banks were established and still

the process is going on. Now only NBP is government bank other than SBP. The performance of

this bank will be analyzed and judged in the following chapters.

3.3 INTEREST FREE BANKING

A new concept of interest free banking was introduced in 1981 and by now it has been

established on sound footing and new trends and techniques are being implemented to make this

system result oriented. New products and their systematic consumption are making Pakistani

banking comparable to their several modern counterparts anywhere in the developed world.

3.4 HISTORY OF NBP:

The NBP was established vide NBP Ordinance No. XIX of November 9. 1949.

British Govt. devalued its currency in September 1949, India devalued its rupees but Pakistan

did not. It led to a crisis in trading between the two countries and India refused to lift the

Pakistan Jute. To solve this problem i.e. to export jute NBP was established through an

Ordinance of GOP. National Bank of Pakistan maintains its position as Pakistan's premier bank

determined to set higher standards of achievements. It is the major business partner for the

Government of Pakistan with special emphasis on fostering Pakistan's economic growth through

aggressive and balanced lending policies, technologically oriented products and services offered

through its large network of branches locally, internationally and representative offices.

The Bank in 1950 had one subsidiary ‘The Bank of Bahawalpur’ on December4, 1947 by the

former Bahawalpur State.

NBP was undertaking Treasury Operations and Managing Currency Chests or Sub Chests at 57

of its offices where the turnover of the business under the head amounted to Rs.2460 million.

i) Deposits held by NBP constituted about 3.1% of total deposits of all

Pakistani Banks in 1949, which rose to 38% in 1952.

ii) Growth in Deposits was accompanied by increase in Bank portfolio in advances. NBP

lent out to Textile, Yarn, Iron and Steel and played a pioneer role in support of agriculture and

commerce.

iii) NBP advances reached Rs.554.4 million by December 1959, which was one third of the

total schedule bank credit.3

3.4.1 MISSION STATEMENT “To make the

Bank complete and competitive with all international Standard in

performing, quality of, operations, staff, financial strength. And products and services To

develop a culture of excellence in every spare of activity of the bank4”.

3.4.2 GOALS AND OBJICTIVES

“An organizational objective is the intended goal that prescribes definite scope and suggests

direction to the panning efforts of a organization.”6

3.4.3 GOALS AND OBJICTIVES NBP

“To be the pre-eminent financial institution in Pakistan and achieve market recognition both in

the quality and delivery of service as well as the range of product offerings.”7

3.4.4 BOARD OF DIRECTORS

Table 1

NAME DISIGNATION

Ali Raza Chairman & President

Dr Waqar Masood Director

Ifthikhar Ali Malik Director

Syed Shafqat Ali Shah Jamoti Director

M Zubair Motiwala Director

Sikandar Hayat Jamali Director

M. Khalid Malik Director

S.M. Rafique SEVP & Sectorary to BD

(Source Annual report 2003)

3.5 MANAGEMENT

Management is a distinct process consisting of activities of planning, organizing, actuating and

controlling performed to determine and accomplish stated objectives with the use of human

being and other resources.8

The management has two types.

1 Centralized.

2 Decentralized.

Centralized Management tends to concentrate decision making at the top of the

Organization .

Decentralized disperses decision making and authority throughout and further down the

organizational hierarchy.9

NBP have a centralized type of management because all the decisions are taken by the top

management.

3.5.1 SENIOR MANAGEMENT OF NBP.

Table 2

Masood Karim Sheikh

SEVP & Group Chief, Corporate &

Investment Banking Group and Chief

Financial Officer

S. M. Rafique SEVP & Secretary Board of Directors

Derick CyprianSEVP & Group Chief, Special Assets

& Remedial Management Group

Imam Bakhsh Baloch SEVP & Group Chief, Compliance

Group

Shahid Anwar KhanEVP & Group Chief, Commercial &

Retail Banking Group

Nadeem A. DogarEVP & Group Chief, Information

Technology Group

Muhammad Sardar KhawajaEVP & Group Chief, Audit &

Inspection Group

Dr. Asif A. Brohi EVP & Group Chief, Operations Group

Javed MehmoodEVP & Group Chief, Risk Management

Group

Muhammad Nusrat VohraEVP & Group Chief, Treasury

Management Group

Amim Akhtar EVP & PSO to the President

Dr. Mirza Abrar BaigGroup Chief, Human Resources

Management & Administration Group

Uzma BashirGroup Chief,  Organization D&T

Group

(Source www.nbp.com.pk)

3.6 Net Work of Branches:

NBP have wide range of branches inside the country and outside the country.

In Pakistan it has 29 regional offices, 1189 Branches and 4 Subsidiaries.

In overseas it has 16 overseas branches, 6 other branches.10

.3.7 Objectives of NBP

National bank of Pakistan is also a commercial organization and its main objective is profit

maximization. This is achieved in two ways:

1. By increasing deposits.

2. By charging interest on loans provided to the private sector and business community.

These are explained as:

3.7.1 Increase in deposits:

Competition in banking is intense and every bank whether it is Pakistani, foreign, private or

nationalized tries to increase its deposits by providing better facilities to its customers. By

increasing its deposits a bank can extend greater amount of loan and hence achieves higher

profit. NBP is also improving its facilities and services to attract customers with higher volume

of deposits. There are two main factors involved in increasing the deposits. These factors are

improving the services and courtesy. NBP is continuously working on these two factors to

increase its deposits.

3.7.2 Extension of loans:

The profitability of a bank largely depends on the amount given to people as loan and the type of

people to whom credit is given i.e. the credit worthiness of the borrowers. This strategy has

worked quite well for NBP. Deposits are collected from the people and invested in different

projects. NBP prefers to give loans to financially sound and reliable parties, after securing the

collators. NBP has an extremely well organized section. The staff is adequately trained, and

educated and competent. They carry out extensive financial analysis before deciding on the loan.

Interest charged on the loans potentially contributes to higher profits.

Some of the other objectives of NBP are:

i. Improve customer services.

ii. Quick disposal of credit cases.

iii. Efficient operation of the branches.

iv. Better Public Relations.

v. Operational and advisory services for foreign exchange accounts activities

3.8 Functions of NBP

Since NBP is a commercial bank, it performs a variety of functions.

Like other commercial banks, NBP is engaged in financing international trade. Its other major

functions include receiving deposits, advancing loans and discounting of exchange. The

functions performed by NBP are:

3.8.1 Accepting Deposits

This function is important because banks largely depend on the funds deposited with them by its

customers. Deposits are of many types:

i. Current deposits

Current deposits are also called demand liability on current deposits. NBP pays practically no

interest on current deposits. Businessmen usually open current accounts. In NBP current account

can be opened with a minimum amount of Rs.500/-.

ii. PLS saving deposit

Profit and loss sharing deposits (PLS) are also called checking accounts. One can deposit and

draw money easily. Profit on PLS is calculated every month but paid after six months. PLS

account can be opened with a minimum amount of Rs.500/-

iii PLS term deposits

Fixed term deposits are deposits with the bank for certain fixed period before the expiry of which

they cannot be withdrawn unless giving due notice. In this case the rates of profit will be

different depending upon the time period.

3.8.2. Discounting bills of exchange

Discounting of bill is practically speaking lending for exchange at their market rate i.e. it pays to

holder of the bill an amount equal to the face value after deducting interest at the current market

rate for the period. This bill has to be mature. This is the common way used for keeping a part of

assets of the bank in a liquid form.

3.8.3. Agency service

NBP also provides best and unique service to its valued customers. NBP provide the following

agency services to the customers:

i. Collection of dividends

As NBP deals with the purchase and sale of various types of securities, therefore NBP also

provide dividend or interest earned on share or bonds or invested money.

ii. Collection of Cheques

In the collection and payment of Cheques, bills and promissory notes etc. National bank of

Pakistan acts as an agent for its customers.

iii. Acting as an agent

NBP also acts as an agent correspondent or representative for its customer at home or abroad.

iv. General utility services:

Utilities provided by NBP are as follows:

a. Clearance of utility bills

NBP provides the service of clearing the utility bills i.e. electricity, gas and telephone bills of its

customers. For this purpose it also provides evening banking services.

b. Lockers facility

National bank of Pakistan also provides locker facilities to its customers to keep their valuable

assets in it. The charges of different size of lockers are different.

c. Acts as a referee

NBP provides useful services to its customers by acting as a referee to their credit worthiness.

d. Supply of information

NBP provides operational and advisory service for foreign exchange accounts/activities.

3.9 Unmatched Banking Facilities

Deposit security, Guaranteed by Government of Pakistan.

Highest rates of return to attract the savings.

Lowest rates on exports and other borrowings.

Largest contribution towards Government and Semi-Government requirements.

Agents of the SBP handling Treasury Functions, receipts of Taxes & other Revenues.

Handling of salaries & pensions of federal/provincial/defense personnel.

Utility Bills collections.

Hajj arrangements.

Sale and encashment of prize Bonds.

Sale and encashment of Defense Savings and Special Savings Certificates.

Safe Deposit Lockers for customers.

Rational Human Resource Management.

The prestigious periodical “The Banker” UK recognized NBP as the best bank for 2001-2002

and NBP is the bank of the year for 2003-2004 of Pakistan.

i. AAA rating awarded JCR-VIS Credit co. Ltd and affiliated of Japan Credit Rating

Agency for 2001.

ii. AAA+1 rating awarded JCR-VIS Credit Co.Ltd and affiliated of Japan Credit Rating

Agency for 2002

3.10 NBP at the forefront of Pak-Afghan trade

i. Booth at dry port Peshawar

ii. Booth at Pak Afghan border (Torkham) NWFP

iii. Booth at Pak Afghan border (Chamman).Baluchistan.

iv. Establishing branch at Kabul in near Future.11

REFRENCES

1 Bank Nationalization act 1974.

2 Islamic Banking.

3 www.nbp.com.pk

4 Annual report 1998.

5 www.nbp.com.pk

6 Terry and Franklin Principles of Management.

7 www.nbp.com.pk

8 Terry and Franklin Principles of Management.

9 Terry and Franklin Principles of Management.

10 Annual report 2003.

11 www.nbp.com.pk

CHAPTER # 4

SERVICES OF NBP

SERVICES

Services are he outputs of the firm which are in intangible form.

NBP offers the following services to the people.

4.1 DEMAND DRAFTS

If you are looking for a safe, speedy and reliable way to transfer money, you can now purchase

NBP’s Demand Drafts at very reasonable rates. Any person whether an account holder of the

bank or not, can purchase a Demand Draft from a bank branch.

4.2 SWIFT SYSTEM

The SWIFT system (Society for Worldwide Inter bank Financial Telecommunication) has been

introduced for speedy services in the area of home remittances.  The system has built-in features

of computerized test keys, which eliminates the manual application of tests that often cause delay

in the payment of home remittances.  The SWIFT Center is operational at National Bank of

Pakistan with a universal access number NBP-APKKA.  All NBP overseas branches and

overseas correspondents (over 450) are drawing remittances through SWIFT.

Using the NBP network of branches, you can safely and speedily transfer money for our business

and personal needs.

4.3 LETTERS OF CREDIT *

NBP is committed to offering its business customers the widest range of options in the area of

money transfer.  If you are a commercial enterprise then our Letter of Credit service is just what

you are looking for. With competitive rates, security, and ease of transaction, NBP Letters of

Credit are the best way to do your business transactions.

4.4 TRAVELER'S CHEQUES

Traveler’s cheques are negotiable instruments, and there is no restriction on the period of

validity of the cheques. Rupee traveler’s cheque is available at all 700 branches of NBP. This can

be encashed in all 400 branches of NBP. There is no limit on purchase of this cheque. It is one of

the safest ways for carrying money.

4.5 PAY ORDER

NBP provides another reason to transfer your money using our facilities.  NBP pay orders are a

secure and easy way to move your money from one place to another.  And, as usual, NBP

charges for this service are extremely competitive. The charges of NBP are very low all over the

Pakistan. It charges Rs 50/- for NBP account holders on issuing one payment order. And charges

Rs 100/- for NBP non-account holders on issuing one payment order. It charges Rs 25/- for

students on payment of fees of educational institutions. If some one want a duplicate of payment

order they charges Rs 100/- for NBP account holders and Rs 150/- for non account holders.

4.6 MAIL TRANSFERS

Move your money safely and quickly using NBP Mail Transfer service.  And NBP also offer the

most competitive rates in the market. They charges Rs 50/- exchange rate and RS 75/- postage

charges on issuing mail transfer.

4.7 FOREIGN REMITTANCES:

To facilitate its customers in the area of Home Remittances, National Bank of Pakistan has taken

a number of measures to:

Increase home remittances through the banking system

Meet the SBP directives/instructions for timely and prompt delivery of remittances to the

beneficiaries

4.7.1 New Features:

The existing system of home remittances has been revised/significantly improved and well-

trained field functionaries are posted to provide efficient and reliable home remittance services to

nonresident Pakistanis at 15 overseas branches of the Bank besides Pakistan International Bank

(UK) Ltd., and Bank Al-Jazira, Saudi Arabia. 

Zero Tariffs: NBP is providing home remittance services without any charges.

Strict monitoring of the system is done to ensure the highest possible security.

Special courier services are hired for expeditious delivery of home remittances to the

beneficiaries.

4.8 SHORT TERM INVESTMENTS

NBP now offers excellent rates of profit on all its short term investment accounts.  Whether you

are looking to invest for 3 months or 1 year, NBP’s rates of profit are extremely attractive, along

with the security and service only NBP can provide.

4.9 National Income Daily Account (NIDA)

The scheme was launched in December 1995 to attract corporate customers.  It is a current

account scheme and is part of the profit and loss system of accounts in operation throughout the

country.  

4.9.1 Salient Features:

Rs 2-million is required to open an account and there is no maximum limit.

Profit is paid on half yearly basis on monthly balances.

The rates of profit vary according to the slabs of deposit. On Deposits of Rs.2 million to

2,000 million, the rate fluctuates from 1.4 to 1.75

It is a checking account and there is no limit of withdrawals.

4.9.2 Rates on NIDA

From Rs 2/- million to Rs 50/- the rate is 1.4%.

From Rs50/- million but less than Rs 500/-million, the rate is 1.5%.

From Rs 500/- million but below Rs 1000/- the rate is 1.6%.

From Rs 1000/- and above the rate is 1.75%.

4.10 QUITY INVESTMENTS

NBP has accelerated its activities in the stock market to improve its economic base and restore

investor confidence.  The bank is now regarded as the most active and dominant player in the

development of the stock market.

4.10.1 NBP is involved in the following: 

Investment into the capital market

Introduction of capital market accounts (under process)

NBP’s involvement in capital markets is expected to increase its earnings, which would result in

better returns offered to account holders

4.11 COMMERCIAL FINANCE

NBP dedicated team of professionals truly understands the needs of professionals, agriculturists,

large and small business and other segments of the economy.  They are the customer’s best

resource in making NBP’s products and services work for them.

4.12 RADE FINANCE OTHER BUSINESS LOANS

There are two types of trade finance.

4.12.1 AGRICULTURAL FINANCE

NBP provides Agricultural Finance to solidify faith, commitment and pride of farmers who

produce some of the best agricultural products in the World.

4.12.1.1 Agricultural Finance Services:

“I Feed the World” program, a new product, is introduced by NBP with the aim to help farmers

maximize the per acre production with minimum of required input.  Select farms will be made

role models for other farms and farmers to follow, thus helping farmers across Pakistan to

increase production.

4.12.1.2 Agricultural Credit:

The agricultural financing strategy of NBP is aimed at three main objectives:-

Providing reliable infrastructure for agricultural customers

Help farmers utilize funds efficiently to further develop and achieve better production

Provide farmers an integrated package of credit with supplies of essential inputs,

technical knowledge, and supervision of farming.

 4.12.1.3 Agricultural Credit (Medium Term): 

Production and development

Watercourse improvement

Wells

Farm power

Development loans for tea plantation

Fencing

Solar energy

Equipment for sprinklers

4.12.1.4 Farm Credit:

NBP also provides the following subsidized with ranges of 3 months to 1 year on a renewal

basis. 

Operating loans

Land improvement loans

Equipment loans for purchase of tractors, farm implements or any other equipment

Livestock loans for the purchase, care, and feeding of livestock.

4.12.1.5 Production Loans:

 Production loans are meant for basic inputs of the farm and are short term in nature.   Seeds,

fertilizers, sprayers, etc are all covered under this scheme.

 If you require any further information, please do not hesitate to e-mail us.

 4.12.2 CORPORATE FINANCE

4.12.2.1 Working Capital and Short Term Loans:

NBP specializes in providing Project Finance – Export Refinance to exporters – Pre-shipment

and Post-shipment financing to exporters – Running finance – Cash Finance – Small Finance –

Discounting & Bills Purchased – Export Bills Purchased / Pre-shipment / Post Shipment

Agricultural Production Loans

4.12.2.2 Medium term loans and Capital Expenditure Financing:

NBP provides financing for its clients’ capital expenditure and other long-term investment

needs.  By sharing the risk associated with such long-term investments, NBP expedites clients’

attempt to upgrade and expand their operation thereby making possible the fulfillment of our

clients’ vision.  This type of long term financing proves the bank’s belief in its client's

capabilities, and its commitment to the country.

4.12.2.3 Loan Structuring and Syndication:

National Bank’s leadership in loan syndicating stems from ability to forge strong relationships

not only with borrowers but also with bank investors.  Because we understand our syndicate

partners’ asset criteria, we help borrowers meet substantial financing needs by enabling them to

reach the banks most interested in lending to their particular industry, geographic location and

structure through syndicated debt offerings.  Our syndication capabilities are complemented by

our own capital strength and by industry teams, who bring specialized knowledge to the structure

of a transaction.

4.12.3.4 Cash Management Services:

With National Bank’s Cash Management Services (in process of being set up), the customer’s

sales collection will be channeled through vast network of NBP branched spread across the

country.  This will enable the customer to manage their company’s total financial position right

from your desktop computer.  They will also be able to take advantage of our outstanding range

of payment, ejection, liquidity and investment services.  In fact, with NBP, you’ll be provided

everything, which takes to manage your cash flow more accurately

4.13 INTERNATIONAL BANKING

National Bank of Pakistan is at the forefront of international banking in Pakistan which is proven

by the fact that NBP has its branches in all of the major financial capitals of the world.  

Additionally, we have recently set up the Financial Institution Wing, which is placed under the

Risk Management Group.  The role of the Financial Institution Wing is:-

To effectively manage NBP’s exposure to foreign and domestic correspondence

Manage the monetary aspect of NBP’s relationship with the correspondents to support

trade, treasury and other key business areas, thereby contributing to the bank’s

profitability

Generation of incremental trade-finance business and revenues

 4.13.1 NBP offers:

The lowest rates on exports and other international banking products

Access to different local commercial banks in international banking

4.14 Cash and Gold Finance.

Cash and Gold finance means that loan is given against the gold. The gold is mortgaged with

the bank and loan is taken. It is the area of consumer finance. And borrower can take loan for

common use.

4.15 Advance salary loan:

This loan is given to those people who are govt servants. They can get a loan up to the salary of

fifteen months.

REFRENCES

1. http/www.nbp.com.pk .services

2. Annual reports 2001, 2002, 2003.

CHAPTER # 5

DEPARTMENTALIZATION

Dividing an organization into different parts according to the functions is called departmentation.

So NBP Hayatabad township branch is divided into two main parts.

A) DEPARTMENTATION

5.1 CASH DEPARTMENT

Cash department performs the following functions

5.1.1) Receipt

The money, which either comes or goes out from the bank, its record should be kept. Cash

department performs this function. The deposits of all customers of the bank are controlled by

means of ledger accounts. Every customer has its own ledger account and has separate ledger

cards.

5.1.2) Payments

It is a banker’s primary contract to repay money received for this customer’s account usually by

honoring his cheques.

5.1.3) Cheques and their Payment

The Negotiable Instruments. Act, 1881,

“Cheque is a bill of exchange drawn on a specified banker and not expressed to be payable

otherwise than on demand”2.

Since a Cheque has been declared to be a bill of exchange, it must have all its characteristics as

mentioned in Section 5 of the Negotiable Instruments Act, 1881. Therefore, one can say that a

Cheque can be defined as an:

“An unconditional order in writing drawn on a specified banker, signed by the drawer, requiring

the banker to pay on demand a sum certain in money to, or to the order of, a specified person or

to the bearer, and which does not order any act to be done in addition to the payment of

money”3. (Law of Banking by Dr. Hart, p.327).

5.1.4) the Requisites of Cheque

There is no prescribed form of words or design of a Cheque, but in order to fulfill the

requirements mentioned in Section 6 above the Cheque must have the following.

a) It should be in writing

b) The unconditional order

c) Drawn on specific banker only

d) Payment on Demand

e) Sum Certain in money

f) Payable to a specific person

g) Signed by the drawer

5.1.5) Parties to Cheque

The normal Cheque is one in which there is a drawer, a drawee banker and a payee, or no payee

but bearer.

a) The Drawer

b) The Drawee

c) The Payee

5.1.6) Types of Cheques

Bankers in Pakistan deal with three types of cheques

a) Bearer Cheques

Bearer cheques are cashable at the counter of the bank. These can also be collected through

clearing.4

b) Order cheque

These types of cheques are also cashable on the counter but its holder must satisfy the banker

that he is the proper man to collect the payment of the cheque and he has to show his

identification. It can also be collected through clearing.

c) Crossed Cheque

These cheques are not payable in cash at the counters of a banker. It can only be credited to the

payee’s account. If there are two persons having accounts at the same bank, one of the account

holder issues a cross-cheque in favour of the other account holder. Then the cheque will be

credited to the account of the person to whom the cheque was issued and debited from the

account of the person who has actually issued the cheque.

5.1.7) Payment of Cheques

It is a banker’s primary contract to repay money received for his customer’s account usually by

honouring his cheques. Payment of money deposited by the customer is one of the root functions

of banking. The acid test of banking is the receipt of money etc. from the depositors, and

repayment to them. This paying function is one, which is the distinguishing mark of a banker and

differentiates him from other institutions, which receive money from the public. However the

bankers’ legal protection is only when payment is in ‘Due Course’. The payment in due course

means payment in accordance with the apparent tenor of the instrument, in good faith and

without negligence to any person in possession thereof under circumstances, which do not afford

a reasonable ground of believing that he is not entitled to receive payment of the amount therein

mentioned. It is a contractual obligation of a banker to honor his customer’s cheques if the

following essentials are fulfilled.

a) Cheques should be in a proper form:

b) Cheque should not be crossed:

c) Cheque should be drawn on the particular bank:

d) Cheque should not mutilated:

e) Funds must be sufficient and available:

f) The Cheque should not be post dated or stale:

g) Cheque should be presented during banking hours:

5.2 CLEARANCE DEPARTMENT

A clearinghouse is an association of commercial banks set up in given locality for the purpose of

interchange and settlement of credit claims. The function of clearinghouse is performed by the

central bank of a country by tradition or by law. In Pakistan, the clearing system is operated by

the SBP. If SBP has no office at a place, then NBP, as a representative of SBP act as a

clearinghouse.

After the World War II, a rapid growth in banking institutions has taken place. The use of

cheques in making payments has also widely increased. The collection as settlement of mutual

obligations in the form of cheques is now a big task for all the commercial bank. When Cheque

is drawn on one bank and the holder (payee) deposits the same in his account at the bank of the

drawer, the mutual obligation are settled by the internal bank administration and there arises no

inter bank debits from the use of cheques. The total assets and total liabilities of the bank remain

unchanged.

In practice, the person receiving a Cheque as rarely a depositor of the cheque at the same bank as

the drawer. He deposits the cheque with his bank other than of payer for the collection of the

amount. Now the bank in which the cheque has been deposited becomes a creditor of the

drawer’s bank. The depositor bank will pay his amount of the cheque by transferring it from cash

reserves if there are no offsetting transactions. The banks on which the cheques are drawn

become in debt to the bank in which the cheques are deposited. At the same time, the creditors’

banks receive large amounts of cheques drawn on other banks giving claims of payment by them.

The easy, safe and most efficient way is to offset the reciprocal claims against the other and

receive only the net amount owned by them. This facility of net inter bank payment is provided

by the clearinghouse.

The representatives of the local commercial banks meet at a fixed time on all the business days

of the week. The meeting is held in the office of the bank that officially performs the duties of

clearinghouse. The representatives of the commercial banks deliver the cheques payable at other

local banks and receive the cheques drawn on their bank. The cheques are then sorted according

to the bank on which they are drawn. A summary sheet is prepared which shows the names of

the banks, the total number of cheques delivered and received by them. Totals are also made of

all the cheques presented by or to each bank. The difference between the total represents the

amount to be paid by a particular bank and the amount to be received by it. Each bank then

receives the net amount due to it or pays the net amount owed by it.

5.2.1) In-Word Clearing Books

The bank uses this book for the purpose of recording all the cheques that are being received by

the bank in the first clearing. All details of the cheques are recorded in this book.

5.2.2) Out-Word Clearing Book:

The bank uses outward clearing register for the purpose of recording all the details of the

cheques that the bank has delivered to other banks.

5.3 ADVANCES DEPARTMENT

Advances department is one of the most sensitive and important departments of the bank. The

major portion of the profit is earned through this department. The job of this department is to

make proposals about the loans. The Credit Management Division of Head Office directly

controls all the advances. As we known bank is a profit seeking institution. It attracts surplus

balances from the customers at low rate of interest and makes advances at a higher rate of

interest to the individuals and business firms. Credit extensions are the most important activity of

all financial institutions, because it is the main source of earning. However, at the same time, it is

a very risky task and the risk cannot be completely eliminated but could be minimized largely

with certain techniques.

Any individual or company, who wants loan from NBP, first of all has to undergo the filling of a

prescribed form, which provides the following information to the banker.

5.3.1) Name and address of the borrower.

a) Existing financial position of a borrower at a particular branch.

b) Accounts details of other banks (if any).

c) Security against loan.

d) Exiting financial position of the company. (Balance Sheet & Income Statement).

e) Signing a promissory note is also a requirement of lending, through this note borrower

promise that he will be responsible to pay the certain amount of money with interest.

5.3.2) Principles of Advances

There are five principles, which must be duly observed while advancing money to the borrowers.

Safety

Liquidity

Dispersal

Remuneration

Suitability

a. Safety

Banker’s funds comprise mainly of money borrowed from numerous customers on various

accounts such as Current Account, Savings Bank Account, Call Deposit Account, Special Notice

Account and Fixed Deposit Account. It indicates that whatever money the banker holds is that of

his customers who have entrusted the banker with it only because they have full confidence in

the expert handling of money by their banker. Therefore, the banker must be very careful and

ensure that his depositor’s money is advanced to safe hands where the risk of loss does not exist.

The elements of character, capacity and capital can help a banker in arriving at a conclusion

regarding the safety of advances allowed by him.

b. Character

It is the most important factor in determining the safety of advance, for there is no substitute for

character. A borrower’s character can indicate his intention to repay the advance since his

honesty and integrity is of primary importance. If the past record of the borrower shows that his

integrity has been questionable, the banker should avoid him, especially when the securities

offered by him are inadequate in covering the full amount of advance.

It is obligation on the banker to ensure that his borrower is a person of character and has capacity

enough to repay the money borrowed including the interest thereon.

c. Capacity

This is the management ability factor, which tells how successful a business has been in the past

and what the future possibilities are. A businessman may not have vast financial resources, but

with sound management abilities, including the insight into a specific business, he may make his

business very profitable. On the other hand if a person has no insight into the particular business

for which he wants to borrow funds from the banker, there are more chances of loss to the

banker.

d. Capital

This is the monetary base because the money invested by the proprietors represents their faith in

the business and its future. The role of commercial banks is to provide short-term capital for

commerce and industry, yet some borrowers would insist that their bankers provide most of the

capital required. This makes the banker a partner. As such the banker must consider whether the

amount requested for is reasonable to the borrowers own resources or investment.

e. Liquidity

Liquidity means the possibilities of recovering the advances in emergency, because all the

money borrowed by the customer is repayable in lump sum on demand. Generally the borrowers

repay their loans steadily, and the funds thus released can be used to allow fresh loans to other

borrowers. Nevertheless, the banker must ensure that the money he is lending is not blocked for

an undue long time, and that the borrowers are in such a financial position as to pay back the

entire amount outstanding against them on a short notice. In such a situation, it is very important

for a banker to study his borrower’s assets to liquidity, because he would prefer to lend only for a

short period in order to meet the shortfalls in the wording capital. If the borrower asks for an

advance for the purchase of fixed assets the banker should refuse because it shall not be possible

for him to repay when the banker wants his customer to repay the amount. Hence, the baker must

adhere to the consideration of the principles of liquidity very careful.

f. Dispersal

The dispersal of the amount of advance should be broadly based so that large number of

borrowing customer may benefit from the banker’s funds. The banker must ensure that his funds

are not invested in specific sectors like textile industry, heavy engineering or agriculture. He

must see that from his available funds he advances them to a wide range of sector like

commerce, industry, farming, agriculture, small business, housing projects and various other

financial concerns in order of priorities.

Dispersal of advances is very necessary from the point of security as well, because it reduces the

risk of recovery when something goes wrong in one particular sector or in one field.

g. Remuneration

A major portion of the banker’s earnings comes form the interest charged on the money

borrowed by the customers. The banker needs sufficient earnings to meet the following:

a) Interest payable to the money deposited with him.

b) Salaries and fringe benefits payable to the staff members.

c) Overhead expense and depreciation and maintenance of the fixed assets of the bank.

d) An adequate sum to meet possible losses.

e) Provisions for a reserve fund to meet unforeseen contingencies.

f) Payment of dividends to the shareholders.

h. Suitability

The word “suitability’ is not to be taken in its usual literary sense but in the broader sense of

purport. It means that advance should be allowed not only to the carefully selected and suitable

borrowers but also in keeping with the overall national development plans chalked out by the

authorities concerned. Before accommodating a borrower the banker should ensure that the

lending is for a purpose in conformity with the current national credit policy laid down by the

central bank of the country.

5.3.3 Forms of Loans

In addition to purchase and discounting of bills, bankers in Pakistan generally lend in the form of

cash finance, overdrafts and loans. NBP provides advances to different people in different ways

as the case demand.

a) Cash Finance

This is a very common form of borrowing by commercial and industrial concerns and is made

available either against pledge or hypothecation of goods, produce or merchandise. In cash

finance a borrower is allowed to borrow money from the banker up to a certain limit, either at

once or as and when required. The borrower prefers this form of lending due to the facility of

paying markup/services charges only on the amount he actually utilizes.

If the borrower does not utilize the full limit, the banker has to lose return on the un-utilized

amount. In order to offset this loss, the banker may provide for a suitable clause in the cash

finance agreement, according to which the borrower has to pay markup/service charges on at

least on self or one quarter of the amount of cash finance limit allowed to him even when he does

not utilize that amount.

b) Overdraft/Running Finance

This is the most common form of bank lending. When a borrower requires temporary

accommodation his banker allows withdrawals on his account in excess of the balance which the

borrowing customer has in credit, and an overdraft thus occurs. This accommodation is generally

allowed against collateral securities. When it is against collateral securities it is called “Secured

Overdraft” and when the borrowing customer cannot offer any collateral security except his

personal security, the accommodation is called a “Clean Overdraft”. The borrowing customer is

in an advantageous position in an overdraft, because he has to pay service charges only on the

balance outstanding against him. The main difference between a cash finance and overdraft lies

in the fact that cash finance is a bank finance used for long term by commercial and industrial

concern on regular basis, while an overdraft is a temporary accommodation occasionally resorted

to.

c) Demand Financing/Loans

When a customer borrows from a banker a fixed amount repayable either in periodic installments

or in lump sum at a fixed future time, it is called a “loan”. When bankers allow loans to their

customers against collateral securities they are called “secured loans” and when no collateral

security is taken they are called “clean loans”.

The amount of loan is placed at the borrower’s disposal in lump sum for the period agreed upon,

and the borrowing customer has to pay interest on the entire amount. Thus the borrower gets a

fixed amount of money for his use, while the banker feels satisfied in lending money in fixed

amounts for definite short periods against a satisfactory security

5.4 REMITTANCE DEPARTMENT

Remittance means a sum of money sent in payment for something. This department deals with

either the transfer of money from one bank to other bank or from one branch to another branch

for their customers. NBP offers the following forms of remittances.

a) Demand Draft

b) Telegraphic Transfer

c) Pay Order

d) Mail Transfer

5.4.1) Demand Draft

Demand draft is a popular mode of transfer. The customer fills the application form. Application

form includes the beneficiary name, account number and a sender’s name. The customer deposits

the amount of DD in the branch. After the payment the DD is prepared and given to the

customer. NBP officials note the transaction in issuance register on the page of that branch of

NBP on which DD is drawn and will prepare the advice to send to that branch. The account of

the customer is credited when the DD advice from originating branch comes to the responding

branch and the account is debited when DD comes for clearance. DD are of two types.

a) Open DD: Where direct payment is made.

b) Cross DD: Where payment is made though account.

NBP CHARGES FOR DD5

I. Up to Rs. 50,000/- is Rs 50/- only

II. Over Rs. 50,000/- is 0.1%

5.4.2) Pay Order

Pay order is made for local transfer of money. Pay order is the most convenient, simple and

secure way of transfer of money. NBP takes fixed commission of Rs. 25 per pay order from the

account holder and Rs. 100 from a non-account holder.

5.4.3) Telegraphic Transfer

Telegraphic transfer or cable transfer is the quickest method of making remittances. Telegraphic

transfer is an order by telegram to a bank to pay a specified sum of money to the specified

person. The customer for requesting TT fills an application form. Vouchers are prepared and sent

by ordinary mail to keep the record. TT charges are taken from the customer. No excise duty is

charged on TT. The TT charges are:

Telegram/ Fax Charges on TT = Actual-minimum Rs.125.

Cable telegram transfer costs more as compared to other title of money. In cable transfer the

bank uses a secret system of private code, which is known to the person concerned with this

department and branch manager.

5.4.4) Mail Transfer

When the money is not required immediately, the remittances can also be made by mail transfer

(MT). Here the selling office of the bank sends instructions in writing by mail to the paying bank

for the payment of a specified amount of money. Debiting to the buyer’s account at the selling

office and crediting to the recipient’s account at the paying bank make the payment under this

transfer. NBP taxes mail charges from the applicant where no excise duty is charged. Postage

charges on mail transfer are actual minimum Rs. 40/- if sent by registered post locally Rs.40/- if

sent by registered post inland on party’s request.

5.5 HUMAN RESOURCE MANAGEMENT

Human Resource plays a vital role in the success of every service organization. They interact

between man and machine. Their attitude can win or loose the customer. The positive attitude

could only be created in a conducive environment, which can make the staff dedicated towards

the organization and its objectives. In reality the man is more important than machine as it is the

human which could get maximum out of machine to keep a happy customer. However, most

organizations give little importance to this very important asset.

Various aspects related to human resource of National Bank of Pakistan are critically examined

in the following text:

5.5.1) Selection & Recruitment

Although the Bank believes in merit but in practice the selection of employees is not done on

merit. Most of the employees are low educated. This shows that candidates with some strong

family background or political pressure are given preference in recruitment and qualified

candidates are sometimes left behind.

5.5.2) Job for Life

Like the employee of public sector organizations in Pakistan, the employees of NBP also enjoy

their job for life. Since there is no risk of early retirement or redundancy in rank, they do not

perform with their full potentials. This is one redundancy in rank, they do not perform with their

full potentials, and this is one of the reasons responsible for the low productivity of the

employees of the Bank.

5.5.3) Performance Appraisal

The performance of employees of the Bank are appraised though their annual confidential

reports at the end of each year. This has become an outdated method of performance appraisal

and no longer used due to the following reasons:

1. The performance of employees is evaluated after quite a long time.

2. Element of subjectivity is involved in this method.

3. Employee’s participation is not ensured in the process of evaluation.

4. Objectives of employee’s are not quantified.

5.5.4) Inter Personal Relationship

Modern management acknowledges human resources as one ‘of the most important assets of an

organization. But by their very nature, human beings are also the most unpredictable. Where a

number of persons work together, interactions among them, of necessity, will lead to conflicts

and NBP is no exception. Most interpersonal conflicts in NBP can be traced back to the

following major heads.

Lack of Communication

Lack of communication is for the biggest reason for conflicts. Not only it is due to the failure to

send a massage but to an interpretation given to the massage by the receiver is different from that

intended.

5.5.5) Diversity in Values

Diversity in values, perceptions, cultural background and life-style is another reason responsible

for inter personal conflicts in NBP. Different values and perceptions about the same issue, event

or personality hinder understanding. When things come to such a pavement, therefore,

interpersonal conflicts are generated.

The dominant trend in all modern industrial societies of the world is merit and expertise, which

helps promote cohesion and reduce conflicts. But the feudalistic mindset is still very strong in

our set up and there is no tradition of tolerance for differing viewpoints. Hence, interpersonal

conflicts are generated.

5.5.6) Corruption

Our social acceptance of corruption gives rise to corruption at every level of social and

organizational set up. Corruption involves financial embezzlement, favoritism, nepotism,

cronyism and other number of such practices. All these cause resentment that keep building up

and lead to conflict sooner or later.

In the past few years, some cases of frauds have happened in different branches. The reasons can

be linked with the employee dissatisfaction of NBP.

5.5.7) Discipline & Authority

Maintaining discipline and implementation of authority (tables) in letter and spirit is the key to

success of any organization. In NBP, The authority tables are not strictly maintained. Line

managers are not fully equipped with the authority with no vertical or horizontal interference.

5.6) DEPOSIT DEPARTMENT: -

It controls the following activities:

a) A/C opening.

b) Issuance of cheque book.

c) Current a/c

d) Saving a/c

e) Cheque cancellation

f) Cash

5.6.1 Account opening

The opening of an account is the establishment of banker customer relationship. Before a banker

opens a new account, the banker should determine the prospective customer’s integrity,

respectability, occupation and the nature of business by the introductory references given at the

time of account opening. Preliminary investigation is necessary because of the following reasons.

i. Avoiding frauds

ii. Safe guard against unintended over draft.

iii. Negligence.

iv. Inquiries about clients.

There are certain formalities, which are to be observed for opening an account with a bank.

Formal Application

Introduction

Specimen Signature

Minimum Initial Deposit

Operating the Account

1. Pay-In-Slip Book

2. Pass Book

3. Issuing Cheque Book

a) Qualification of Customer

The relation of the banker and the customer is purely a contractual one, however, he must have

the following basic qualifications.

He must be of the age of majority.

He must be of sound mind.

Law must not disqualify him.

The agreement should be made for lawful object, which create legal relationship

Not expressly declared void.

b) Types of Accounts

Following are the main types of accounts

1) Individual Account

2) Joint Account

3) Accounts of Special Types

Partnership account

Joint stock company account

Accounts of clubs, societies and associations

Agents account

Trust account

Executors and administrators accounts

Pak rupee non-resident accounts

Foreign currency accounts1

5.6.2 Issuing of cheque book:

This deptt issue cheque books to account holders.

Requirements for issuing cheque book

a) The account holder must sign the requisition slip

b) Entry should be made in the cheque book issuing book

c) three rupees per cheque should be recovered from a/c holder if not then debit his/her account.

5.6.3 Current account

These are payable to the customer whenever they are demanded. When a banker accepts a

demand deposit, he incurs the obligation of paying all cheques etc. drawn against him to the

extent of the balance in the account. Because of their nature, these deposits are treated as current

liabilities by the banks. Bankers in Pakistan do not allow any profit on these deposits, and

customers are required to maintain a minimum balance, failing which incidental charges are

deducted from such accounts. This is because the depositors may withdraw Current Account at

any time, and as such the bank is not entirely free to employ such deposits.

Until a few decades back, the proportion of Current Deposits in relation to Fixed Deposits was

very small. In recent years, however, the position has changed remarkably. Now, the Current

Deposits have become more important; but still the proportion of Current Deposits and Fixed

Deposits varies from bank to bank, branch to branch, and from time to time.

5.6.4 Saving account

Savings Deposits account can be opened with very small amount of money, and the depositor is

issued a cheque book for withdrawals. Profit is paid at a flexible rate calculated on six-month

basis under the Interest-Free Banking System. There is no restriction on the withdrawals from

the deposit accounts but the amount of money withdrawn is deleted from the amount to be taken

for calculation of products for assessment of profit to be paid to the account holder. It

discourages unnecessary withdrawals from the deposits.

In order to popularize this scheme the State Bank of Pakistan has allowed the Savings Scheme

for school and college students and industrial labor also. The purpose of these accounts is to

inculcate the habit of savings in the constituents. As such, the initial deposit required for opening

these accounts is very nominal.

5.6.5 Cheque cancellation:

This deptt can cancel a cheque on the basis of;

a) Post dated cheque

b) Stale cheque

c) Warn out cheque

d) Wrong sign etc

5.6.6 Cash

This deptt also deals with cash. Payment of cheques, deposits of cheques etc.

5.7 FOREIGN EXCHANGE/DEPARTMENT:

This deptt mainly deals with the foreign business. The main functions of this deptt are:

a) L/C dealing.

b) Foreign currency accounts dealing.

c) Foreign Remittance dealing.

5.7.1 L/C dealing

NBP is committed to offering its business customers the widest range of options in the area of

money transfer.  If you are a commercial enterprise then our Letter of Credit service is just what

you are looking for. With competitive rates, security, and ease of transaction, NBP Letters of

Credit are the best way to do your business transactions.

5.7.2 Foreign currency account dealing:

This deptt deals with the foreign currency accounts which mainly include dollar account, euro

account etc.

5.7.3 Foreign Remittance dealing.

This is very important function of this deptt.

B) DEPARTMENTATION OF HAYAT ABAD TOWNSHIP BRANCH NBP.

Dividing an organization into different parts according to the functions is called

departmentation. So NBP Hayatabad township branch is divided into two main parts.

1. Cash Department

2. General Banking Department.

5.1 Cash Department:

Cash department mainly deals in cash. The Head of department is Mr. Imdad Khan and

two cashier Mehraban Shah and Faiq Shah the objective of cash department.

“To facilitate people in the payments of their bills and taxes and repayments of cash”

There are two main functions of cash department.

i. Payment ii. Receipts

i. Payments are the function that they pay their cheques and pay cash.

ii. Receipts mean collection of utilities bills, taxes etc.

5.2 General Banking

In this section of the bank the general banking function is performed. It is divided into

five departments.

i. Remittances Department.

ii. Computer Department.

iii. Advances Department.

iv. Clearing Department.

v. Establishment Department.

5.2.1 Remittances Department:

This department is header by Zahoor Ahmad a very competent person. The objective of this department is:-

“To transfer the money of people from one place to another place in safe and comparable

way”

The main functions of this department are:

i. Issuing of demand draft.

ii. Issuing of Mail transfer.

iii. Issuing of Telegraphic transfer.

iv. Issuing of payment order.

v. Issuing of call deposit.

vi. Pension payments etc.

vii. Closing and scrolling of government collections.

5.2.2 Advances department:

Every bank has a department which advances money to borrowers. In NBP Hayatabad

township branch the advances department is head by the Business Manager Sir Asim and

Operation Manager Sir Pervez. Both are very competent persons. The objective of Advances

Department is

“To facilitate people by giving short term and long term loans on easy terms and

conditions”.

The main function of this Department is to take surplus money from the people at low

rates and lend this money to borrowers at high rates to earn profit.

5.2.3 Clearing Department:

A clearing house is an association of commercial banks set in State Bank of Pakistan for

the purpose of interchange and settlement of credit claims.

In NBP Hayatabad Branch this department is headed by Ameer Shehzad having experience of

about thirty years. The objective of this department is to

“To facilitate customers for payment their Cheques of other banks”.

Two type of clearing books are maintained.

i. In word clearing books:

The bank uses this book for the purpose of recording all the cheques that are being

received by the bank in the first clearing. All detail of the cheques are recorded in this book.

ii. Out word clearing book:

The bank uses outward clearing register for the purpose of recording all the details of the

cheques that the banks have delivered to other banks.

5.2.4 Computer Department:

This department headed by the accountant Tariq Afridi and two other persons Mr. Junaid and

Mr. Shahid are performing the real function.

The objective of this Department is to facilitate customers in payment of their cheques”.

The main functions performed by this department are:

a) Checking balance.

b) Deduction from balance on clearing cheques.

c) Issuing bank statements.

d) Dealing Western Union.

5.2.5 Establishment Department:

NBP Hayatabad Branch having an Establishment Department. This Department consists

of only one person Haji Misri Kha very competent and experienced person. This department

mainly deals with the branch employees. The main objective of this department is to

“To regulate bank business”.

Main functions of this department are:

a) Keeps the record of attendance of employees.

b) Employee’s salaries distribution.

c) Employee’s bonuses etc.

REFRENCES

1 Sir Paged John The law of Banking 4th edition page 431.

2 The Negotiable Instruments. Act, 1881.

3 Dr Hart Law of Banking, p.327

4 Dr Hart Law of Banking, p.327

5 Circular bank charges June 2003.page 15.

CHAPTER #6

SWOT ANALYSIS

SWOT analysis is an acronym that stands for strengths, weakness, opportunities, and threats

SWOT analysis is careful evaluation of an organization’s internal strengths and weakness as well

as its environment opportunities and threats.

“SWOT analysis is a situational which includes strengths, weaknesses, opportunities and threats

that affect organizational performance.”1

“The overall evaluation of a company strengths, weaknesses, opportunities and threats is called

SWOT analysis.”2

In SWOT analysis the best strategies accomplish an organization’s mission by:

1. Exploiting an organizations opportunities and strength.

2. Neutralizing it threats.

3. Avoiding or correcting its weakness.

SWOT analysis is one of the most important steps in formulating strategy using the organization

mission as a context, managers assess internal strengths distinctive competencies and weakness

and external opportunities and threats. The goal is to then develop good strategies and exploit

opportunities and strengths neutralize threats and avoid weaknesses.

6.1 STRENGTHS:

6.1.1 OLDEST INSTITUTION:

NBP in one of the oldest bank of Pakistan and first nationalized bank Hence its customer base is

strength from this plus point as customers have more confidence in the bank. The additional

value services as the privilege for the bank.

6.1.2 ALTERNATE DUTIES IN SBP ABSENCE

The NBP performs additional services for its customers as well as the other bank customer in the

absence of SBP.

6.1.3 MORE DEPOSITS THAN OTHER BANK

NBP has the relative competence in having more deposits than the other bank. This is because of

the confidence the customer have in the bank. The bank being the privileged and oldest bank in

banking sector of Pakistan enjoys this edge over all others, lacking it.

6.1.4 EMPLOYEE BENEFITS

The employers at NBP are offered reasonable monetary benefit. Normally two bonuses are given

Eid-Ul-Fitar & Eid-Ul-Azha. This serves as an additional benefit and competency for the bank

and a source of motivation for the employees.

6.1.5 BROAD NETWORK

The bank has another competency i.e. it has broad-basses network of branches throughout the

country also more than one branch in high productive cities. The customers are provided services

at their nearest possible place to confirm customer satisfied.

6.1.6 STRICTLY FOLLOWED RULES &REGULATION:

The employees at NBP are strict followers of rule & regulation imposed by bank. The disciplined

environment at NBP bolsters its image and also enhances the over all out put of the organization.

6.1.7 PROFESSIONAL COMPETENCE

The employees at NBP here have a good hold on their descriptions, as they are highly skilled

Professionals with back ground in business administration, banking, economics etc. These

professional competencies enable the employees to understand and perform the function and

operation in better way.

6.1.8 HEALTHY ENVIROMNMENT

The working condition in the NBP branch here is very conductive and favorable for better

output. The informal environment affects the performance of the employees in a positive way.

6.1.9 RELATION BETWEEN STAFF AND OTHER EMPLOYESS

The bank enjoys a good plus point when it comes to the employee manager relationship the

hearing as removing of discrepancies if any, between the employees, and between the manager

and employees.

6.2 WEAKNESSES

6.2.1 LACK OF MARKETING EFFORT:

The bank does not promote its corporate image, services, etc on a competitive way. Hence lacks

far behind in marketing effort .A need for aggressive marketing in there in the era marketing in

now becoming a part of every organization.

6.2.2 NBP UNDER POLITICAL PRESSURE

The strong political hold of some parties and government and their dominance is affecting the

bank in a negative way. They sometime have to provide loan under the pressure, which leads to

uneven and adjusted feeling in the bank employees.

6.2.3 FAVORITISM AND NEPOTISM

The promotions and bonuses etc in the bank are often powered by senior’s favoritism or depends

upon their wills and decision. This adds to the negative factors, which denominate the employees

thus resulting in affecting their performance negatively.

6.2.4 LACK OF FINACIAL PRODUCT

The bank falls far behind when the innovative and new schemes are considered. It has not been

involved in the tug of war between the competitors to the accounts and strengthens the existing

customer base. This stands out to be the major incompetence and weakness of the banks.

6.2.5 INEFFICIENT COUNTER SERVICES IN THE RUSH HOURS

During the rush hours, the bank is founded out to be a total flop to handle the mob of people

peaking from windows and doors. The bank has deficiency to operate in the stages of rush hours

where the people find them services entangled in a situation of nowhere because they are not

well served.

6.2.6 LACK OF COMPUTERIZED NETWORK

The bank lack the strength of being powered by the network of computers, which have saved

time, energy and would have lessened the mental stress, the employees have currently. This

would add to the strength if it were powered by network of computers.

6.2.7 LACK OF MODERN EQUIPMENT

The bank lacks the modern Equipment that is note counting machine computers. Even if there is

any equipment they lack to fall in the criteria of being rearmed as update and upgraded

6.2.8 UNEVEN WORK DISTIBUTION.

The workload in NBP is not evenly distributed and the workload tends to be more on some

employees while others abscond away from their responsibilities, which server as a demotivation

factor for employees performing above average work.

6.3 OPPORTUNITIES

6.3.1 ELECTRONIC BANKING

The world today has become a global village because of advancement in the technologies,

especially in communication sector. More emphasis is now given to avail the modern

technologies to better the performances. NBP can utilize the electronic banking opportunity to

ensure on line banking 24 hours a day. This would give a competitive edge over others.

6.3.2 MICRO FINANCING

Because of the need for micro financing in the market, there are lot of opportunities in this

regard. Other banks have already initiated, now the time has arrived when the NBP must realize

it and take on step to cater an ongoing demand.

6.4 THREATS

6.4.1 EMERGENCE OF NEW COMPETITORS

The bank is facing threats with the emergence of new competitors especially in terms of foreign

banks. These foreign banks are equipped with heavy financial power with excellent and

innovative ways of promoting and performing their services. The bank has to take initiative in

this regard or will find itself far back in competition.

6.4.2 POLITICAL PRESSURE BY ELECTED GOVERNMENT

The ongoing shift in power in political arena in the country effects the performance of the bank

has to forward loans to politically powerful persons which create a sense of insecurity and

demoralization in the customer as well as employees.

6.4.3 DOWNSIZING

The bank is currently acting upon the policy of downsizing which threaten the environment of

the bank Employees feel insecurity in doing their jobs and work, hence affecting the over all

performance of employees negatively.

6.4.4 CUSTOMERS COMPLAINTS

There exists no regular and specific system of the removal of customer complaints. Now a day a

need for total customer satisfaction is emerging and in their demanding consequences customer's

complaints are ignored

6.5 COMPETITIVE ANALYSIS

Porter’s five forces model: 3

This approach is widely used for competitive analysis. It is because of the high intensity of

competition among companies there five main competitive forces.

6.5.1 Rivalry among competitive firms:

It is a very powerful force among the competitive forces the strategies pursued by one firm

can be successful only to extent that they provide competitive advantages over the

competitor. These competitive strategies may be lowering prices, best quality series. The

NBP offering very low charges an demand draft, telegraphy transfer, mail transfer and give

other additional services to the customers and to the Nation. Because NBP is a “Nation’s

Bank”.

6.5.2 Potential entry of new competitors:

Whenever new firms ca easily enters a particular industry, the competition increases. The

gout restriction, tariffs, patents etc can stop new firm to enter into the business as per

Banking industry is concerned this market is already very situated in Pakistan and there are

banks with quality services and low charges. So there is no threat to NBP from potential

entry and NBP is also a public sector bank because of that no other new bank not takes over

it.

6.5.3 Potential Development of substitute products:

This is the third factor affecting the competitions. There may be some other product can be

substitute the product of that industry. For example banks offering sawing schemes in

Pakistan and these schemes are also offered by GPOs in Pakistan so they must compete them

in this field. If they offer low rates than GPOs so people will go to deposit in GPOs. People

concentration high rates so that’s why sawing PLS accounts are more then current accounts.

The next examples will ATM which substitute presenting cheques at counter and encash it.

The NBP is lacking in this field. It must improve in this field to compete the competitors.

6.5.4 Bargaining Power of Suppliers:

The bargaining power of supplier affects the intensity of competition, especially when there

are a large number of suppliers. In case of banks the suppliers are customers they supply the

money to banks. Now they must offer good services, quality, and safety. Low charges etc to

customers. In this field NBP is very good. B/C at offers good quality services to customers.

They charge low charges on remittances. So that’s it is competitions other banks.

6.5.5 Bargaining Power of Consumers:

When customers are concentrated or large, or buy in volume, their bargaining power

represents a major force affecting intensity of competition. Now the number customers in

Pakistan for banks are very high. Banks offering variety of products and services to their

customers. NBP have a large number of customs. Now it must offer good services and

products to their customers to attract them to come to NBP.

References

1. Daft l Richerd “Management” 4th Edition Pages 254, 256, 269.

2. Kottler Philip “Marketing Management” Millennium Edition Page 76.

3. Fred R. David “Strategic Management Concepts Cases” 7th edition.

FINANCIAL ANALYSIS

Financial analysis, though varying according to the particular interests of the analyst, always

involves the use of various financial statement primarily the balance sheet and income statement.

The balance sheet summarizes the assets, liabilities, and owner’s equity of a business at a point

in time, and thee income statement summarizes revenues and expenses of the over a particular

period f time. A conceptual framework for financial analysis provides the analyst with an

interlocking means for structuring the financing.

7.1 National Bank of Pakistan Ten Years Performance at glance

Years 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994ItemsTotal assets

471860 432803 415089 371636 350406 417680 400890 369236 320180 271779

Deposits 395568 362866 349617 316493 294754 273391 254863 235032 208283 170476Advances 160990 140547 170319 140318 122559 109356 105598 85854 81528 62548Investment 166196 143525 71759 72609 91486 102356 109485 108206 95649 85094S,s holder equity 18134 14279 11959 11378 10358 9987 9203

7046 7842 7233

pre tax profit 9009 6045 3016 1023 520 2135 996

(1260) 3081 2799

After tax profit 4198 2253 1149 461 31 0 0

-------- ------ -------

Earning per share 10.23 5.49 3.08 1.24 0.21 0 0

------- ----- -------

Return on assets 2% 1.40% 0.80% 0.30% 0.20% 0 0.00%

---------- ------ -----

No of Branches 1189 1204 1245 1428 1431 1434 1468

1555 1537 1463

No of Employees 13272 12195 15163 15351 15541 15785 18096

23730 21549 20667

(Source Annual reports 1998, 2000, 2002, 2003)

From the above table it is very much clear that the NBP performance is going higher and higher

total assets are at the crest in 2003. If we draw a graph this will shows that the graph is upward

trend. Profit is increasing from year to year. NBP decrease the number of its branches and

employees because of automation and large networks of other banks. But this bank can compete

and now NBP is the best bank of year.

7.2 RATIO ANALYSIS

Financial analysis is the process of identifying the financial strengths and weakness of the firm

by properly establishing relation ship between the items of balance sheet and profit and loss

account, in order to make rational decision in keeping with the objective of the organization, for

that purpose the management use analytical tools. To evaluate the financial condition and

performance of the business entity, the financial analyst needs to perform "checkups" on various

aspects of the business financial health.

A tools frequently used during these checkups is a financial ratio analysis, which relates two

piece of financial data by dividing one quantity by the other we calculate ratios because in this

way we get a comparison that may prove more useful than the raw number by themselves. The

business itself and outside providers of capital (creditors and investors) all undertake financial

statement analysis. The type of analysis varies according to the specific interest party involved.

The nature of analysis is depending at the purpose of analyst.

7.3 Parties interested in ratio analysis

7.3.1 Trade creditors

Trade creditors are interested in firm's ability to meet their claims over a very short period of

time. Their analysis will, there fore confine to the evaluation of the firm's liquidity positions.

.7.3.2 Suppliers of long-term debt

Suppliers of long-term debt on the other hand are concerned with firm's long-term solvency and

survival. They analysis the firms profitability over time, its ability to generate cash to be able to

pay interest and repay interest and repay principal and the relationship between various source of

funds. (Capital structure relationship).

Long-term creditors do analyses the historical financial statements but they place more emphasis

on the firm's projected financial statement to make analysis about its future solvency and

profitability.

7.3.3 Investors

Investors who have invested their money in the firms share are most concerned about the firm

steady growth in earning. As such, they concentrate on the analysis of the firm's present and

future profitability. They are also interested in the firms financial structure of the extent it

influence the firms earning ability and risk.

7.3.4 Management.

An organization would be interested in every aspect of the financial analysis. It is their overall

responsibility to see that the resources of the firm are used most effectively and efficiently and

that the firm's financial condition is sound.

So thus management employee financial analysis for the purpose of internal control and to better

provide what capital supplier seeks in financial condition and performance from the business and

from an internal control standpoint, management needs to take financial analysis in order to plan

and control effectively.

7.4 Ratio analysis

Ratio is the comparison between two figures of balance sheet and income statement.

7.4.1 Cash Ratio:

“This ration is obtained by dividing cash by current liabilities / liabilities”.

This ratio shows that the cash is enough for payment of current liabilities or not.

It is calculated as cash Ratio=Cash/current liabilities

Table 3

Year 1997 1998 1999 2000 2001 2002 2003

Cash Ratio 0.118 0.169 0.19 0.21 0.22 0.15 0.134

Graph 1

00.050.1

0.150.2

0.25

ratio

1997 1999 2001 2003

years

Cash Ratio

Cash Ratio

It means that how much cash is available for payment its current liabilities. This ratio of NBP

shows a downward trend. Because of high advances cash is less to cover its current liabilities.

7.4.2 Gross Profit Margin Ratio:

“This ratio shows the profit margin in sales/ revenue”.

This is calculated as.

Gross profit/ interest earned

Table 4

Year 1997 1998 1999 2000 2001 2002 2003

Gross profit margin

% 24.8 27.7 28.9 29.59 39.67 46.6 51.9

Graph2

Gross profit margin%

0 20 40 60

1997

1999

2001

2003

ye

ar

ratio

Gross profitmargin%

G. profit margin relates profit of the organization to its sales (interest earned in case of Bank).

From calculation it is very much clear that the gross profit margin ration have upward trend

which shows that how much they using their deposits to earn interest. This show the profit of the

firm relative to its revenue. It is a measure of the efficiency of the firm’s operations too. As it is

clear that the ratio gong high this is the indication of good performance.

7.4.3 Net Profit Margin:

This ratio measure the firm’s profitability of sales/ interest earned after taking account of all

expenses and income taxes.

This ratio can be calculated as:

Net profit margin ration = Net Profit after taxes / interest earned

Table5

Year 1997 1998 1999 2000 2001 2002 2003

Net profit Margin

% 0.2 1.6 1.7 1.55 3.67 3.18 21.6

Graph3

Net profit Margin %

010

2030

year

rati

o Net profitMargin %

Explanation: from the calculation and graph it is very much clear that the performance of NBP is

very good. And the trend is upward. It tells us a firm’s net income per rupee of revenue. As the

trend is upward it shows the high profits in revenue per rupee in case of NBP. It is because of

high advances the NBP has given to the people.

7.4.4 Return on Equity:

Dividing profit after taxation by share holder’s equity. ROE compares net profit after taxes to the

Share holder’s Equity.

This ratio is calculated as:

ROE=Profit after taxes/Share holder’s Equity

Table6

Year 1997 1998 1999 2000 2001 2002 2003

Return on Equity 0.67 5.3 0.2 2.7 6.55 9.4 23.1

Graph4

Return on Equity

0102030

year

ratio Return on Equity

Explanation: from the calculation it is clear that the ROE Ratio have an upward trend of NBP. It

is because of high net profit they have earned. It tells us the earning power on the shareholder’s

investments. It is because of high investments by NBP and effective expense management.

7.4.5 Return On Assets:

This ratio shows the efficiency of organization that how efficiently utilizes their assets. This ratio

relates profits to assets.

It is calculated as:

Profit after Tax/Total Assets

Table7

Year 1997 1998 1999 2000 2001 2002 2003

Return on assets 0.01 0.16 0.008 0.124 0.225 0.52 0.9

Return on assets

0 0.5 1

1997

1999

2001

2003

ye

ar

ratio

Return onassets

Graph5

From calculation it is clear that this ration of NBP is going high and high. It shows that NBP

using it’s assets very efficiently. That is why they are earning very high profits. This shows that

how efficiently they investing the assets that’s why they are earning high profits.

7.4.6 Investment deposit Ratio:

This ratio shows the comparison of investments and deposits. This is calculated as.

Investment deposit Ratio=Investment/deposits

Table8

Year 1997 1998 1999 2000 2001 2002 2003

Investment Deposit

ratio 42.9 37.7 31.03 22.94 20.54 39.66 42.01

Graph6

01020304050

ratio

1997 2000 2003

year

Investment Deposit ratio

InvestmentDeposit ratio

Explanation: From above table and graph it is very much clear that NBP are using their deposit

very efficiently. And earning high profits. The ratio has an upward trend, which shows the

performance of NBP is very good. Now it is the retraction from top management to invest 30%

of its deposits. This may reduce its profits. But can be fruitful in long term.

7.4.7 Debit to Equity Ratio:

This ration shows the amount contributed by creditors and shareholders. It shows to what extent

the firm is using borrowed money. It is computed simply dividing the total debt of the fire by its

shareholders equity.

This calculated as.

Total debt/shareholder’s equity

Table9

Year 1997 1998 1999 2000 2001 2002 2003

Debt to equity

ratio 32.42 31.4 30.4 20.9 22.7 28.6 24.5

Graph7

Debt to equity ratio

0 20 40

1997

1999

2001

2003

yea

r

ratio

Debt to equityratio

From the table and graph it is clear that this ratio is decreasing which show the high efficiency

of NBP. In 2002 it was high but in 2003 it decreases to 24.5 from 28.6 which is a good sign.

Here the creditors are interested in low ratio. The lower the ratio the high the level of the fire’s

financing that is being provided by the shareholders.

7.4.8 Debt to assets ratio:

This ratio shows that to which extent the organization assets are financed by debit. It is

calculated as.

Total debt/total asset

Table1

Yea

r 1997 1998 1999 2000 2001 2002 2003

Debt to asset

ratio 0.94 0.944 0.957 0.954 0.92 0.954 0.961

Graph8

0.880.9

0.920.940.960.98

ratio

1997 1999 2001 2003

year

Debt ratio

Debt ratio

This ration is directly related to risk high ratio means high risk and low ratio means low risk.

From calculation it is clear that the ratio is decreasing which show low risk. This ratio serves the

similar purpose to the debt to equity ratio. This ratio is high because of more deposits in the

bank, and deposits are the liability of customer on bank

7.4.9 Advances deposit Ratio:

This ratio show that how much efficiently the bank advances the deposits of their customer to

borrower.

It is calculated as.

Advances deposit ratio = Advances/ deposit

Table11

Year 1997 1998 1999 2000 2001 2002 2003

Advances deposits ratio 0.414 0.399 0.416 0.443 0.487 0.387 0.406

Graph9

00.10.20.30.40.5

ratio

1997 2000 2003

year

Advances Deposits ratio

AdvancesDeposits ratio

From above table and graph it is clear that the ratio is going high. Which means the efficiency on

NBP is good and they use their deposits efficiently in advancing to borrowers. Here high ratio is

required. The next side of the picture is that the people will think that is risky to deposit the

money in the bank.

7.4.10 Assets Turnover Ratio:

The relationship of net sales /revenue to total assets is known as the total asset turnover ratio. It

is calculated as.

Total revenue / total assets

Table12

Year 1997 1998 1999 2000 2001 2002 2003

Assets turnover ratio 0.099 0.097 0.093 0.079 0.075 0.079 1.07

Graph10

0 0.5 1 1.5

ratio

1997

1999

2001

2003

ye

ar

Assets turnover ratio

Assets turnoverratio

Explanation: This ratio shows us the relative efficiency with which a firm utilizes its total assets

to generate revenue. We can see that the ratio is going high and which is a good sign and shows

that NBP is utilizing its assets efficiently.

7.4.11 Price to earning Ratio:

This ratio show the relation ship b/w face price per share and earning per share. This ratio is

calculated as:

Price to earning ratio= face price of share/earning per share

Table13

Year 1997 1998 1999 2000 2001 2002 2003

Price to earning

Ratio 2.4 2.7 47.62 3.17 3.25 1.6 0.97

Graph11

0 20 40 60

year

1997

1999

2001

2003

rati

o

Price to earning Ratio

Price to earningRatio

As from the above calculations it is clear that the ratio decreased tremendously in 2003, it is

because of the reason that earning per share increased resulting in decreasing price to earning

ratio.

From calculation it is clear that it have a downward slope. It is b/c of increase in earning per

share.

7.4.12 Dividend yield:

Anticipated annual dividend divided by the market price of the stock.

It is calculated as.

Dividend yield =Total dividend/ market price

Table14

Year 1997 1998 1999 2000 2001 2002 2003

Dividend

Yield 0.2 0.1 2.3 3.32 1.63 2.45 0.23

Graph12

01234

ratio

1997 2000 2003

year

Dividend Yield

Dividend Yield

Year 2000 was best as far as dividend yield is concerned; it was mainly due to the decreased

amount of number of shares outstanding. In year 2001 increase in outstanding shares decreased

dividend yield, but due to increase in total dividend in 2002 it has recovered to 2.45.

From the above table it is clear that the dividend is increasing but in 2003 it is low. It is because

of high market price and low dividend.

7.4.13 Deposit growth Ratio:

This ratio shows the growth rate of deposits.

This is calculated as

Current year deposits- previous year deposits /previous year deposit

Table15

Year 1997 1998 1999 2000 2001 2002 2003

Deposit

growth ratio 0.08 0.07 0.08 0.07 0.1 0.037 0.09

Graph13

00.020.040.060.080.1

ratio

1997 2000 2003

year

Deposit growth ratio

Deposit growthratio

Explanation: This ratio shows an excellent move from 1997 to 2003. It upward slope which

shows that the people trust NBP and its management that our money is in safe hands. The reason

for this good move is only govt support to this bank.

7.4.14 Advances Growth Ratio:

This ratio shows the growth rate of advances. This is calculated as

Current year advances- previous year advances / previous year advances.

Table16

Year 1997 1998 1999 2000 2001 2002 2003

Advances

Growth ratio 0.23 0.04 0.12 0.14 0.21 -0.17 0.15

Graph14

Advances Growth ratio

-0.2

0

0.2

0.4

year

rati

o AdvancesGrowth ratio

Explanation: from calculation and graph it is clear that NBP show a good growth rate in respect

of advances. Only in 2002 it is negative b/c of high advances in 2001 and low advances in 2002.

This shows that NBP is utilizing the deposits efficiently.

The over all performance of NBP is very good. That’s why it is declare the best bank of the year

2003.

7.5 Predicting failure:

Where one wants to lend money to a company that is about to fail. The ability to predict

corporate failure before the event has been the holy grail of financial analysis for move than 50

years. The collapse comes much unsaddled. One a company will be successful and next year it

will be fail. For this a tool is used which is

Z=0.012A+ 0.014B + 0.033C + 0.006D = 0.010E

Where

A = net current assets total assets.

B = Retained earnings total assets.

C = Profit before interest and tax total assets

D = capitulation total debt

E = Sales total assets

Now Z score blow 1.8 was an indicator of probable failure, and a score of over 3 was seen as a

clean bill of health the advantage of this approach is that using a combination of several financial

ratios makes it less likely that the result will be affected by manipulation of financial statements.

If the portion of current asset is greater compared with total assets the healthier is short term

position.

If the retained earning is greater the greater is the extent of the company’s self financing. The

profit before tax and interest in the third ratio indicates the contribution of a company’s

profitability toward the end index score. In fourth ratio the investor’s view of the further

potential of the company is set against total debt. The last ratio shows the ability of the company

to use its assets to generate revere.

Predicting failure of NBP - 1998.

Z = 0.012(.86) + 0.014(0.026) + 0.033(0.014) + 0.006(0.13) +0.010 (0.11)

= 0.010 + 0.0004 + 0.0005 + 0.0008 + 0.001 = 0.0129

This shows that the calculation is below 1.8 and it is an indicator of failure

REFERENCES

1 National Bank of Pakistan (2000, 2003) Annual Report.

2 Block, Stanley B and Hirt Geoffrey A (1994). “Foundations Of Financial Management”

7th edition USA: Michael W Junior, p121-148

3. Van Horne James C and JR Wachowicz M. Jhon” Financial management” 11 editions

4. Meigs “Financial Accounting” 11th edition.

5. R.B Hisrich and Peter P Michael “Entrepreneurship” 5th edition.

6. Simons Harry and Smith J.M “Intermediate Accounting” 5th edition.

7. Watson James “Fundamentals of Accounting” 7th edition.

8. Sober P Parey “Advance accounting” 2nd edition .

9. Tarry Franklin “Principles of Management” 8th edition

11. Vause Bob “The Economist “Guide to analyzing companies”. 3rd edition.

WEBSITE:

www.onlinewbc.gov/docs/finance/fs.ratio/. Html

CHAPTER # 8

GENERAL OBSERVATION

I have divided general observation in four parts. Which are as under. This analysis is mainly

based on my general observation.

Problems at the branch.

Function analysis.

Administrative analysis.

Personal management’s analysis.

8.1 PROBLEMS AT THE BRANCH

8.1.1 Customer Satisfaction

In NBP customer dealing is will, but during rush hour the customer has to wait for a long time

for their turn. It’s quite hard for a new customer or potential customer to get the required

information.

8.1.2 Poor record management and filing system

During my internship I observed that filing system of branch is not good. When certain record is

needed the staff has to struggle to find it out and a lot of time is wasted.

8.1.3 Unequal distribution of work

Work is not equally distributed. On one hand some employee have to work all day without

relaxing while some others have nothing to do at all. This not only creates confusion among

employees but also hurting and disturbing for overall setup of the bank. And above all it results

in dissatisfaction among customers as well.

8.1.4 Marketing visits

A useful mode of contact is through personal marketing visits. Such visits are important in

informing and perusing the existing and potential customers about the products and creating a

sense of belongingness with them.

8.2 FUNCTIONAL ANALYSIS

8.2.1 Formal Organization

Formal organization includes the activities of two or more person, which are cautiously

determined groups and coordinated towards a given objective. It provides base when people are

able to communicate with other, when they have common purpose and they are willing to work.

In NBP, we find a formal organization. Bernard referred to an organization as a formal when the

activities of two or more persons are coordinated towards a given objective. The formal

organization comes into being when people are able to communicate with one another or willing

to act and share a purpose.

In this formal organization of NBP the activities are carried out in a more formal way. In

theoretical terms it provides basis for communication with one another but in practice it is not

exercised because an employee at high level cannot get straight away to manager or SVP and ask

him about of his problem faced by him, because first he has to talk to his immediate superior and

follow a proper channel of communication.

8.2.2 Difference between theory and practice

A vast difference exists between theory and practice and NBP has written procedure but practical

work done by employees is a bit different from written procedures.

8.2.3 Bank duty to maintain secrecy.

They don’t care about maintaining secrecy, especially during the rush hours. They speak loudly

about the account position and while getting clearance of cheque the person can easily get the

whole information from the ledge. The deposit clerk must be careful while passing any cheque.

In this regard another shortfall is in giving the information about the balance on telephone.

8.2.4 Excessive paper work

It is notified that due to the lengthy procedure of paper work the bank employee are over

burdened. They are unable to give proper attention to the clients and face difficulties in getting

their job done. One reason for lengthy procedure and excessive paper work in the bank is the

lack of computerized technology.

8.2.5 More accounts fewer deposits.

Efficient banking is one which does not emphasize on number of accounts but on greater amount

of deposits. NBP is more interested in increasing its number of account irrespective to its

deposit. The main reason behind it is that bank does not provide personalize service to all the

account holders and does not improve its quality and services

8.2.6 Delegation of authority

Manager has very limited authority; he has to take the approval from his management authority

i-e. In case of advance he has to take the approval of general and regional manager. The other

problem is created, when the manager is not present in his office, the customer have to wait for

hours. This discourages both customer and officers because they have to suffer a lot

8.3 ADMINISTRATIVE ANALYSIS

8.3.1 Job analysis is not effective

Only on the basis of job analysis it can be decided how a right person can be hired, trained,

compensated or promoted. It is very important for an organization that nature of the job is

described and job specifications are mentioned. Most of the employees are simple graduate and

do not have proper background about their job. This creates problems both for organization and

for the employees. In NBP salaries are given according to the seniority and grades. People with

simple or complex responsibility are getting the same salary and facilities. This creates

dissatisfaction among employees.

8.3.2 Carelessness in opening of account

When customer comes to open an account, the staff does not bother to check his/her place

phone number and permanent address. It is important because in case of overdraft by mistake or

anything which places his account in debit it will be difficult to trace him. On the other hand he

may be involved in any fraudulent activities against the bank. In this case the bank will be in

awkward position.

8.3.3 Lack of specialized training

NBP does not provide adequate facility of specialized training to their staff. Training is

generalized rather than specialized. As the worker finishes his training, he is inducted into a

specific field without having great deal of knowledge about the field.

In the Hayatabad branch the newly recruited employee training was not imparted, they all

learned things on the job.

8.3.4 Low Profit Rates

Most of the customers shifted their account to the National Saving Center because of the low

rates of saving deposit discourages the customers. Bank should increase their profit rates to

attract customers.

8.3.5 Poor job rotation.

There is absence of job rotation in NBP Hayatabad branch. A person placed in one department

remains their forever. It reduces career opportunities as well boredom and in the end results in

career platueing. Job rotation is very important for employee especially for those who are newly

recruited. The newly recruit should be rated in all department of the banking in order to get

familiar with working of different departments so that when they get a responsible position they

have know how of the whole system.

8.3.6 Delays in Loan Advancement

It has been observed that there are delays in sanctioning of cases form the head office, which

results in customer dissatisfaction.

8.3.7 Lack of appreciation

Another very important thing which is ignored in the bank is appreciation if the employee on

their good performance. If hard work and performance of employees is not recognized and

appreciated they become dishearten which results in decline in performance.

8.4 PERSONAL MANAGEMENT ANALYSIS

8.4.1 Need for better training program

Need of training is greatly emphasized all around the world. Training of the personnel is part of

human resource management. It has been noticed that the training program of NBP is not

adequate.

Once the candidate is selected and placed on the respective job. It becomes essential to train him

adequately for the task. They should learn new methods for motivating customers. The training

programmed of the bank should include scientific techniques to improve the decision making

and interpersonal as will individual needs of the employee both specialized to fresh as well as on

job to maintain the high standards of service.

8.4.2 Developing Managerial Leadership

Leadership is a practical term of visible, clear on objective and communicating better control on

financial and administrative matters. Manager is not only responsible for their own units in

business, but also in people terms i.e. training, recruiting, grievance handling and taking

immediate initiative in crisis situation to take major decision affection the future of the bank and

banking community.

8.4.3 Recruitment policy

Human resources are the lifeblood of the organization. If the personnel are recruited carefully

they can become asset to the organization in the case of carelessness a liability on the

organization. Bank is not following its recruitment policy properly due to favoritism, nepotism

and political pressure. Both the top authority and staff union tries their best recruit their favorites,

indulgence of political pressure add salt to the wounds. The persons selected through these

channels are infantile and do not work for the betterment for the bank.

8.4.4 Promotions

Promotion in NBP is purely on the basis of seniority, so the new young person having high

qualification remains behind for quite a lot of time. Top management and staff union put

pressure for the promotion of their favorites, which gives a sense of deprivation to the deserving

employee and their efficiency is affected. As the concept of promotion is attached with better in

terms of greater responsibility, more prestige, greater skills and increased rate of salary. Thus a

better and impartial policy of promotion needs to be followed.

8.4.5 Transfer

Transfer means when a person is shifted from one place to another place. It is done either that

person is needed more on the other branch or for improving his skill variety. It is the policy of

the Bank to transfer each employee 3 to 4 years.

8.4.6 Marketing at desk

Bank employee come in daily contact with many people who happen to deal with the casual

remittance, travelers cheques, safe custody, pensioners, depositing license fee and variety of

other functions and variety of other people with whom the Bank has no account or regular

business relationship. The Bank employees are doing very little on their own to explore the

possibilities of selling banking services to them as a marketing contributor. The entire Bank

community should make a conscious effort in addition to their normal work to explore the

possibilities of selling banking services to them. The market opportunities are hidden in every

dealing a banker handles; the question is that if he has the art and urge to seize such

opportunities.

8.4.7 Lack of business communication

There is no proper way to give information to their customer. To avoid this minor dissatisfaction

and tension in the mind of customer, and deficiency of the service, it is recommended that the

bank should provide brochures etc containing information in details.

Some general information should be placed in information notice board on the entrance where

customer can see it easily or it should be self-attractive.

Chapter # 9

GENERAL SUGGETIONS

NBP is an effectively operating and profit making organization and carrying out its activities

under a specified system of procedure. The main regulatory body is State Bank of Pakistan,

which provides policy guidelines and ensures that the money market operates on sound

professional basis. While the head office specifies the whole procedure of function and

operations. This procedure has been modernized with the passage of time with a view to

streamline the approach and underlying procedure for effective overhauling of its own

capabilities so as to bring them at par with international practices.

Here I am giving some suggestions, which in my view can add some input for efficiency and

better performance of NBP as an organization in genera and City branch in particular.

The recommendations are as follows:

9.1 Professional training

NBP staff lacks professionalism. They lack the necessary training to do the job efficiently and

properly. Although staff colleges in all major cities but they are not performing well. For this

purpose these staff colleges should be reorganized and their syllabus should be made in such a

way to help the employee understand the ever changing global economic scenario.

Banking council of Pakistan should also initiate some programs to equip the staff with much

needed professional training.

9.2 Delegation of authority

Employees of the bank should be given a task and authority and they should be asked for their

responsibility.

9.3 Performance Appraisal

The manager should strictly monitor the performance of every staff member. All of them should

be awarded according to their performance and result in the shape of bonuses to motivated and

incite them to work more efficiently.

9.4 To Over Come Problem of Space and Furniture

In the critical analysis this, problem is discussed. To overcome this problem it is suggested that a

special section should be made inside the branch. Which should only handle the treasury

function, salaries and pensions of federal personnel or the bank should do these functions in the

evening time. Also management should purchase more furniture and arrange them in such a way

which provides maximum space and convenient specially in deposit department and there should

also be convenient sitting place for customers.

9.5 Transfer

Transfer is not properly carried out. Some of the employees are continually serving at the same

post. They are simply rotated at the same branch. Therefore it is recommended that evenly

rotation of every employee should take place after every three years in different braches of the

bank.

9.6 Changes in Policies

There should not be any abrupt policies change by the upper management, as this practice hurts

the customer confidences in the bank. Government should make long term policies

9.7 Need of Qualified Staff

Required, qualified staff should be provided to branch in order to improve the functioning of the

branch. Especially a telephone operator should be appointed.

9.8 Utility Bill Charges

Bank gets Rs. 2 to 3 to processes a utility bill, and it is very tire, tough and hard job despite this

working resulting in a loss to then Rs 3 to5 per transaction. These charges should be increased to

RS 10 per bill to enable the branch to cover their handling costs and make some profit.

9.9 Link with the Head Quarter

100 major branches of NBP should established a direct link with the, head quarter

In Karachi, through Internet or Intranet. This will make the functions and decision making of the

management easier and convenient.

9.10 Credit Card

National bank of Pakistan should start its operation in credit card. These cards are very helpful

for the ordinary customer in general and the business people in particular. To make it mores

secure and to eliminate the misuse of it, the management is required to keep proper security

against the card.

9.11 Installing Validator and ATM

Validator machine is used to count the currency notes and its installation will help to eliminate to

counting errors and will save time.

This branch is situated in the City, which is supported to be the hub of business activates. In this

area an auto teller machine (ATM) is the need of the hour businessmen can easily check their

balance in the bank and also with draw their money conveniently.

9.12 Interest on Overdraft:

Overdraft is a short-term credit facility provided by the bank to its trustworthy customers free of

interest. Only bank commission is charge small amount of mark-up on the overdraft, which will

help the bank to improve its revenue position.

9.13 Clean Loans

Clean loan or clean overdraft is the credit facility extended to the customers to the customers

without any security. These types of small term loans should not be extended to anybody,

because sometime these loans are provided to blue-eyed people of the management and they

become a part of bad debts.

9.14 Cash Financing

In this mode of financing the amount of credit not utilized by the borrower is remained tax-free.

It is recommended that a small amount of interest should be charge on this amount as well

because the bank gas kept-aside the amount for that borrower and can not advance it anywhere.

9.15 Decreasing Administrative Expenses

Bank should their administrative expenses. This was Rs 8 billion in the year 2000. That can be

done by lying off the surplus pool of employee with golden handshakes scheme. The branches

that are not much used could also be closed. Employee can also be how to control the bank

expenses. That will give positive results in the future.

9.16 Needs to be Flexible in credit Policy

As mentioned earlier, NBP is very conservative in advances and loans policy. It reduces the

investment opportunities. Also loans should be given to the small businessmen and the

agriculture sector at the low markup rate. It should adopt flexible credit policy while giving

credit to the agriculture sector.

9.17 Technological Advancement

I would like to suggest that at least all the main branches of NBP should be fully computerized in

order to expedite the dealing process among bankers and their customers. Every department

should be provided a computer with adequate training (especially Advances, Deposits and

Foreign Exchange departments).

Daily records should be entered directly into these computers, (instead entering the overall daily

transactions after the banking hours). It will not only reduce transaction time, will increase

accuracy but will also be efficient as well.

Not only it will be economical but will also reduce the extra burden of work of the bank. It will

also help in reducing the use of excessive paper work.

9.18 Staff Relationship

Good relationship among staff member leads to the peak performances in any organization. I

observed that the staff relationship was normal other wise but some time I noticed that there

existed a little conformity among the staff members. Another syndrome from which the staff

suffered was that all of them considered themselves more important than others. Some of the

officers used to say that if I am absent for a day the bank would stop working. So this sort of

attitude is not good because it mars bank image and juniors’ willingness learn and work hard and

in the end will hurt the whole team.

9.19 Improper Distribution of Work

Proper distribution work leads to success in every organization. Proper distribution of work

prevents the employee from over and under work situation. So for a smooth running of an

organization proper distribution of work is the hint to be followed.

During my internship I observed that there was no proper distribution of work in the bank. I saw

that some of the employee worked like ants other sat idle starting here and there. So this created

a lot of over work situation for while relaxation for other.

9.20 Favoritism and nepotism

In the City branch during my internship I saw that when some of the employees are transfer to

other places, due to their relation with influential people and with top management they can

cancel their transfer in few weeks, when they are unsatisfied at that place.

So I suggest that in the organization there should be no favoritism, nepotism and politics and

their transfer and promotion should be made on merit and according to the rules and regulations

of the bank and provided favorable environment to the employee to show their performances.

9.21 Inter Departmental Transfer

I watched during my internship that, there is number of employee who have worked on one seat

for many a year. It can have negative effects motivation of employee who is hard working and

intelligent. Take the example of advances section. In advance section if the employee is transfer

after sixth month or seven month, how can he be able to show his performances and how can he

be able to know the bank customer in a short period of time.

9.22 Foreign currency Account

For the internship the place I have selected was City branch, which is my forefather land and I

know that from area many people have traveled to other country for different kind of jobs, and I

have heard personal complaint about the unavailability of foreign currency account in banks. So

I thick it is wonderful opportunity for the bank to open foreign currency account.

9.23 Marketing Policy

The branch should adopt various marketing strategy and promotion strategy to promote the bank

and its product.

The most important in my opinion is personal marketing; it is the most effective of all when you

think in term of branch level. But on the whole organization level, they should arrange the

seminar with in the bank and outside the bank. They should introduce various prizing schemes

just like Allied Bank. Karamad Scheme, Bank Al-Falah (monthly income earning scheme) and

various others.

They should do more advertising through newspaper and media and through channel of personal

contacts.

9.24 Complaints of Customer

There should be an information desk to provide the information and to receive the complaints of

the customer in the bank.

There is no complaint box available in the branch and not any person appointed to hear the

complaints.

Every person cannot go to the manager for the complaint because most of the people are hesitant.

So I suggest management to install a compliant box in the branch, and recruit a special person for

that guidance of the customer when they are unable to manage some difficulties in banking

matters.

9.25 Analysis of the Business:

Proper analysis of the business reports should be conducted before extending any type of loan.

For this purpose professional training of the stuff member is required.

9.26 Organizational Commitment

It is suggested that employees working on daily wages basis should be given some benefits,

which the other employees are getting. Their salaries must increase according to efficiency,

performance and service.

9.27 Managerial Leadership

In the analysis, we have discussed the difficulties of the assistant in taking any initiative;

therefore it is recommended that the assistants should he given special training to make them

ready for the leadership.

9.28 Credit Monitoring

The credit department of the bank should carries out vigilant credit monitoring. They should

ensure the proper payment of installments and the mark-up by the borrower.

The staff members who have done all the paper work of the loan extension should perform the

monitoring, as he/she will be having more information about the borrower.

9.29 Extended Banking Hours

The banking hours may be extended up to six, as being practiced by HBL opposite to it.

Some of the business community due to law and order situation are now reluctant to keep the

fund in their premises and would want to depart with it. Therefore, City Branch may extend the

night banking to cater to demand of this business community. The branch could also be opened

to cater the requirements of this business community

Limited staff:

9.30 Housing and House Hold Goods loans

Bank should initiate these loans because most of bank’s customers are middle class and they

cannot afford to buy house or house hold goods at once by their own

9.31 Avoiding Bad Debts

Great care should be taking while extending the loan. Loans should be awarded against

reasonable securities, where market value should be equal to the loan granted.

Policies should be crafted in a way to ensure that no loan is extended on political pressure. SBP

regulation for loan approval should be strictly followed. According to which the current ration of

borrower’s business must be 1:1 and the debt to equity ratio should be 60:40, means the liquidity

position of business should be healthy.

9.32 Car Financing Scheme

Another financing scheme with the name of “MARE GARE CAR FINANCING SCHEME”

should be initiated This finance scheme will help the general public to buy the car of their choice

in easy quarterly installments The bank monitors will do strict monitoring and the car will be

hypothecated with the bank against the car loan.

Scheme’s implementation plan is give in the next chapter.

CHAPTER # 10

IMPLMENTATION PLAN

From the above recommendation, two recommendations are selected for implantation plan.

10.1 IMPLEMENTATION PLAN FOR “MARE GARE CAR FINANCING SCHEME”

Implementation of this financing scheme is initiated to provide long term loans to the general

public for buying their own car in easy installments. This financing scheme will help bank to

increase its revenue immensely

10.1.1 Rules and regulations

Name of finance Mare Gare Car Financing

Minimum amount of finance Rs. 300000

Maximum amount of finance Rs. 1500000

Rate of Mark up (on daily product basis) Rs. 0.43 per Rs. 1000

Period of finance 3 or 5 years

Repayment to Bank Quarterly (12 or 20 equal installments)

10.1.2 Documents required for extension for loan

Documents of title to car.

Bank monitoring team approval certificate.

Car dealer certificate of authentication.

Insurance.

10.1.3 Securities Required for Extension of Loan

To ensure the safe recovery of loan the car will be hypothecated.

Guarantee of two 17th grade government or semi government officer.

Personal liability of the borrower.

10.1.4 Finding out Quarterly Installments

Mark up will be calculated for the whole time period and will be added to the principle amount.

The total of that will be divided by number of installments to get the amount for each installment

The formula for extracting mark up is

Mark up =F*R(1+N)

2M

Where

F = Total amount of financing

R = Rate of mark up for one year

N = Total number of installments

M = Number of installments in one year

Case study

Amount of finance Rs. 200000

Rate of mark up Rs. 0.43 per 1000

Total number of installments 20 (5 years)

Number of installments in one year 4

Rate of mark up for one year ® = .43 * 365/1000

=.157

Mark up for the whole financing will be

Mark up = 200000 * 0.157*(1+20)

2 * 4

= Rs. 82425

Now the quarterly installments will be

Quarterly installment = principal amount + total markup

Total installments

=200000 + 82425 / 20 = Rs. 14121/-

The borrower will pay Quarterly installment of Rs. 14121/-

10.2 Implementation plan for NBP Hayatabad branch “Telephone Operator”

The ingredients of the implementation plan are.

Need/problem at the branch.

Qualities of a telephone operator

Benefits of a telephone operator.

How the need created and bank’s staff decision.

The implementation plan cost.

10.2.1 Need problem at the branch.

Every organization has some problems. NBP Hayatabad branch has the problem of telephone

operator. It can save the precious time of not only manager but other staff as well. On the other

hand bank’s communication system was not doing well overall. Therefore as an internee I felt

that there should be a telephone operator who can easily handle this situation.

10.2.2 Benefits of the telephone operator

It saves precious time of the manager and staff members.

It saves the time of the customers.

Creates good impression on the customer.

Communication within the bank improves.

Communication of Bank with outside enhances.

10.2.3 How the need was created

The need for telephone operator was created because the staff members would have to leave their

work and attend the telephone but some times it would be a wrong call, other’s call or the calls

which they wanted to avoid this would not only waste their time but also affect their performance

a great deal. Therefore they think it’s useful to have a spare person for this facility.

10.2.4 ACTION/IMPLEMENTATION PLAN COST

1- Cost of HRM department

Advertisement in newspaper cost 4000

Selection cost 10000

Training cost 12000

Total HRM cost 26000

2- Telephone networking

Additional telephone sets 2500

Cable (Rs. 5/ foot, 5*800) 4000

Telephone mechanic 2000

Labor 2000

Separate cell cost 5000

Other expenses 2000

Total networking 17500

Total action plan cost 435000