The function of commercial banking and application of the fundamental principles of the depositor bank relationship have remained essentially the same since about 500 B.C. Bank operation methods and procedures, on the other hand, have undergone a constant process of evolution because of economic growth, the mounting volume of transactions and greater use of banking facilities.
As a result of these contributing factors, methods and practices necessary to handle the increased volume of detail work have been developed while an other and quicker methods have been adopted in order to cope with the increased volume, much of which has been accomplished without unduly increasing the cost of doing business.
During the last twenty years we have experienced a constant transition from the old to the new – from manual to mechanical methods and procedures – from old established practices to current techniques and to a more scientific approach to the solution of problems brought about by day to day changes in business practices.
OUR BANKING SYSTEM TODAY:
The Banking Business as we know it today is composed of three separate and distinct principal functions.
1- The acquiring of funds to invest and loan.
2- The investing of such funds in loans and bonds.
3- The servicing of such funds, such as providing of checking/saving facilities, and the collection of draft, notes and checks.
These functions, while differing in detail of operation, follow the same principles established hundreds of years go by money-lenders and exchangers.
“Banks are institution that enjoys the public money doing nothing for the public”.
According the banking ordinance 1962 sec (6),
“Banks mean the acceptance of deposit for the purpose the lending or the investment of deposit of money from the public repayable on demand or otherwise withdraw able by cheques, drafts, orders, and otherwise”
Banker includes a body of persons whether incorporated or not who carry on business of banking.
Customer is defined as one who has account with the bank, the word customer signifies a relationship in which duration is not of the essence. A person whose money has been accepted by the Bank on the footing that they undertake to honour cheques up to the amount standing to this credit is a customer of the Bank in the sense of the statute, irrespective of whether his connection is of short or long standing. All the city branches accounts are computerized.
Types of banks:
Today the principal banking and financial facilities available to serve commercial are provided, and made available to them through five types of banks.
1. Commercial Banks
2. Trust companies
3. Saving Banks
4. Saving and Loans association
5. Finance companies
Commercial banks may be defined as “moneyed” corporations, authorized by law to receive deposits and pay such funds to others on order discount and negotiate promissory notes, drafts, bills of exchange, and other evidences of debt; to lend money on real or personal security; to make collectives; and conduct such other moneyed transactions as are not inconsistent with its charter or the law under which it operates.
INTRODUCTION TO ALLIED BANK LIMITED
At the time of independence in 1947 the banks services were very badly affected and by June 30, 1948, the number of offices of scheduled banks came down to only 81 in the territories comprising Pakistan; but by December 31, 1973 there were following 14 scheduled Pakistani commercial banks with 3323 offices all over the Pakistan and 74 offices in foreign countries.
1. National Bank of Pakistan
2. Habib Bank Limited.
3. Habib bank (Overseas) Limited.
4. United Bank Limited.
5. Muslim Commercial Bank Limited.
6. Commerce bank limited.
7. Standard bank Limited.
8. Australasia bank limited.
9. Bank of Bahawalpur Limited.
10. Premier bank limited
11. Pak bank limited.
12. Sarhad Bank limited
13. Lahore commercial banks limited.
14. Punjab Provincial Cooperative bank limited.
The facts show that commercial banking has made tremendous progress and achieved a phenomenal growth since independence and that the commercial banks have duly played a vital role as a mobilizer of people’s saving to constitute the most important source of financing in country economy. However it was felt that these bank failed to ensure that the resources so mobilized by them flow in those sectors of economy where they would produce the goods and services needed badly by a very large number of people in Pakistan.
HISTORY OF ALLIED BANK LTD
ABL is the first Muslim Bank established on territory that later on became Pakistan. It was established on December 3, 1942 as Australasia Bank at Lahore with capital of 0.12 million. At that time the chairman was Kh. Bashir Baksh. ABL’s story was one of the dedication, commitment to professionalism and adaptation to changing environmental changes.
The bank’s history is divided into many phases. During 25 years of united Pakistan the bank advanced forward in all areas of its activities. 1970’s were a difficult decade for all Banks of Pakistan. In 1971 East Pakistan was separated and Australasia Bank lost its 50 branches and a lot of capital as well. Nevertheless the growth remained steady.
In 1974 all the Banks were nationalized including Australasia Bank. The small provincial Banks were merged into Australasia Bank. On 1st July 1974 the new entity was renamed as ABL of Pakistan Limited. Then it started its operations as Public sector financial institution.
Different Phases of the Bank Are as Follows:
THE PRE INDEPENDENCE PERIOD (1942-47)
Australasia Bank had the unique distinction of being closely identified with some of the country’s most Prominent leaders of the freedom moment. Such as Mian Mumtaz Daultana (Board of directors), Mian Iftikhar Hussain and Maulana Zafar Ali Khan.
The bank originally started its operation in the garage of Khawaja Bashir Baksh’s bungalow (who was the chairman) near the Lahore Railway Station. But the success of Bank enforced the directors to open its another branch in Anarkali on 1st March 1944. Kh. Bashir was first chief executive. He was the person who was really working in its development. His sincerity of purpose can be judged from his great moments.
Another branch was opened at Amaratsar in 1945. In June 1946, the bank earned the status of scheduled bank. During 1946-47 many other branches were opened at Mcleod Road Lahore, Jallandhar, Ludhiana, Agra and Delhi.
At independence the industrial and commercial sectors were underdeveloped but ABL contributed a lot in the development of these sectors.
AUSTRALASIA BANK IN PRIVATE SECTOR (1947-74)
It was the only full functional Muslim Bank on the land of Pakistan. On August 14, 1947 bank was identified with Pakistan moment. Many of its Board of Directors were prominent Muslim League leaders. Jallandhar and Ludhiana branches were attacked by rioters because of Muslim staff appointed in these branches of bank. But when the Pakistan flags wee hoisted on the branches then all the banks in India were closed down. With this, the bank lost a lot of capital and its deposits and almost 6 branches. During 1948 new branches were opened at Karachi, Rawalpindi, Peshawar, Sialkot, Sargodha, Jhang, Gujranwala and Kasur. But later on its branches were spread to Multan and Quetta. At that time, the bank financed trade in cloth and food grains and thus maintained consumer’s supplies during the riot effected early months of 1948. Australasia Bank made a profit of
50,000/= in 1947-48.
In August 1948, Australasia Bank became the first Pakistani Bank to successfully negotiate and open L/C for a Sialkot based importer of books. So it also made correspondence relations with Midland (UK), Chase Manhattan (USA) and Lloyds (India).
During the treasury functions of Federal Govt. of Pakistan and it also acted as Banker to several local Govt. Bodies and to the Punjab University during this period. Treasury functions were taken by National Bank of Pakistan in 1949. In 1950-51, Chairman was replaced with his own brother Kh. Sharif Baksh.
During 1955-56, Mr. Naseer A. Sh. became the Chairman of Board and close working relationship was forged between the new Chairman and Managing Director. This partnership proved in modernizing its operations and consolidating its financial position.
In 1963, Bank had 29 branches in various cities. And deposits were 89 million and advances were 66 million. Bank was mainly concerned with general banking and trade financing (including foreign exchange transactions). It helped a lot in development of small and medium sized business houses. These were Nishat, Crescent, Pak Cement, Haroon traders, Takht Bhai Sugar, Insaf, Punjab soap, Pak fruit and Saboor Oil Mills etc.
In 1964, 13 new branches were opened including 3 in East Pakistan. In 1965, 17 new branches were opened and over 83 % of gross profit for the year was earmarked for development expenditure in connection with opening of new branches.
In 1966 bank opened 26 new branches and doubled its reserved funds. For the first time in history, its advances were increased to Rs. 160 million and deposits raised by almost 58 % exceeding Rs. 232 million mark. In 1966, Central Office was built in Karachi but Head Office remaining at Shah Chiragh Building, Lahore.
16 new branches were opened in 1967 and 20 in 1968. Respectively their funds were increased gradually. 21 new branches were opened in 1971. But separation time the 51 branches were lost by the bank which was a big loss.
ALLIED BANK: PUBLIC SECTOR YEARS (1974-91)
Under the Nationalization Act of 1974, 14 scheduled banks were taken over by the Government. Australasia Bank’s Board of Directors was dissolved and the bank was renamed as Allied Bank of Pakistan Limited. Sarhad Bank, Lahore Commercial Bank and Pakistan Bank Limited were merged into Australasia Bank. At time of merge, ABL was second highest among all the banks Nationalized in 1974.
Allied Bank’s first Executive Board was constituted of Mr. Iqbal A. Rizvi as President, Mr. Ajmal Khalil as Joint President and Mr. Khadim Hussain Siddique as member. In 1974 Mr. I.D. Junejo and Mr. Safdar Abbas Zaidi joined the Board later. 116 new branches were opened in 1974 and it started participation in commodity Operation program of Government.
In 1970’s Bank played an important part of agricultural area loans and other loans. In 1976 Mr. Ajmal replaced Mr. Rizvi as Chief Executive and President. During 1974-77, 361 new branches were opened and 230 of these were located in villages and small towns. It also opened its foreign branch in London, near the Bank of England. In 1980 the Bank of England granted Allied Bank recognition as a full fledge Bank under the U.K. Banking Act.
In 1981, President was changed. In 1984, again new president was come to know. He tries to increase the international business. It also initiated a major counter program. In 1985, mainframe computer was installed and effective management system was developed. During this period profitability was increased. New President Mr. Maqbool introduced different schemes in 1987-88. In 1989, new 13 branches were installed.
Over 1991, 745 branches were there in all over the Pakistan.
A NEW BEGINNING
In November/ December 1990, the Government announced its commitments to the rapid privatization of the Banking sector. Allied Bank’s management under the leadership of Mr. Khalid Latif decided to react positively to this challenge. In September 1991, ABL entered in a new era of its history as world’s first bank to be owned and managed by its employees. The 850 executives and 7200 staff members spread over 750 branches throughout the Pakistan established a high degree of cooperation and family feelings
After this, it grows more and more, even at present it has 900 branches throughout the country and 4 foreign branches in U.K.
Allied bank Objectives:
Allied bank has following objectives:
i) Main objective of Allied bank is to earn profit.
ii) To provide services to their customers and assistance in the development of commerce and trade.
Allied bank also have another responsibility to give service to their communities. It watches the growth and development of his community especially the commerce and business of the area.
MANAGEMENT SYSTEM OF ABL
Successful and profitable banking management depends on two principal factors.
a) The manner in which the functions of banking, that is the acquiring of deposits, the investing or converting such deposits into earning assets, and the servicing of such deposits, are performed.
b) The degree to which officers and employees contribute their talents to the progress and welfare of the bank in discharging duties and responsibilities.
Allied Bank Management
Banks are managed by board of director or similar group of men who are responsible to the owners, creditors, and the government for the well being of their institutions. The government selects all or some of directors of ABL. Management of ABL are given as follows:
Rashid M. Chaudhry is the chairman and Mohammadi Yaqoob is secretary of ABL, are also the board of directors.ABL’s other directors are M. Saleem Shaikh, S. Jauhar Husain, I.A. Usmaini, Raja Raza Arshad, Mohammad Saleem Sethi, Athar Mahmood Khan. Stockholders elect the directors for a term of one year and they are eligible for re-election. Voting is cumulative, that is, each shareholder has the right to vote the member of shares owned by him. The boards may format major policies and select officers to execute them. They may supervise these officers, review their act.
2. Executive Committee
Executive Committee consists of Rashid M. Chaudary (president), M. Salim Shaikh, S. Jauhar Husain, I. A. Usmain, Naveed Masud, Bilal Mustafa, M. Saleem Khan Durrani, Ashfaq Hassan Qureshi, Shariqe Umar Farooqi (secretary).
Officers are selected by the directors to manage their banks. An officer’s relationship to the board is that of an employee to an employer. Chief Officer (Rashid M. Chaudary) of ABL is known as Chairman, Senior Executive Vice President (M. Saleem Sheikh, S. Jauhar,). They are also members of the board of director and are large shareholders. They are in a position, to dominate the bank’s policies as well as its administration.
The Chief duty of the chairman is to lend the bank’s funds. This work is often subject to little supervision by the board of directors.
STRUCTURE OF ABL LIMITED
No bank can be expected to operate efficiently unless all employees with in a department, division or section know:
A) From whom they are to receive the work they are to do.
B) What they are supposed to do with the work after they receive it.
C) How they are supposed to handle the operation of item.
D) When they are supposed to do work, perform the operation.
E) To whom they give the item or function after finishing it.
To perform the functions efficiently the bank has its Head Office in Karachi, which is controlled by the president of the Bank. The bank has regional office under head office in major areas of the country. Regional Chief heads this office. The region Consist of many zonal offices with a zonal chief. There are many branches in a zone to carry the functions effectively and performing customer services locally.
ABL Ltd. is functionally organized into divisions and divisions are further divided into department and sections. Every province has its own regional office and zonal offices. Executive vice president heads the divisions and departments are further headed by OGI (Officer of Grade I). Manager heads branches.
There are Four Provincial Headquarters of Allied Bank Limited situated at Lahore (Punjab), Karachi (Sind), Peshawar (NWFP & Azad Kashmir) and Quetta (Baluchistan).
7E/3, Main Boulevard, Gulberg, Lahore
Jubilee Insurance House, I.I. Chundrigar Road, Karachi
1st floor, State Life Building, The Mall,
C.C. & I Building, Zarghoon Road, Quetta.
There are 22 circles of ABL through out the country under which 46 zones are present. Their detailed is as follows:
City Circle Karachi
Sadar Circle Karachi
Nazimabad Circle Karachi
City Circle Hyderabad
Commercial Circle Hyderabad
City Circle Lahore
Project Circle Lahore
City Circle Peshawar
Cantt Circle Peshawar
Azad Kashmir Circle
Foreign Branches 4
Total Branches 929
Allied Bank Limited has five training academies, two in Lahore, two in Karachi, and one in Islamabad. In these training academies the new as well as the existing staff get training. When a new employee comes in ABL then most often he is sent to any of these academies for training. The training period may be minimum of one-month upto maximum of one year. The training period depends upon the nature of the job. During the training the new employees are acquainted with all the necessary information about their jobs.
When any change occurs in the policies of the Bank, then the seminars are held in these academies in which employee as well as executives participate to get information about the new policies of the Bank. For example if the Bank policy regarding the financing schemes change then the Managers of the Advances Section are invited in these seminars. They learn about the new changes and then implement these changes in their branches.
In these academies a permanent staff is present for the training of employees. However, if requires, subject specialists are invited to deliver lectures on certain subjects. For example the Bank has a contract with Sajjad Associates which send its executives to deliver lectures on project financing. Exams are also held in these training academies.
ORGANIZATIONAL STRUCTURE (MULTAN CIRCLE)
ALLIED BANK OF PAKISTAN
The Branch of ABL Ltd. is responsible to provide all services to its customer. This branch is located in Jahanian.
FUNCTIONS OF JAHANIAN BRANCH OF ABL LTD
There are following functions which are performed by Allied bank Limited Jahanian Branch.
The Bank provides deposit facility to its customers. The types of deposits are:
a) PLS Saving Account:
In this type, the depositor shares profit and loss with the bank.
b) Fixed Deposits
They bear high profit, but these can only be withdrawn after a fixed period of time
c) Current Accounts
No profit is paid on these deposits but amount could be withdrawn without any restriction.
REMITTING OF FUNDS
The Bank provides the facility to its customers for remitting large amounts of money in the form of bank drafts, T telegraphic Transfers and Mail Transfers to where ever the customers want.
The Senior Vice President heads the personnel department. Its head office is at Karachi. All the policies and rules, regulations etc. This department deals about personnel.
HIERARCHY OF POWER
Senior Vice President.
Assistant Vice President.
CATEGORIES OF WORKERS
The work force in the personnel department is as follows:
Officers are designated according to their grades.
ELIGIBILITY CRITERIA FOR PROMOTIONS
From Clerical to Officers Cadre
QUALIFICATION LENGTH OF SERVICE
Graduate two years
Intermediate four years
Matriculate six years
From Typist and Stenotypist and Stenotypist to Stenographer Cadre
Confirmed staff in clerical cadre.
Required shorthand typing speed.
Stenotypist 80/45 words per minute
Stenographer 120/45 words per minute
From Clerical to Non Clerical Cadre
QUALIFICATION LENGTH OF SERVICE
Intermediate one year
Matriculate two years.
For the purpose of promotion it is important consideration that an employee has rendered service in rural areas.
The probation period varies for various posts. It is usually from 1 to 2 years.
After the probation period comes the confirmation period. The branch manager refers him/her for confirmation. The confirmation of various post rights rests with the zonal/area chief. For big posts the confirmation is centralized by central office Karachi. Confirmation is made after 1 year of probationary period.
The personnel department also takes case of physical activities of the employees. They encourage the employees in physical games like cricket,
Football, tennis, hockey etc. They hold regional and zonal competitions. For
Publicity purposes the bank also employs famous players to play on behalf of the bank. In this way the bank on the other side provides financial help to our talented boys.
ABL policy is very socialistic about its employees, its motto is:
“Every employee is the owner of the bank”
Literally the bank has given power to even an officer to sell the ABL assets; the authority of an employee is unlimited. This attitude encourages the employees to get most involved in to the bank affairs. ABL also provides lot of facilities to the employees. Here is a list of loans and leaves, which can be granted to the employees:
Extra ordinary leave
Hajj and Ziarat leave
Leave preparatory leave
One can take fifteen days causal leave in one year, five days maximum at a time. The unvalued leaves are not granted in coming next year. These leaves should be availed in the respective year.
There is a criterion for sick leave.
With full pay the staff can take 12-month sick leave in the entire service of his life with out pay the staff can request the sick leave, as he/she requires.
The maternity leave is granted once in three years. It’s for female employees. It varies from 15 days to three months. The bank gives full pay during the leave.
The disability leave is conditional to following rules:
The disability is caused during the service of the employee.
It is brought into the notice for prompt action with in three months of its occurrence.
Its period lies between one day to 24 months as recommended by the doctor.
Six month pay is granted and afterwards its half pay.
Privilege leave is granted one per eleven days in a year and accumulated up to 90 days.
This leave is with out pay. When sick leave is unsatisfactory or some special occasions occurs, when no leave is due then the extra leave is granted.
HAJJ AND ZIARAT LEAVE.
It is provided after completing five years of the service. Its period extends to one month. It’s on full pay basis.
PREPARATORY AND RETIREMENT LEAVE.
It’s the kind of leave which is allowed to a person retiring from the service for the period of leave earned and due up to 90 days.
- AUTHORITY FOR LEAVE SANCTIONING
Causal and privilege leave or sanctioned by mangers, zonal chief, but all other is dealt in the central office Karachi.
Normally promotion is done on seniority basis. A promotion is due after a person has completed three years in the same grade.
CLERICAL AND NON CLERICAL STAFF.
It’s on the basis of their length of service and the written tests and qualifications.
QUALIFICATION LENGTH OF SERVICE
Matriculate. Six years service.
Intermediate. Four years service.
Graduate. Two years service.
More over interviews and tests also contribute in promotion.
LOANS FOR EMPLOYEES
Allied Bank has a long list of loans, which it offers to its employees. The hire the post is, the more facilities are given to the employees.
Loans are as follows.
PROVIDENT FUND LOAN.
Provident Fund loan is loan which is given after the retirement of the employees. Its is equal to own contribution plus the interest on the amount. Three basic salaries plus banks own contribution.
OLD OPTION BENEFITS.
In P.F.L a lumps is taken in this case and the pension is not given.
New option benefit.
In case of option pension, loan against general provident fund is allowed equal to own contribution and 3 months basic salaries.
The convince loan include scooter loan, car loan, cycle loan. Etc.
The car loan is equivalent to 12 basic salaries, which is sanctioned to officers, executives drawing basic salary of. RS. 1250. Month. Such loans bear interest of ten 10% pa. They are recoverable in 120 monthly installment
MOTOR CYCLE LOAN.
Such loans are sanctions to lower grade officers and clerical, non-clerical staff. The limit of the loan is not more then Rs. 10,000. It is conditioned that the employees have completed 3 years of service in the bank. Motor Cycle loan is interest free loan.
HOUSE BUILDING LOANS.
This loan is given if the employees have completed of full 5 years of service, as a confirmed officer. It is equal to 80 months salary.
Banks provides medical facilities to its employees. It also has fixed amount, which is limited in order for tremens of employees. The record of medical expenses is maintained at zonal office and monthly statement is sent to central office Karachi.
There is facility of TA. /DA. For employees who go on official visit out side the city.
Education allowance is given to the children of the employees and employees as well. The maximum allowance for one employee will be RS. 450. App. Per month for maximum three children.
HOUSE ALLOWANCE (RENT)
House rent allowance is upto 90% of basic salary at all stages. The house rent allowance differs according to the areas and its rates.
LOCAL COMPENSATORY ALLOWANCE
Local compensatory allowance is given in accordance with areas of work such as Islamabad and Karachi maximum Rs. 200 and at Lahore, Rawalpindi, Peshawar and Quetta it is Rs.100 per month.
The conveyance allowance is given to the employees in accordance of their designation.
The Allied Bank provides the services to top men in the bank such as Executive Vice President, Sr. Vice President, Vice president and Asst. Vice President etc.
They also provided by Mali/Chowkidar and furnishing the house is also bank facility.
There is fixed amount of telephone bills for executives/officers, which is paid every month to them.
The pension is given when an employee completes his ten years in the bank. The gratuity is given if employee qualify the rules then he can ask for the pension of 15 year at one go.
Upto clerical staff the promotions are on tests and their daily work/efficiency and their length of service. The promotion of officers is with seniority.
After the Privatization of ABL central office at Karachi is dealing with the appointments to different officers posts. And the central office also fills other executive posts. For certain posts the executives also have right to appoint the qualified persons. But the main criteria of appointment are by test and interviews.
Allied Bank has a criteria already prepared for the appointments of employees. the criteria involve:
Extra curricular activities
The candidates must be the citizens of Pakistan and the state of Jammu and Kashmir should not be more than 25 and less than 18. However in certain cases the age can be relaxed. Normally the citizen for under developed areas of Pakistan has the age relaxation. The executives also have the power to employ an over age person etc.
General banking is one of the major departments of Allied Bank, Ltd. It consists of sub department, which are following.
1. Current department
2. Token department
3. Remittance debarment
4. Clearing department
5. Accounts department
This department maintains all formalities of the accounts and accounts holder, like accounts name, account holder’s name, code No., and full address. Different cheques debit and credit voucher come from different departments like Token, Clearing, Remittance, Cash, and Foreign Exchange, Advance and posted against different accounts.
A working Journal called Manual is prepared daily which shown the balance accounts of all parties. Mark-up and profit are calculated daily. That would be debited or credited from or to Account holder’s account after specific period of time. Mark-up is debit from the account after every three month and profit is credited to accounts after every 6 month. New accounts are also opened in this department. Total function perform by this department is shown by block diagrams. These diagrams show the sequence of activities. These are simplified diagram of what is actually being done in current department and what happen to a customer who comes to open an account in the branch.
Following are the three accounts, which are maintained by this department.
- Current Account
- Saving Account
- Fixed Account
In token department, token are issued for the encashment of cheques Demand draft, Telegraphic transfer, Mail transfer and miscellaneous expanses voucher of bank before issuing term we check the following
Ø Date should be current or previous not advance.
Ø Specimen Signature of account holder should there.
Ø Signature of bearer should on backside of cheques.
Ø Amount should be same both in figure and words.
In case of DD, checking sign of authorized officer of bank if there is any discrepancy in above-mentioned point, no token would be issued. Before issuing token, we stamped on backside of cheques and write the no. Of token both front and backside of cheques, etc.
After all the process, the entry of cheques would be posted on the given register, which include token no. Code no. and amount. After banking hours. Total amount on register would be tallied with the cash department amount, that which has been paid. Any cheques that is returned from the current department because of any discrepancy, is debited from the total amount on the register in token department.
Cash department deals with the cash, which either comes in the Bank or goes out side the Bank. Cash can be in any form of currency.
SOURCES OF THE CASH
There are different sources through the cash inflows the Bank. These sources are as follows.
This is the major source of the cash inflow. When someone deposits the cash in the Bank in any currency, it means that the cash is coming in the Bank.
1. DEMAND DRAFT AND TELEGRAPHIC TRANSFER COMMISSION
These are the second major sources of the cash inflow of the Bank. When the Bank issues the DDs and TTs on the behalf of customer then the Bank takes certain charges as commission. These DDs and the TTs can be issued in any currency on the demand of the customer.
2. PRIZE BONDS, FEBCS, NDSCS ETC
Prize bonds, FEBCs, and NDSCs are other sources of cash. These instruments are sold to the general public and cash is received from them. Though this cash is ultimately transferred to SBP but still the Bank has to manage this cash.
MANAGEMENT OF CASH
It is necessary for every branch to maintain a specific amount of cash with it at any time, so that when a customer comes to get cash, he may get it promptly. If a branch is not able to maintain such appropriate level if cash then it will have a bad effect on its repute and it will not be able to fulfill the customer expectations. So effective management of cash is very necessary for every Bank. ABL has put an appropriate limit on its branches that they should keep that minimum levels of cash wit them at any time. This limit is different for main branch and other sub-branches.
TREATMENT OF SURPLUS CASH
The surplus cash means the cash, which is over and above the limit of any particular branch. It may happen that a branch may have the surplus cash with it. If a sub branch has surplus cash with it than that of limit, then it will transfer it to the main branch on daily bases. If the main branch has the surplus limit then he will transfer the surplus money to head office in Karachi through the SBP. If these surplus funds remain with the main branch, they will be of no use and will act as idle money because they are earning no profit. So these funds are remitted to the head office, where they are invested and will earn profit for the Bank. The main branch earns the profit on the funds, which it remits to the head office. Currently this rate of profit is 13%. There is no profit given on the funds which the sub-branches which they transfer to the main branch.
TREATMENT OF CASH DEFICIT
As surplus of the cash occurs, similarly the deficit can also be there in the Bank. It means that the cash shortage is there in the branch. To cover this shortage the patterns are followed. If shortage is there in sub-branch, then it may take the cash from the main branch. If the main branch has the shortage of cash, then it may take the funds from the head office. The head office charges certain rate of profit, which is 13 % on the funds, which it remits to the main branch. There is no profit charged by the main branch on the funds provided to the sub-branches.
CASH IN TRANSIT
The cash, which is transferred from any sub-branch to Main branch or from main branch to SBP is called cash in transit. There is limit of cash in transit on main branch. This limit is of Rs. 20 millions i.e main branch can take the cash from any sub-branch or can transfer the cash to SBP upto the limit to the 20 millions.
INSURANCE OF CASH
All the cash of the Bank is insured. The major companies, which insures the cash include Adamjee Insurance Corporation, General Insurance Company and East West Insurance Company. The Central Office pays all the expenses of the insurance of cash.
Few years earlier, the Bank has its own guards for the transfer of the cash from main branch to SBP or from sub-branch to the main branch. But now the Bank has hired a security company for the transference of cash. This company is “Brinks”. The commission which is charged by the Brinks company varies from place to place and is different for different amounts of cash.
The Bank is the member of the Clearing House and receives Cheques, demand drafts and other negotiable instruments for presentation of its payment by the branch of a drawee bank located within the city other then ABL. The proceeds of the clearing instruments are credited into the account of the customer. The clearing facility is available on all working days.
Wherever the clearing facility is bot available or the drawee institution is not the member of clearing house the Bank receives Cheques, demand draft or negotiable instruments for collection and upon receipt of payment from the drawee the same is credited into the account of the customer. Clearing may be outward or inward.
Suppose a customer deposits cheque in ABL HASSAN ARCADE BRANCH, drawn on Habib Bank Multan Cant branch. Then the representative of ABL HASSAN ARCADE BRANCH will take this cheque to the Clearing house in SBP, where representatives of all banks gather daily. Now in first clearing this cheque will be exchanged with the representative of Habib Bank Multan Cant branch. In the second clearing, if the cheque is honored, he will tell it to the ABL representative and so the SBP credits the account of ABL HASSAN ARCADE BRANCH and debits the Habib Bank Multan Cant branch through the clearing account. This is called Outward Clearing.
Suppose a person deposits a cheque in Habib Bank Multan Cant branch, drawn on any ABL Multan branch; let it be the ABL main branch Cant. The representative of HBL will exchange this cheque with the ABL’s representative in the first clearing in Clearing House. If the cheque is honored by the ABL main branch then SBP will debit and credit the respective accounts. This is called Inward Clearing.
The clearing between the ABLs own branches within one city is called Transfer Delivery. During this clearing Pak Account is not involved. In ABL, it is done twice in a week. The Bank charges no commission from its customers for this transfer delivery.
Bills for collection means the Cheques or DDs/TTs/POs which are received from or sent to other branches outside the city for collection, drawn on any other Bank. Bills for collection may be inward or outward.
Remittances means, the transfer of cash from one place to other place through paper transaction. Remittances may be inward and outward.
BILLS FOR COLLECTION
There are two types of bills for collection
Inward bills for collection (inland & foreign)
Outward bills for collection (inland & foreign)
INWARD BILLS FOR COLLECTION
Suppose a customer of ABL Mall Branch Lahore deposits a cheque drawn in the name of Habib Bank Multan Cant Branch. Now the ABL Mall Branch Lahore will send this cheque to ABL Main Branch of Multan for collection from Habib Bank Branch. Now ABL Main Multan branch will collect this cheque from Habib Bank Branch through clearing, and will remit the amount to the ABL Mall Branch Lahore. This is called Inward Bills for Collection (inland) for ABL Main Branch Multan. It will be recorded in Inward Bills Collection Register. In the same way if the cheque is received for collection drawn on any other Bank from Foreign Branch of ABL, then this will be called as Foreign Inward Bills for Collection. It will also be recorded in Inward Bills Collection Register.
OUTWARD BILLS FOR COLLECTION
When any branch of ABL sends a cheque or DD/TT/PO to main branch ABL in another city for collection from any other Bank, then it is known as Outward Bills for Collection. Suppose a person deposits a cheque in ABL Rashidabad Multan branch drawn on Habib Bank Lahore branch. Now ABL Rashidabad branch will send this cheque to ABL main branch Lahore for collection from Habib branch Lahore branch. ABL main branch Lahore will collect this cheque through clearing from Habib Bank branch through clearing and will remit the amount to ABL Rashidabad branch Multan. This is called) Outward Bills for Collection (inland)
and it will be recorded in Outward Bills Collection Register.
In the same way, if ABL Rashidabad branch Multan sends any cheque or DD/TT/PO to its foreign branch for collection from any other Bank, then it will be called as Foreign Outward Bills for Collection and will also be recorded in Outward Bills Collection Register.
The rate of commission for both Inward and Outward Bills for Collection is .25 %, with a limit of minimum of Rs.20, plus courier charges.
The remittances can be made through the following mode of transference.
Demand Draft (DD)
Telegraphic Transfer (TT)
Payment Order (PO)
It is a kind of cheque, which is issued by the ABL to the other banks, or other branches of the ABL on the demand of the client. On the Demand Draft there are different heads mentioned on that. Such as the amount to be sent, the name of the person to whom it is to be sent. It is very convenient and safe method of sending the money from one place to another. The businessman to transfer or send the money from one place to another usually uses it. If one person issues the DD in the name of other person, then it can be transferred to the account of the second person easily. DD can be in Pakistani Rupee or in any Foreign Currency. When DD is issued, it is given to the person, who wanted to make it. At that time Bank will have no concern with that DD but an advise is sent to the concerned branch that we have issued the DD of such amount and on the name of this person, and you will pay him on the demand of the client. This DD can be closed before the issuing the amount. On issuance the DD, Bank take some commission.
It is also a way of sending the money from one place to another. Like DD certain farms are to be filled. In this the message sill not be sent through the paper, but with the help of the fax or things like that. All other processes are same as of the DD.
It is an order issued by the Bank and payable on itself, through this client can easily transfer the money from one person to another within the same city. It is a written document on which the certain commission is to be paid and certain documents are filled by the client. For this certain amount is needed to deposit with the Bank.
PROCESS FOR REMITTANCE
All branches of ABL deal with each other through a central account named as “Pak Account”.
Pak Account is maintained in Central Office Karachi. In Central Office there is an account of every branch and all these accounts of all branches are maintained through this Pak Account. In Pak Account, a specific code has been allotted to every branch’s account. These Pak Account controls all the remittances made by different branches. Remittances may be outward or inward.
Suppose a person comes to the ABL HASSAN ARCADE BRANCH and asks to make a Demand Draft (DD) of Rs.50, 000/- in the name of beneficiary whose Bank is ABL Mall Branch Lahore. Now the ABL Multan branch will receive the cash and prepare the DD of Rs.50, 000/- and will send it to the ABL Lahore branch. At the same time it will also prepare an advice and send it to the Central Office. In this advice, the ABL Multan branch will tell the Central Office that it has sent a DD of amount Rs. 50,000/- to the ABL Mall Branch Lahore, so make its account debited by Rs. 50,000/- and make the account of ABL Mall Branch Lahore credited with the same amount This is called “Remittances Outward”
Similarly when the ABL Mall Branch, Lahore sends a DD/TT/PO or cheque to ABL Multan Cant Branch then it will be remittances inward for this branch. This type its account will be credited by central office in Pak-Account and the account of ABL Mall Branch, Lahore will be debited.
REMITTANCE IN TRANSIT
Suppose the ABL Main Branch, Multan wants to send the surplus fund to the central office Karachi. This branch will first deposit the funds in the State Bank of Pakistan, which will transfer these funds to central office, Karachi. Here the SBP acts as a cash agent. Now the ABL Multan, Branch will send an advice to central office, Karachi that it had remitted that many amounts through SBP. This is called Remittance in Transit. Now the SBP Multan, Branch will remit this fund to the SBP Karachi, Branch and from there, funds will be ultimately transferred to the central office.
In the same way when ABL Multan, Branch requires the funds then Central Office will remit these funds through SBP and will send an advice to the ABL Multan, Branch. The funds will be ultimately transferred from SBP Multan, Branch to ABL Multan, Branch. This is also Remittance in Transit.
FOREIGN BILLS AND REMITTANCES
These can be
Foreign Currency Telegraphic Transfer
Foreign Currency Demand Draft
Allied bank can transfer funds to the remotest fart of the country for payment/credit to the account of the customer himself or a third party, through Telegraph Transfer for the payment on the same or next day.
The Bank also issues the Demand draft for remittance of fund by customer. The Demand draft can be issued in favor of the purchaser himself or a third party. It is secured and convenient to send/carry, instead of cash.
In this case the authority is given to one bank from another bank on the behalf of the customers through telecommunication to debit their inter office account with them and credit his/her or party’s account mentioned in telegraphic transfer (T.T.) This is the fastest way of transferring money from one place to another within the country as well as out side the country.
As we know that when a bank issues a T.T. it is given some service to the customers, so service charges for issuing T.T’S, credit vouchers are prepared. Crediting the cable charges and a debit advice is made for the party telling them that so much services charge have been deducted from your account with us. All the TT’S are serially numbered. There are two types of TT’S.
1. Incoming TT’S
2. Out-going TT’S
So far both type of T.T’S separate registers are maintained. While issuing a TT a confidential code no. called the test numbers is also being given to TT by two authorized officers and this code number is only under stood by the two other authorized officers in the receiving bank. By this test some multiplications ‘C done which confirm the instructions in the body of T.T.
As it is clear from its name that in this case the transfer of money (in the shape of a document) takes place through mail. The procedure is like TT, that is instructions are given to the receiving bank that inter office account should be debited and ‘edited to the mentioned party’s account. It is slower as compared to the TT. Records are maintained in the same way as of telegraphic transfer, commission is also charged in the same manner but at a different rate.
Every Transaction, which takes place, is recorded in the computer. Transaction takes place through different vouchers which are finally posted to computer. As I already wrote that total branch was computerized so all transaction in different dept. Would be made on computer. Each dept prepare a summary of daily transaction ‘at is forwarded to Account dept. Since all voucher from differ-it dept. also forwarded to current dept. So this dept. will tally it such transaction with current dept after maintaining the ledger each dept.
The dept take care about bookkeeping, maintains ledger and current accounts of different dept.
Following are the different functions performed by this department.
1. Preparation of monthly, quarterly, semiannually and yearly balance sheet of the branch.
2. To maintain all accounts of different department.
3. Calculation of profit of different investment schemes.
4. Calculation of mark-up of different advances.
5. Preparation of different type of reports for state bank of Pakistan.
6. Preparation of daily position report of cash and every account.
7. The most important function is the checking and tallying daily summaries of different departments with ledger’s balance
Deposits to the bank are as the backbone to the body of man it is lifeblood of a bank. The bank borrow money from general public by accepting or by an offering suitable rate of lit on them, or simply promise to repay on demand.
When the bank receive the deposits, it become the debtor and client assumes position of creditor.
At ABL the main thrust is on customer satisfaction. The Bank provides many opportunities to place the funds in variety of deposit accounts including foreign currency deposit account and offer a wide range of facilities and services tailored to suit the personal as well as domestic and foreign business requirements of its customers. The different deposit schemes offered by ABL are as follows:
1. Current Deposit Scheme
The purpose of this account is to provide the facility to the account holder that he can deposit or withdraw any amount of money from his balance at any time.
Deposit of Funds
Funds can be credited into the current deposit account in the form of cash, Cheques and other financial instruments drawn on any other Bank or any other branch of ABL.
Minimum & Maximum Balance
This account can be opened with a minimum balance of Rs. 100 and there are no maximum limits on balance.
No Mark-up is given to the current deposit account holders. Furthermore the current accounts are exempted from Zakat.
2. PLS Saving Bank Deposit
Minimum & Maximum Balance
Profit and Loss sharing Bank account can be opened with a minimum of Rs. 100. There are no limits on the maximum balance.
Deposit of Funds
Funds can be deposited into this account through Cash, Cheques and other financing instruments drawn on any Bank or any other branch of ABL. The Bank will take care of to see that the credit and debit entries are correctly recorded in the accounts of the account holders but in case of any error, the Bank shall be responsible make the correct adjusting entries without noticing the account holder and recover any amount due from the account holders.
The profit is given after every six months and the rate of profit is announced semi annually. The overall profit of Bank for six months is determined and on that basis the rate of profit on this account is calculated. The profit is given to the account holder on the monthwise product. It is determined on the minimum balance of account from 7th to 31st of every month.
The PLS saving rate announced by ABL on 31st Dec. 1998, for the next six months is 8%.
Eligibility for Sharing Profit/Loss of the Bank
PLS saving account having a running minimum credit balance of Rs. 100, would be eligible for sharing profit/loss of the Bank the proportion of the profit or loss on PLS Saving Account shall be determined by the Bank in its sole discretion and the Bank decision shall be final and binding on the PLS Account holder.
The Bank shall be within its rights to make investment of credit balances/deposits in PLS Saving Account in any manner at its sole discretion and to make use of the funds to the best of its judgement in the banking business under the PLS system.
Account holder can only withdraw sums from his account by means of Cheques supplied to him by the Bank for that particular account.
Cheques should be signed as per specimen signature supplied to the Bank and if there is any alteration in the signature of the drawer, then it must be authenticated by the drawer’s full signatures.
Post dated and stale Cheques shall not be paid.
Withdrawals from PLS saving accounts are allowed not more than eight times in a month and a total amount not exceeding Rs. 25,000. For withdrawal of larger amount, seven days notice is required to be given.
CERTAIN OTHER FEATURES
Every account holder will be required to give a specimen of his signature for record. If there is any slightest doubt realized by the Bank regarding the signature of the account holder, Bank is entitled to refuse payment of cheque drawn by the account holder.
Each account will be given a number and account holder should always quote this number when writing to the Bank regarding his account or when making deposits or withdrawals.
Any change in address of account holder should be immediately communicated to the Bank.
Account may be transfer from one branch to another branch of the Bank free of charge, without effecting the profit/loss accruing position of the account.
The account holder wishing to close the account must present the passbook and unused Cheques to the Bank, in order to draw the balance amount. In case of account holder wishing to close the account within a period of six month from the date of its opening a charge of Rs 5 on account of cost of passbook will be made.
No credit facilities will be allowed against the balances in PLS Saving Accounts.
The Bank has a right to close any account without giving any previous notice to the account holder, which in its opinion is not being satisfactory operated upon.
3. PLS High Premium Account
Minimum & Maximum Balance
This account can be opened with the minimum of Rs. 2, 50,000 and there are no limit on the maximum balance.
The profit is paid on the daily product, i.e., the minimum balance from 1st to 31st is calculated and on that balance the profit rate is applied. The rate of profit on this account as announced on 31st Dec. 1998, is 8%.
4. Overseas PLS Account
Overseas Pakistanis can open this account by remitting their amount into this account. This account can be opened only when the Client remits his amount here from abroad.
Deposit of Funds
Funds can be deposited into this account through Cheques, DDs, TTs and other financial instruments drawn on any Bank or any others branch of ABL.
To attract the overseas Pakistanis, ABL offers 3% higher rate of profit than the PLS term deposits for Pakistani residents. The current rate of profit on this account as announced by Bank on 31st Dec. 1998, is 11 %.
5. PLS Term Deposit
The client deposits the amount for a specific period of time in this account and the Bank issues a certificate in the name of client for that period. After maturity period the Bank pays back the principle amount.
The minimum period of PLS term deposit is of three months and the maximum period is five years. The PLS term deposit may be for 3 months, 6 months, 1 year, 2 years, 3 years, 4 years and 5 years.
Longer the period, for which the amount is deposited, higher will be the rate of profit. The rate of profit given by ABL on PLS term deposit ranges from 8% to 14%, depending upon the period of deposits. The rates of profits on different term deposits with respect to their maturity period are as follows:
PLS Term Deposits Rates Of Profits (per annum)
3 Months 8.8 %
6 Months 9.9 %
1 Year 10.4 %
2 Years 11.3 %
3 Years 12.2 %
4 Years 13.1 %
5 Years and above 14.0 %
6. Overseas PLS Term Deposits
This scheme is only for Overseas Pakistanis. Here the rate given to clients is 3% higher than the PLS term deposits. Like the PLS term deposits, the maturity period ranges from three months to five years. All other features are same as that of PLS term deposits.
Overseas PLS Term Deposits Rate OF Profit
3 Months 11.8 %
6 Months 12.9 %
1 Year 13.4 %
2Years 14.3 %
3 Years 15.2 %
4 Years 16.1 %
5 Years and above 17.0 %
7. Allied Super Premium Term Certificates
Minimum and Maximum Balance
The minimum balance for this account is Rs. 1,00,000 and no maximum limit. However the balance should be in multiples of Rs. 1,00,000.
The maturity period of Allied Super Premium term certificates is fixed and it is three years.
There are three different categories for the payment of profit. For each category the profit rate is different. Normally the profit ranges from 13.5% to 14.5%. The profit may be paid quarterly, semi annually or annually. The rates of profit for these categories are as follows:
|Quarterly rate of profit||13.5 %|
|Semi annually rate of profit||14.0 %|
|Annually rate of profit||14.5 %|
When these Certificates are issued to the customers, different profit coupon is attached with them. When the customer shows the coupon, the profit is paid to him. If the term certificate carries annually payment of profit then it will bear three coupons, one for each yearly payment. Similarly, a semi annually profit payment certificates will have six coupons and annually profit payment certificate will have twelve coupons.
Suppose a client has yearly profit term certificate and he does not take his first year profit, then this profit will remain with the Bank and he can take it in the next in the next year with the second payment. But no markup will be given on his previous profit.
8. Allied Mahana Amadani Certificates
Minimum investment in Allied Mahana Amadani Certificates is Rs. 25,000.
The maximum investment limit in these certificates is Rs. 1,000,000.
The maturity period for Mahana Amadani Certificates is five years.
Investment can be made by:
— Individual or jointly.
— Proprietorship, Partnership concern or Corporate bodies in their names.
It carries special attractions for:
— Retired, civil and Armed forces employees.
— Widows and Children being brought up by guardians.
Expatriates looking for permanent monthly income.
Profit on Mahana Amadni Certificates is given on monthly bases. The estimates minimum rate of profit is 1.1 % per month. The expected monthly profit on various amounts would be as follows.
Amount Monthly Profit
Rs 1,000,000 Rs 11,666
Rs 500,000 Rs 5,830
Rs 100,000 Rs 1,160
Rs 50,000 Rs 583
Rs 25,000 Rs 291
TAX AND ZAKAT DEDUCTION
Payment of profit is subject to deduction of Withholding Tax and Zakat as per rules.
Exemption on Zakat is available as per law.
Mode of Payment
Client will enjoy the facility of receiving the profit through Payment Order /Demand Draft/Postal Money Order, every month at his doorstep.
At Client’s discretion he or his authorized representative can also receive the profit through Cash/Pay Order/Demand Draft.
Since the profit shall be payable by the Branch where Client will open his account under the ‘Allied Mahana Amadni Schemes’ it can also be credited to his account every month
9. Allied Young Saver Certificates
This scheme has been offered specially for the children. This scheme has the maturity period of ten years. This scheme was introduced, on the same footings as that of National saving certificates, which are issued by National saving centers. The amount deposited in these Certificates becomes four times after the maturity period of ten years. For example, if a person deposits 5,000 Rs in this account, then after maturity period this amount will be 20,000.
The Bank extends the facility to its customer to give standing instructions to meet financial obligations or commitment, such as payment of loan installment of HBFC, payment of insurance premium, etc. The Bank provided there is a balance in the account or some other arrangements have been agreed upon between the Bank and the customer carries out the standing instructions.
Standing Instruction Fee
Standing instruction fee will be recovered in addition to the usual charges on remittances, if any. The standing instruction fee is Rs. 30 per transaction.
Stop payment instructions
If a client wants to stop the payment on the issued cheque, when it will come for clearing to the bank, then he has to give an application. in this application the client has to give some reasons because of which he wants to stop the payment on the issued cheque. This stop payment application is recorded in the stop payment register and a caution is marked on the account of the client so that, when the issued cheque comes for clearing it may not be cleared.
Advances department of a bank provides many facilities to various individuals and businessmen against charging the interest from them.
It is the usual practice of the back level it examines the perusal characteristics of the borrower and the reputation and scope of the business, he is doing or going to start.
However, there are there ways normally used to seem the account.
Pledge is a contract between the borrower and the back whereby the goods are transferred into the banker’s possession while the ownership remains in the possession of the borrower. This possession remains with the bank until the payment of loan is dully made. In case of default, the back can sale the goods after giving the notice.
Mortgage is a contract whereby the interest in any specified immovable property is transferred to the banker in order to give the security for the payment of debts.
Hypothecation is a term where goods are charged for the purpose of security. But the possession and ownership remains with the owner of the goods.
CATEGORIES OF ADVANCES
The bank can make the advances in the following three ways.
3. Cash Credit
Under such arrangement the customer is allowed to withdraw the amount excessive from his balance. But the limit of amount is sanctioned by the manager and given for a fixed period.
When the bank make the advances in a lumpsum, to be repaid in lumpsum or in forms of installments with interest at any future date, is known as loan. These loans may be of short and long term.
3. CASH CREDIT
These advances are made against the security of the goods which may be made like in the form pledge or hypothecation. The bank credits the borrower’s account with the amount making as loan. The amount can not be withdrawn in lumpsum. While interest is paid on the amount withdrawn from the bank.
TYPES OF LOANS
The Bank provides the facility of two types of financing.
1. Funds based Financing
2. 2. Non Funds based Financing
FUNDS BASED FINANCING
The type of Financing in which the funds of the Bank are directly involved is called Funds based Financing.
There are following types of Funds based Financing.
- Running Finance
- Cash Finance
- Demand Finance
- Demand Finance against Foreign Currency Account
- Demand Finance to Staff
- Finance Against Local Manufactured Machinery
- Allied Equity Building Plan
- Unorganized Sector Financing Scheme
- Housing Finance
- Agricultural Finance
- IDA Financing
- Consortium Finance
- Finance Under Small Business and Small Industries
- Overseas Employment Financing Scheme
- Finance Against Trust Receipt
- Term Finance Certificates
- Finance for Government Operations
1. RUNNING FINANCE
Running Finance is short-term loan usually given for the working capital management. The running finance is suitable for meeting day to day financial needs of the Business. The running finance account can be operated and daily sale proceeds can be deposited into the account.
The Bank requires following types of securities in running finance.
The primary security requires by the Bank is stock. Bank hypothecates a specific amount of stock, that is, stock remains in the custody of borrower, but the lien is of Bank. The borrower is responsible for keeping and managing the stock well and providing the regular stock reports to the Bank. The Bank advances a certain percentage of the value of the hypothecated stock as loan after keeping some margin.
Under the SBP laws, ABL can give the loan to the extent of Rs. 50,000 on two personal guarantees along with the primary security.
If the loan required by the borrower is greater than Rs. 50,000 then the Bank requires some collateral security along with the Primary security. The security taken as collateral is usually immovable. However, according to ABL laws, the agricultural land cannot be taken as collateral security. In some rare cases it may also happen that a creditworthy firm may keep some moveable security as collateral but provided that it is very easily encashable, e.g. defense saving certificates etc.
Normally the cost of running finance is 14% but it is negotiable and may vary. 1-% rebate is given to a client who gives three times more business to Bank than his limit. Furthermore, 1% more rebate is given to a client who exports three times more than his limit.
Limit means the maximum amount of finance, which is sectioned from the Bank authorities in favor of client.
Running finance is usually given for a period of one or less than one year.
The borrower has to repay the loan on the daily sail proceeds of stock. It is necessary for the borrower to adjust the account on the date of expiry of loan period. However, Bank may give a period of one month after the maturity of loaning period, so that the borrower may repay the loan during this period. This period is called ‘Date of Final Adjustment’.
2. CASH FINANCE
Cash finance is the account of the Bank. It is like the current account. In this account a certain amount of cash is available for the borrowers at all the times. A limit is first sanctioned to the borrower and then, on his needs, the amount is transfer from cash finance account to the borrower’s current account from where he can withdraw the money. This transfer of cash from the Bank’s cash finance account to the borrower’s current account is just the paper transaction and the borrower takes the finance in no time. The borrower can take finance unto his limit sanctioned by Bank’s authorities. However, the Bank cannot keep the cash finance account greater than 30% of its equity.
Cash finance is normally giver for seasonal needs e.g. in Cotton season, Rice season etc. But in some cases it can be given for regular needs.
Following securities are required by the Bank.
The primary security required by the Bank is stocks. But unlike running finance, in which the stock is hypothecated, here the stock is pledged by the Bank. The stock pledged is kept with the Bank at the cost of the borrower. Usually the stocks are kept at the warehouses of the Borrower Company, but certain representative of Bank as Inspector is always there to keep a check on the stock. The Bank advances certain percentage of the pledge stock after keeping some margin.
Like running finance, some collateral security is taken as principle security.
The Mark-up of cash finance is normally 14%, but is negotiable.
The maximum period for cash finance is one year.
Repayment of the loan is made after the completion of loaning period, along with the markup.
3. DEMAND FINANCE
Demand finance is usually given for the financing of new Projects. For example, if a person wants to open the Floor mill or textile mill, he can get the demand finance from the Bank.
MODE OF FINANCE
Demand finance is given in installments to the borrower. First installment is given to purchase the land, then second installment is given for the construction of building and finally the remaining amount is paid to the supplier to install the Machinery.
The Bank requires the following types of securities.
No primary security is required as the finance is given for the new projects and the Borrower Company has no existing stocks with it.
Like running and cash finance, some collateral security is required as principle security. This collateral may be land, building or machinery.
Normally 14% but negotiable.
Demand finance is usually given for the long-term period e.g. for two years, five years or even upto fifteen years.
The repayment of loan is made in installments. A grace period of one year is given, after the maturity of loaning period. But this grace period can be extended to two years. The installments may be quarterly, semi annually or annually. The markup is also included in these installments.
Demand finance is given on the basis of debt equity ratio which 40-60. It is standard ratio. It means that a borrower can finance 60 percent of its project cost through demand finance scheme. But the remaining 40 percent should be financed himself.
4. DEMAND FINANCE AGAINST FOREIGN CURRENCY ACCOUNT
To attract the foreign currency, ABL has offered this scheme. This scheme is useful for those Foreign currencies account holders who don’t want to incash their currency, but at the same time want to start a new project. So they can get the required finance against their foreign currency.
The security for this scheme is the foreign currency of the borrower, which is prevailing in his foreign currency accounts. The Bank advances a certain percentage of the foreign currency as loan after keeping its margin. The Bank charges a Lien on this Foreign Currency Account of the borrower.
Mark-up of this scheme is 13.0%.
Demand finance against foreign currency is given for one-year period.
No installments are made on the repayment of the loan. After the completion of the loaning period (i.e. one-year) he whole amount along with the markup is paid back.
5. DEMAND FINANCE TO STAFF
This scheme has been started to give the benefit only to the employees of Allied Band Limited. If any employee of ABL wants to start a new project then he will be given the demand finance on the priority bases.
Some collateral security is required such as land building or machinery.
MARK-UP AND PERIOD
The Mark-up is less than 14% but not fixed. The demand finance to staff is given for long term period. It may be upto 15 years.
Repayment is made in installments. The installment may be quarterly, semi annually or annually.
6. FINANCE AGAINST LOCALLY MANUFACTURED MACHINERY
This scheme has been started by State Bank of Pakistan. The basic purpose of this scheme is to encourage the local manufacturers and to boost up the local industry. Usually people buy the machinery of out side the country due to non-availability of that in Pakistan. To produce the machinery in the Pakistan this scheme is introduced so that people will buy it from their own country.
Land, building and machinery are mortgaged with the Bank.
To encourage the investors the Mark-up on this scheme is comparatively very low, which 12.0%.
The maximum period for which this finance is given is 8 years. A grace period for the repayment of loan is also given which is maximum of two years.
The repayment of loan is made in installment, which may be semi annually or annually. The amount, which the ABL finances to borrower, is refund to it by SBP. The ABL acts only as the Sponsor. So the periodic installment of the repayment of the loan are paid back to SBP.
PROCESS OF GIVING THE FINANCE TO THE BORROWER
According to the scheme the total finance is not given to the borrower once. Instead of it, he is given the finance in three different installments and these installments are subjected to the installation of the machinery. Allied Bank Limited has no recognized supplier (manufacturer of machinery). So the client himself goes to any supplier, gets quotations of machinery from him and shows these quotations to the Bank. Then the Bank’s Engineers visit the supplier and examines his capability of installing the machines. After his approval, the quotations are accepted and loan is sanctioned to the borrower. As a first installment, a cheque of normally 30% of total finance is given to the borrower. In response the supplier installs the 50% of machinery. After this, another cheque of 40% of total finance is given to the borrower and at this time the supplier installs the remaining 50% of machinery. The remaining 30 % of finance will be given to the borrower when the project starts working.
7. ALLIED EQUITY BUILDING PLAN
The equity building plan has specially been designed to help accelerate the industrial pace in the country. The plan is primarily designed to provide financial assistance to those professionals, technocrats and overseas Pakistanis who are planning to set up their own industrial units.
Through this executive plan the investors will be able to build up their 30% to 40% equity over a specific period of time and after taking 60% to 70% from the Bank, will be able to put up their own industrial projects.
Equity investment can be made both in local as well as well foreign currency.
Plan periods are 3 years and 5 years in local currency and 18 months 24 months in foreign currency.
Minimum monthly deposit in local currency for 3 years plan would be Rs. 8,000 and for five years Rs. 5,000. For both plan periods the monthly deposits would be acceptable in the multiple of Rs. 1,000.
Minimum monthly deposit in U.S. Dollars would be $ 680 and $ 515 for 24 months and 18 months plan period, respectively. Similarly, minimum monthly deposit in Pound Sterling would be 360 Pounds and 280 Pounds for 18 months and 24-month plan period, respectively.
At any stage if the customer decides not to invest his funds in a project, he shall be offered to place his funds in any other scheme of the Bank.
The Bank will also extend on request of the investors’ consulting/advisory facility in selection of project free of cost.
RATE OF RETURN
The deposit installments for the first year will be placed in PLS-SB Deposit Account and thereafter transferred to PLS-TDR Account for the remaining period of investment. The rate of return on PLS-SB and PLS-TDR will be in accordance with the half yearly rates of profit declared by the Bank. The rate of profit as announced by Bank on 31st December 1997 is 8%.
8. UNORGANIZED FINANCING SCHEME
This scheme has been started for the following purposes:
To assist the entrepreneurs in the Unorganized sector and to increase their productivity.
To encourage expansion in employment level within the Unorganized sector.
To participate in community development work and help build country’s economy through the Unorganized sector.
The scheme aims at elevating and enhancing the earning capacity of small men.
Under the scheme, financial assistance is provided to individuals or group of individuals requiring capital to establish a new business or expand his existing enterprise.
FINANCING UNDER THE SCHEME.
The financial assistance will be given for meeting working capital requirements and fixed investments. Under this scheme the maximum amount of financial assistance to the individual borrower is Rs. 25,000 and to group of borrower is Rs. 50,000. This loan can be obtained from designated zonal offices and branches of Allied Bank throughout the country.
9. HOUSING FINANCE
The Bank extends Housing Finance to customers, under the scheme envisaged by the State Bank of Pakistan. The housing finance can be given for the following purposes:
* For the construction of new houses or flats.
* For the purchase of new houses or flats.
The housing finance is given to the customers against the mortgage of land or building. The mortgaged land may that one on which the hose is to be built or it may be any other.
The housing finance can be made to a person once in his or her lifetime. The finance is considered for an amount of more than Rs. 150,000 and up to Rs. 300,000. The finance is admissible maximum up to 60% of the value of the house or flat to be constructed or purchased.
The housing finance is given for a maximum period of 15 years.
The hosing finance is repayable in the installments and has to be paid back during the maximum period of 15 years.
10. AGRICULTURAL FINANCE
Bank under agricultural financing scheme envisaged by the State Bank of Pakistan extends short, medium and long-term credit. The Bank gives two types of credits, i.e. farm and non-farm credit. Farm credits are extended for production (inputs) and the development purposes. Non-farm credits are allowed for livestock (goats, sheep and cattle), poultry, factory including social forestry and fisheries (inland) and marine excluding deep-sea fishing).
Agricultural finance is given on the basis of cultivated area. Bank normally advances Rs. 2,000 per acre (cultivated). But this amount varies from crop to crop i.e. different for “Rabbi” and “Kharif” crops.
The agricultural finance is given for both short and long-term periods.
RATE OF MARKUP
For short-term agricultural finance the rate of markup is 11%. For long term and high value financing, the rate is normally 14% but it is negotiable.
|TYPE OF LOAN||MARK-UP|
|Production loan (including sugar cane loan) upto the maximum of Rs. 25,000/-||12% per annum|
|Production loan (including sugar cane loan) above Rs. 25,000/-||12% per annum|
|Production loan (including sugar cane loan) upto Rs. 50,000/- against guarantee of two creditworthy parties.||14% per annum|
|Financing against guarantees of Processing Units||14% per annum|
|Tractor||11% per annum|
|Other development loans||13% per annum|
11. INTERNATIONAL DEVELOPMENT AGENCY FINANCING.
International Development Agency provides finances to the different Banks in Pakistan to encourage the industry. These Banks then forward this finance to their customers. Allied Bank also has such financing scheme. IDA gives this finance on concessional rates, normally ranges from 6% to 7%. ABL then gives this finance to its customers.
The Bank gives this finance by mortgaging land, building or machinery.
The Bank charges 14% markup on this financing. From this 14%, SBP charges 2-3% from the Bank.
IDA finance is given for long term basis. The maximum period of this financing is 10-12 years.
Repayment is made on installments, which may be semiannually or annually.
12. CONSORTIUM FINANCE.
When the project cost is high, usually several banks under a lead bank form a consortium to finance the project. ABL participates in such consortium financing. The Bank itself has constituted such consortium and is playing a lead role. The Bank is a lead bank in multimillion consortium financing to Pakistan Steel Mills Corporation, Sui Northern Gas Pipelines Limited, etc.
13. FINANCE UNDER SMALL BUSINESS & INDUSTRIES.
ABL has started this scheme in order to support the small business owners, e.g. welders, electricians, etc. The Bank advances the loan of minimum Rs. 25,000 and of maximum Rs. 50,000. The loan is repayable in installments which may be quarterly or semiannually.
If some one wants to start a very small business, e.g., a shopper making factory, a plastic toys making factory, etc, then he can take finance from the Bank through this scheme. The maximum limit of finance given by this scheme is of Rs. 300,000.
14. OVERSEAS EMPLOYMENT FINANCING SCHEME
The scheme extends financial assistance to emigrants going abroad for employment through Overseas Employment Corporation (CEO) in meeting their preliminary expenditures.
The maximum finance of Rs. 15,000 and Rs. 25,000 is made available to unskilled and skilled emigrants, respectively.
The scheme also covers doctors, engineers, professors and highly technical individuals.
The finance under the scheme is repayable in ten equal monthly installments.
The first installment is payable within 60 days from the date of financing.
Persons only drawing salary equivalent to Pak Rs. 5,000 p.m. And above will be eligible for availing the finance under this scheme.
The applicant will undertake to regularly canalize home remittance through Allied Bank or its Correspondent bank.
15. FINANCE AGAINST TRUST RECEIPT
The Bank delivers the imported consignment to the importers against the execution of the trust receipt by him. Suppose an importer imports certain commodities, from abroad through Bank L/C. But it has not the enough finance to release the documents from the Bank and in turn release the consignment. So he asks the Bank to release his documents and he will repay the Bank’s amount from the sale proceeds of the consignment. In turn, he deposits the receipts of the sale proceeds to the Bank. This is called finance against trust receipt.
16. TERM FINANCE CERTIFICATES
Term finance certificates are redeemable equity based instruments issued by the Bank. In TFC the rate of markup is determined through mutual agreement between the Bank and the Sponsors of the company in between the minimum and maximum rates determined by the SBP. The TFC may be for short or long terms.
17. FINANCE FOR GOVERNMENT COMMODITIES OPERATIONS
The Bank gives finance to the Government for purchase of different commodities. The Government then sells these commodities and repays the loan to the Bank. For example Bank may give finance to the Government to import wheat and when Government sells this wheat to the floor mills, it repays the loan to the Bank.
In addition to above mentioned financing schemes, the following finances schemes are also available, which will be discussed in Foreign Exchange Department.
Finance Against Foreign Bills Negotiated
Finance Against Foreign Bills Purchased
Finance Against Documents (Sight)
Finance Against Imported Merchandize
Finance Against Inward Bills purchased
NON-FUND BASED FINANCING
The type of financing in which the funds of the Bank are not involved is called “Non-Fund Based Financing”. Under non-fund based financing, the following schemes are available in Allied Bank Limited.
Letter Of Guarantee
Letter Of Credit (Inland)
Letter Of Credit (Import)
1. LETTER OF GUARANTEE
The Bank issues the letter of guarantee in local and foreign currency and thereby undertakes the responsibility on behalf of the customer for the debt, default or miscarriage by the customer, whether such requirement is domestic or overseas. There are many types of Letter of Guarantee.
Suppose a person wants to purchase pesticides from Pan Pacific on credit and Pan Pacific says to him that we will provide you the pesticides, if you give us the bank guarantee, so that if you will not be able to pay the amount on the specific date, the bank will pay the amount on your behalf. So that person will come to the Bank and the Bank will give him the guarantee after fulfilling its requirements.
The Bank also issues the Letter of Guarantee in favor of collector of custom. Suppose person imports some inventory as raw material, but the collector of custom says that this imported inventory is not the raw material but the finished goods. So he charges the custom duty on this inventory by considering it as the finished goods. As the custom duty on the imported finished goods inventory is more than the raw material, so the importer will protest it and the matter is taken to the court. Now the court asks the collector of custom to release the inventory of importer and at the same time ask the importer to give the bank guarantee in favor of collector of custom. So the Bank gives the guarantee that if later on the court gives the decision against the importer, he will pay the full duty. If he becomes default, then the Bank will pay the amount.
The Bank issues the Letter of Guarantee by either mortgaging the security or keeping the security as collateral. Besides this, the Bank may also issue the Letter of Guarantee by hypothecating the stock. The type of security depends upon the credit worthiness of the customer.
Normally the Letter of Guarantee is issued for the period up to 1 year.
The Bank charges a commission fee on the issuance of Letter Of Guarantee which is o.45% quarterly.
2. PERFORMANCE BONDS
Performance Bond is a type of guarantee which a Bank issues in the favor of technical know how of its customer. Suppose a person engaged in construction, made an agreement to construct a building within six months. Now suppose, if the owner of the building is not satisfied with the technical ability of the constructor and he is not sure that the constructor will be able to construct the building within six months, then he may ask the constructor to make him available with the Bank guarantee. Now the Bank issues the performance bonds on seeing the technical abilities of the customer and gives guarantee that he will construct the house within a period of six months.
3. BID BONDS
Bid bond is also a type of guarantee that is issued in support of the customer who is getting a contract from any company. Suppose a person gets a contract from corporation of worth one million and promises to pay the amount of contract in four installments. But the corporation may ask him to give the Bank guarantee. So the contractor comes to the Bank and the Bank issues the Bid bond in his favor and gives guarantee that the contractor will pay the amount of contract. Bid bonds are issued in both local and foreign currency.
The following non-funds based schemes will be discussed in foreign exchange department
Letter of Credit (Inland)
Letter of Credit (Import)
RECOVERY OF LOANS
If the loans are not returned within their maturity period, then Bank adopts the following process.
First of all the Bank will personally request the customer to repay the loan.
After this, first legal notice is sent to the customer. If the customer does not respond to this first legal notice, then after fifteen days the second legal notice is sent to him.
In the third step the Bank sue the customer in the court. Two types of courts have been setup under two difference ordinances, especially to hear and decide recovery suits i.e.
1. Special Courts (banking)
2. Banking Tribunals
Special courts were established under the banking companies (recovery of loans) ordinance 1979 to hear allowed interest-based system of Financing.
In the very beginning of this era people were not aware of foreign exchange. All the foreign money was kept at hand and this idle money did not contributed in the Pakistan economy at that time. But in 1991 foreign department introduced was introduced by the government of that time. After being introduced people deposited their currency in the Bank. It was the amount equal to the total Pak Rupees that were in the circulation in the economy of Pakistan.
After the foreign currency accounts were opened, the economy gradually improved because foreign currency contributed a lot. Before the facility of foreign currency accounts, nearly 60% foreign currency was held by the people as idle.
ABL FOREIGN CURRENCY ACCOUNTS
In Allied Bank Limited, Foreign Currency account can be opened in four major currencies.
CRITERIA FOR OPENING FOREIGN CURRENCY ACCOUNT
There are not hard and fast rules for becoming the Foreign Currency Account holder. Bank wants only introduction of the Client and very little about the background. I.D card is also not necessary, if someone has; well and good, otherwise no restriction will be there for him. Minimum requirements are not also fixed F.C.Accounts. It can be operated by 10$ only. But other Banks may have some limits on minimum requirement.
INCENTIVES TO FOREIGN CURRENCY ACCOUNT HOLDERS
The following incentives will be granted to the Deposit Holders who maintain a Foreign Currency Deposit with minimum balance of US. $50,000/- or Japanese Yen 5,000,000/- pr P. Stgk.35, 000/-or D.M 75,000/-
The branches Authorized to deal in Foreign Exchange and maintain Foreign Currency Accounts will ensure that the following services will be rendered by the bank to the Foreign Currency Account Holders in above category, free of charge/or reducing the commission in certain transactions as mentioned against each item.
Issuance of Foreign traveler Cheques to the Account-holders to the debit of there Foreign Currency Accounts.
Remittance abroad through Foreign Currency Accounts commission @US $2/-per US 1000/and telegraph transfers charges are 200/-
Issuance of Balance Confirmation Certificates (free of charge)
Delivery of Cheque Books Registered Mail (free of charge)
Issuance of Proceeds Realization Certificates (free of charge)
FEATURES OF FOREIGN CURRENCY ACCOUNTS.
There will be legal protection for the account holders.
According to foreign exchange rules and regulation every citizen of Pakistan, either within the Pakistan or outside the Pakistan, can open the foreign currency account.
Resident firms and Resident Companies including investment Banks can open Foreign Currency Accounts.
All foreign nationals and foreign Companies in Pakistan or abroad can open Foreign Currency Accounts.
Opening of Foreign Currency Accounts in the joint names of residents/non-residents is permissible. Foreign Currency can be deposited by:-
* Remittance received from abroad
* Traveler Cheques
* Foreign Currency Notes
* Foreign currency bearer Certificates
There will be no restriction and questioning to him about the currency, which he wants to deposit that from where he got that money.
No Zakat will be deducted on these accounts; no Income Tax deduction, no Wealth Tax deduction will be there.
These incentives reinforce and motivated the people to invest in foreign currency accounts rather to keep the foreign currency idle.
Foreign currency accounts can easily be transferred from one person to another, one place to another, with in the ABL Branches or in other Bank. This facility is not available in Pak Rupee account.
The account holder can transfer the funds freely, in any currency to any part of the world.
Traveler Cheques can be issued for abroad to the account holders without any limit.
Foreign currency Accounts can be used for payment of purchases at Duty Free shops.
Foreign Exchange Bearer Certificates and U.S. Dollar Bearer Certificates can be purchased from Foreign Currency Accounts.
FOREIGN DEPOSITS SCHEMES
Deposit Schemes of Foreign Currency Accounts are very much related with Pak Rupees Accounts such as saving deposit, current deposit and fixed deposits.
In these accounts there is no Minimum limit for opening the account and the Bank offers certain rates of interests on all Foreign Currency Accounts.
RATE OF INTERESTS ON SAVING ACCOUNTS
For Dollar, 6.5% rate of interest is offered
For Sterling, Pound 8% rate of interest is offered
For Deutsche Mark, 4.2 % rate of interest is offered
For Yen 1% rate of interest is offered
Fixed deposit facility is also provided to clients. These deposits can be for three months, less than six months, six months, less than twelve months, twelve months, two years, three years, four years and for five years.
Rate of Interest
Rates of Interests are different for different Currencies for different Periods.
Multiple withdrawals of any part of balance can be made on demand. Funds can be credited into the current deposit account in the form of cash, Cheques and other financial instruments drawn on any bank or other branch of ABL. The current account is suited to meet both domestic and business requirements of the customer.
In foreign exchange department both Fund-based and Non-fund based Financing schemes are present. First Non-based financing schemes are discussed.
Non-fund based Financing schemes
Letter of credit (Import)
Letter of credit (Inland)
First of all Letter of Credit is explained.
LETTER OF CREDIT
Letter of credit (L/C) is the type of guarantee, which the Bank extends on behalf of its customer in favor of the exporter.
PROCESS OF L/C
Suppose a person wants to import certain commodities from abroad. He asks the export to send the commodities and he will pay the amount later after receiving the commodities. But the exporter asks the importer to give him the Bank guarantee. Suppose the importer is the very loyal and creditworthy customer of ABL, so he will come to ABL and will ask the Bank to open a letter of credit in favor of exporter. The Bank will now issue a letter of credit in favor of exporter on behalf of its customer and promises to stated amount if the customer becomes default. In return the Bank keeps some security from the customer. This security may be any property, machinery etc. The Bank will send this letter of credit to its any correspondent Bank in that country and asks the Bank to give this L/C to that exporter. The L/C contains specifications of the imported commodities along with other necessary details. Now the correspondent Bank will inform the exporter about the L/C. The exporter will receive the L/C and after seeing all the requirements of the contract, ship the commodities to the importer according to specified manner discussed in L/C. After shipping the commodities the exporter will go to the correspondent Bank or any other Bank and will receive money after handing over the documents to the correspondent Bank. The correspondent Bank will give him the money after analyzing the documents of shipment. Then correspondent Bank will send a covering letter and documents of shipment to the Allied Bank Limited. This covering letter specifies that the correspondent Bank has given the amount to the exporter and documents of shipment are sending to ABL. After receiving the documents ABL contacts the importer and tell him that his commodities have arrived and his documents of consignment are with the Bank. Now he can take these documents of shipment by paying the specified amount of L/C to the Bank and can release his consignment. The Bank charges certain rate of commission on the days, which start from the payment to exporter by the correspondent Bank till the day of payment by the importer. This is called Letter Of Credit Import.
TYPES OF L/C
There are many types of L/Cs but two are of most importance.
If the L/C specifies the payment to the exporter immediately after the shipment of consignment to the importer, then it is called “Sight L/C”.
If the L/C specifies the payment to the exporter within specific period of time after the shipment of consignment to the importer, then it is called “Usance L/C”.
L/CS ESTABLISH BY ABL
ABL establishes following kinds of confirmed and irrevocable letters of credit.
Usance letter of credit
Reimbursement letter of credit
Deferred payment standby L/C
LETTER OF CREDIT (IMPORT)
The Bank in order to finance commerce and trade, extends its prestige financial strength by establishing overseas letters of credit, on behalf of the customers and thereby undertakes to pay the amount stated on the letter of credit or accepts a bill of exchange on behalf of customer, in return for delivery of the commercial and shipping documents.
LETTER OF CREDIT (INLAND)
The Bank, in order to finance trade and commerce within the country establishes inland letter of credit and thereby undertakes to pay the amount stated on behalf of its customer, in return for the delivery of commercial and other documents provided there documents are strictly in accordance with the terns and conditions of the letter of established by the Bank.
Fund based Financing Schemes
Among fund based financing schemes, the following schemes are present:
Finance Against Foreign Bills Negotiated
Finance Against Foreign Bills Purchased
Finance Against Documents as Security
Finance Against Imported Merchandise
Finance Against Inward Bills purchased
1. EXPORT FINANCE
The Bank makes available finance for export. This finance may be pre-shipment or post-shipment.
The pre-shipment finance is to meet the financial requirements of the export order before shipment. Suppose a person who exports certain commodities to various countries, receives a huge order to export. The importer will send him the L/C through his Bank, which has many correspondent banks here. Let ABL is one of them. Now if the exporter has not enough finance to meet the export order, then he will come to ABL and will get the financing against L/C of the contract and by pledging some security. After shipping the consignment to the importer, the exporter will take the documents of shipment to the Bank and will ask it to collect the amount from importer. This is pre-shipment financing.
The Bank makes post-shipment finance available after shipment of export consignment. Usually in case of usance L/C, the post-shipment financing is made.
Suppose an exporter has usance L/C in his favor which shows the payment of exported consignment after a period of say 6 months, but the exporter needs money now. So he will go to the Bank and ask them to purchase or the shipping documents and give him the finance. So the Bank will give him the finance by purchasing the shipping documents. This is post-shipment financing.
2. FINANCE AGAINST FOREIGN BILLS NEGOTIATED
When the exporter exports the commodities and gets the L/C from the correspondent Bank of the importer’s Bank let it be any Bank other than ABL and the L/C is open L/C. Now after the shipment of exported consignment the exporter has the option to negotiate the shipping documents with any Bank and gets the amount of exported commodities. Suppose it comes to ABL. Then ABL on seeing the repute and good will of the importer’s Bank will negotiate the shipping documents and will give the finance to the exporter.
3. FINANCE AGAINST FOREIGN BILLS PURCHASED
Suppose the importer sends the usance L/ C in favor of exporter here. The usance L/C specifies the payment to the exporter after the 6 months. But if the exporter wants to get the amount now. So he will go to the Bank and asks the Bank to purchase the documents. Now the Bank will purchase the documents at discount and give him the finance. The difference between the purchase price of these foreign export bills and the amount due against these foreign bills is the profit of the Bank.
4. FINANCE AGAINST DOCUMENTS AS SECURITY
In this type of financing the Bank accepts shipping documents from the exporter and finance against that documents by seeing the worth of the documents. It keeps the documents as security but not purchases it. Bank also takes some security by the borrower.
5. FINANCE AGAINST INWARD BILLS PURCHASED
The Bank also extends finance against bills of exchange drawn by the beneficiary of inland letter of credit provided such Bill of Exchange and other related documents are strictly in conformity with a term and conditions of letter of credit.
6. FINANCE AGAINST IMPORTED MERCHANDIZE
The bank extends facility of clearing the consignment through its approved clearing agents and considers finance against pledge of consignment imported through the Bank. This is called Finance against Imported Merchandize.
7. EXPORT REFINANCING
It means to finance the persons for export purposes. Government introduced this scheme on the basis of bad conditions of exports as compared to the imports. Before this scheme the Exports of the country were very poor. All the money was spend on the imports. To increase the exports this scheme was introduced. Under this scheme only those goods are manufactured which the Government allows. Rate of Markup offered is very less as compare to others. Once the ABL has financed the customer, then the State Bank of Pakistan will return it to ABL after two or three days, so it is called the refinancing. Period of payment for this scheme is 150 days but for the carpets, it is extended to the 180 days.
8. FORWARD COVER
When a customer deposits the foreign currency in a Bank then the Bank has to send this foreign currency to SBP on daily basis. In return SBP gave an equivalent amount to the Bank in Pak-rupees. When the client comes back to withdraw his money the Bank gets back the foreign currency from SBP and it gives it back to the client. All these transactions occur in paper. Now it may happen that the rate at which the Bank deposits the foreign currency, say US$ in SBP is lower than the rate at which the Bank gets back the US$ from SBP. It means that Bank may suffer loss. To avoid this loss the Bank makes an agreement with the SBP. According to this agreement the rate at which the Bank deposits the foreign currency in SBP, gets back the currency at the same rate regardless of the period of time. This is called Forward Cover. The SBP charges certain rate of commission on forward cover of different currencies. Currently the rate charged at US$ is 5.25% and at Pound Sterling is 4.5%.
The bank provides its customer various products & services, to cater there need of investments, and other social or business requirements. These Product & Services offered by the bank are as follows:
LOAN FOR COMPUTER
Now a days ABL is also standing with the government of Pakistan in spreading the IT education through financing in the purchase of computer. ABL provides computer to those professionals who are interested to get computer related education.
ABL finances 80% of total cost while,
The clients have to bear 20% of total cost.
Markup is 14%
And the repayment period is 5 years.
Allied Bank issues Traveler Cheques both in foreign currency and in Pak
Rupees. The traveler Cheques issues in foreign currency are called ABL Traveler Cheques while those issue in Pak Rupees are known as ABL Rupee Traveler Cheques.
ABL Rupee Traveler Cheques are issued in the denominations of Rs 1,000, Rs. 5,000, Rs 10,000 and Rs. 50,000.
The bank charges Rs 20 on the issuance of traveler cheque of any denomination.
The Bank requires Identity Card on the issuance of the Traveler Cheque.
Client makes one sign on the Traveler cheque when he is purchasing it and the other sign is made when he will cash the cheque.
The list of Lockers is maintained in the register. In this register the name of locker holder is mentioned along with the locker number. The key is provided to the locker holder called the Normal or Ordinary key. The Bank keeps himself one key himself. When the locker holder wants to operate to the locker, then he will operate the locker firstly entering the name in the register along with the initials. The date and time of the transaction will also be recorded in the register. Then the leaving time will also be recorded in the register.
Criteria for Acquisition of Locker
There are certain criteria for acquiring the locker facility.
There are opening farms, which are filled by the client to get the locker facility. In this form the name is mentioned along with the signatures of the locker holder. In the locker number is also mentioned on the farm.
Certain security is kept by the while providing the locker facility. This security is in shape of the cash.
SIZES OF LOCKERS
There are four sizes of lockers, small, medium, large, or extra large, on which certain security is made and the locker holder pays the following amount of rent annually.
Locker Size Security Rent
Small Rs. 1,500 Rs. 750
Medium Rs. 3,500 Rs. 1500
Large Rs. 5,000 Rs. 2500
The key, which is with the Bank, is called Master key and the key, which is kept by the holder, is called normal key. A locker cannot be operated with one single key. Both the master and normal keys are required for operating the lockers. If the key is lost from the locker holder, then the locker holder will pay the entire recovery fee and the client launches FIR. If person wants to operate the locker, he will operate it alone.
ALLIED BANK MASTERCARD
Types of MasterCard
Allied Bank issues two types of MasterCard.
The normal limit of local MasterCard is Rs. 25,000, but it can be extended upto Rs. 50,000 only for creditworthy customers. The maximum limit of International MasterCard is Rs. 100,000. The Bank charges 8 to 10 % commission on the used amount.
It’s the any time shopping card
Having the ABL MasterCard is likely having an account with hundreds of shops, restaurants, and hotel outlets all over Pakistan and abroad. The client no longer waits for his bonus to start shopping.
Lost card liability
If ABL MasterCard is lost or stolen, the cardholder will have to bear only the first Rs. 100 from the amount misused, provided the Credit Card Division of the Bank is notified immediately.
Its “Free Credit Card”
If the total outstanding amount is settled by the due date, (approximately 15 days from the statement date), no mark-up is charged. This means that you enjoy a maximum of 45 days of “frees credit” from the date of transaction.
Free Personal Accident Insurance
As a holder of prestigious ABL MasterCard, the Bank covers the client with the personal accident insurance value that Rs. 50,000/- in case of death or permanent disability.
It’s an Instant Cash Card
ABL MasterCard enables the cardholder to obtain the cash advance from his MasterCard account from any designation branch of ABL during banking hours, at a two percent service charge.
Extra Cards. Supplementary +
As an ABL MasterCard holder, client can receive the extra cards with different names and signatures for two other eligible persons of his immediate family nominated by the client himself, may be his spouse. The two cards are absolutely free any membership fee.
It’s the Invaluable Expense Planner
The sales slip client receives any time, when he makes a purchase and his monthly statement helps him to plan out his monthly expenses. Thus the client will never overshoot his Budget while holding the ABL MasterCard.
RATE OF CHARGES
Local Card Rate of Charges
Membership fee Rs 500 (flat)
Annual fee Rs 1,000 (flat)
Supplementary card fee Rs 500 per card
Cash advance 2.5 % per transaction
Replacement fee Rs 350
International Card rate of Charges
Membership fee Rs 500 (flat)
Annual fee Rs 1,500 (flat)
Supplementary card Rs 750 per card
Cash advance 2.5 % per transaction
Forex markup 1.25 %
Replacement fee Rs 350
The banks also provide its customers the non-banking services, such as Collection of Utility bills, etc.
Utility bills can be paid through cash or cheques drawn on any branch of the branches at their convenience under “Cheque Drop-in” system. The Bank mails the bills after payment to the consumer.
The bank serves the intending pilgrims by helping them in performing their religious obligation. The Haj forms and other related services are provided by the bank.
However the terms and conditions for accepting the Haj forms from intending pilgrims are in accordance with the Haj Policy announced by the government each year.
BANK’S FINANCIAL POSITION
Financial position of the ABL can be judged from different financial heads that on which level it stands, with respect to the other banks.
Total assets of the bank increased from Rs. 72 (billions) in 1997 to Rs. 89 (billions) in 1998, thereby increasing at the rate of 23.3% over the last year. This is the highest rate of growth for the last five years, and better than other banks..
Advance, net of provision, have increased from Rs. 36 (billions) in 1997 to Rs. 43 (billions) in 1998 thus increasing by 18% during the year. Though the advances to private sector have declined country-wide yet in case of Allied Bank share of credit to private sector remains unchanged as compared to previous year.
Investments have increased from Rs. 20 (billions) to Rs 26 (billions) in 1998. Thus increasing by 27% during the year under review. It is encouraging to observe that during last two years the priority of the management has remained to increase investments after, of course, meeting the genuine credit needs of our customers.
The investment of 90% has been made in Govt. Securities which mitigates the default risk on statutory liquidity reserves and ensures safe return to our share holders.
The peer banks floated various high cost deposit mobilization schemes during the year. However, Allied Bank, depending upon its quality of services and experienced field force successfully mobilized additional deposit of over Rs. 13 (billions) during the year reflecting a growth of almost 21% over the previous year.
Equity has remained one of the main concerns of the management. In order to increase equity, the bank issued 100% right shares in 1995 and 25% in 1996, also ploughing back profits through bonus shares of 25% each in 1995 and 1996. In 1998, the management decided to revalue land and buildings acquired by the bank several years’ back and were being carried at book value. However, the international properties of the bank have not been revalued. As a result of revaluation of the domestic land and buildings of the bank the reserves of the bank have increased by almost Rs. 1.5 (billions) thereby increasing the equity of the bank almost 100%. Now the total equity stands at 3.002 (billions).
Pretax profit of the bank increased from Rs. 29 million in 1997 to Rs. 170 million in 1998. Thereby reflecting a growth rate of almost 490%. The main reason for this profit increased was rise in yield from 387 million in 1997 to Rs. 769 million in 1998.
Performance Highlights of 1998
|HEADS||1997||1998||GROWTH Rs||GROWTH %|
|Capital & reserves||1515||3002||1487||198%|
The year 1997 had been very difficulty for Pakistan economy. The commercial banking industry has been reflecting declining trend in the pre-tax over the last three years due to ever increasing, quantum of non-performing assets, resent cost of funds and inter-mediation and declining manufacturing sector.
The beginning of 1998, however, has brought a ray of hope for economic revival. The emergence of new government with heavy electoral mandate has considerably restored the people’s confidence, which is reflected in the rise in the country’s stock price index after almost two years. The policies being pursued by the new government are expected to revive all sectors of the economy.
The performance of ABL remained mixed and very improved during the year, 1998. Total assets (less contra) increased to Rs. 89.358 billion in 1998 indicating a growth of 23.4 % as compared with 1997. Declaration of 25% right shares together with rising reserves increased the equity of the Bank by RS. 170 million or 14.0% resulting in improved capital adequacy ratio of the Bank. Total deposits of the Bank reached to 76.541 billions showing a growth of 21% over last year. Investment and advances rose to Rs. 25.605 billion registering a growth of 27%. The growth in total income was only 11% (from Rs. 8.397 billion in 1997 to Rs. 8.984 billion in 1998). Whereas the growth in total expenditure was 22.5%(from Rs 8.368 billion in 1997 to Rs. 8.814 billion in 1998) resulting in a relatively lower pre tax profit for the year 1998.
The pre tax profit Rs. 170 million for the year was very much high as compare to the previous year figure out as 29 million in 1997. This increase in pre tax profit was due to higher margin by making lower (even normal) payment of return to depositor and other creditors.
The import business of the Bank leaped to Rs. 31.239 billion registering an unprecedented growth of Rs. 8.727 billion or 38.8% over last year’s imports. The export business, too, rose from Rs. 15,393 billion to Rs. 17,892 billion indicating a growth of 16.2%. The Bank has also recorded a growth of 3.3% during 1998 in home remittances, which stands at Rs. 2.705 billion.
The branch network continued to expand in 1998 and additional 29 branches were opened in the country. Total domestic and foreign outlets aggregate to 951 at the end of 1998.
Computerization & Automation
Computerization and Automation remained one of the top priority areas of the management. During the year 1998, additional seven ATMs were installed. Now a total of 28 ATMs are available in almost all major cities of Pakistan.
By the end of December 1996, computerized on-line branches were 48 while work on 20 branches to be computerized off-line whereas work on 99 branches to be computerized off-line was underway. But now in 1998 and 1999, many other branches have also been computerized in the country’s major cities. They aim to computerize all branches within 7 years.
In addition Allied Tele-banking Service was made available in Finance & Trade Center Branch, Karachi and Blue Area Branch, Islamabad.
Human Resource Development
The development of human resource continued to receive utmost attention of the Management. Towards this end the Bank inducted qualified personnel, such as MBAs & M.Coms who were also required to undergo vigorous extended training of the existing personnel training programs continued with main thrust on computer appreciation to encourage computer usage in the Bank.
NINE Years Progress 1990-98
|Capital & Reserves||418||451||566||645||733||1,219||1,389||1515||3002|
(Less contra Account)
If we see the above table, we can well imagine the growth trends in the pretax profit. Why is it so that previous year it was 29 million but in 1998 it is 170. One thing is that its assets have increased from 72404 to 89358 millions in 1998. All this happened due to the increase in deposits and double figure of the capital and reserves in 1998 as compared to the 1997. And the capital expenditure remained almost the same for the 1998 and 1997. So we can say the in 1998 the financial strength is more as compared to the previous years due to less expenditures and more deposits and advances to earn profits.
Following graphs show the real trends of the Allied Bank growth in different aspects.
Allied Bank Limited has certain strengths which are different from the other Banks.
- ABL is the first Muslim Bank of the world, which is owned and managed by its own employs. This is the biggest strength of the Bank. A feeling of ownership is present in every employ, which not only helps in increasing the productivity of employs but also creates sincerity with the Bank in them.
- Another strength is the high motivation of employees to their work because they know that what so ever they do, it will be in their own benefit. They know that the profit, which they will earn, will be distributed among all the employees. So they work with high motivation and concentration.
- Salaries are very reasonable, so the employees are not financially disturbed and they devote their selves fully to their work.
- They have wide area network in all over the Pakistan, so that they cover a lot of portion of cash transactions and make customer satisfied.
- The Bank has very strict rules and regulations about the customer’s complaints. The customers are treated as very special persons in the Bank.
- No entertainment facilities are available in the Bank when customer goes to the Bank and wait for a longer time. These facilities can be the newspaper, magazines, etc.
- Advertisement of ABL is not such goods as of other banks.
- Out look of the ABL branches is not attractive to the people.
- The policies of the new government to uplift the economy and pursue financial sector reforms are expected to yield positive results in the banking industry of the country. The ABL is very well praised to avail promising opportunities.
- As a result of the different steps taken by the Government regarding the betterment of the economy, small borrowers are attracted to get the financing and start small businesses. So, the ABL has an opportunity to attract the customers by giving them attractive schemes.
- First threat is that of political influence. Three boards of directors are of government. So that they can influence on the decisions of the ABL.
- The biggest threat in the banking sector is the continuous downfall of the country economy since the last few years. If this downfall remains for more few years then it may be the great hindrance in achieving the Bank’s objectives.
- The privatization of other banks is also a threat for the Bank. Due to the privatization of the different bank e.g. MCB, the competition has increased a lot. Furthermore many private banks have come in the sector due to which it is becoming more difficult day by day to attract the customers.
Some future plans of ABL are as follows:
- Installation of ATMs in every major city of the country.
- Computerization of all the branches through out the country. In the first instance a target of 250 branches has been set. Among them about all the branches of Lahore and Karachi have been computerized. In addition to this main branches of Bahawalpur and Rahim Yar Khan has also been computerized. Now the next target is Multan Circle
- Shares Investment Scheme i.e. Bank will trade in shares of different renown companies to earn profit.
- Purchase of Sick Units, rebuild them and make them profit earning institutions.
Following are some observations and suggestions during the internship.
- When giving the loan, the Bank must carefully analyze the past six months transaction history of the borrower. This will help in judging the dealing behavior and financial status of the client. In most cases, this thing is not properly done and it is the major reason of default of many clients.
- The Bank should keep the proper cheque on stock which is hypothecated. A textile owner may ret the loan on same 10,00 bales of cotton from checking system of the Bank.
- The Bank should have the moving cameras in their branches for security purposes.
- The Bank should try to give more loans to the small borrowers as the past history shows that most of the loans given to the corporate borrowers have converted into bad debts.
- The Bank has a lot of financing schemes but there is very little advertisement of these schemes. So Bank should increase its advertisement.
- When any one comes to operate the lockers, then the things which he keeps in locker should be checked through metal detector for security purposes.
- Staff turnover particularly of trained staff results in financial and other losses. The amount spent by the bank on employment, induction and training of outgoing officers constitutes to beat till another officer should ready prove his work. The exodus of bank officers in the past has worsened the situation.
- Most of the bank employees are sticking to one seat only, with the result that they become master of one particular job and loose their grip on other banking operations. In my opinion all the employees should have regular job experience all outÄlook towards banking. The promotion policy should be adjusted.
- Refresher courses for the staff are most important in any international organization. All the employees should have these courses according to their requirements. Foreign experts can also be called for this purpose.
- Every year some of the employees should be sent for training to other countries and employees from other branches should be brought here. More reading material should be brought / provided in the reference Room, it should be relevant and its purpose should be to educate the employees with the advance studies in their field. The employees should be provided the opportunities to attend and participate in seminars and lectures on banking.
- With the internship letter should also be requested to provide us the financial reports. Because when we demanded the financial reports they said that this is confidential. And they are not allowed to provide these statements to any trainee.
The action of the drawee signifying his intention to pay the bill on its maturity is called acceptance. The bill may be accepted by the drawee without addition of any word but it is customary to add the words accepted across its face indicating the date under the signature.
As stated above, acceptance is the act of accepting the term or usance bill of exchange by drawee, but the word is more commonly used to refer the accepted bill of exchange, though on behalf of his customer, as such bill accepted by the bank is known as bank acceptance. This item appears on the liability side of the bank’s balance sheet with contra on assets side for the bills (liability) accepted on behalf of the customers (importers) for whom documentary letters of credit have been issued.
2. ACCOMMODATION BILL.
A bill is called an accommodation bill when it is drawn, accepted or endorsed by a party with the object to oblige or accommodate another party without receiving any consideration for the same. The person putting his signatures lends his credit (without consideration) for enhancing the credit worthiness of the bill for the purpose of accommodating the other person, who may raise the funds by discounting the bill and is expected to meet the bill at maturity from his own source. But it should be clearly noted that in case of dishonour of the bill, the accommodation party (who has lent his credit) is liable to holder for value. By discounting an accommodation bill the bank becomes holder for value.
Administrator is a person, who is appointed by a competent court to administrate the estate of the deceased person who has left a will without naming any executor, or, the person named in will has died before the testation, or the person named in the will has refused to act as executor.
An official intimation issued by a banker during the course of his business to the customer, other branches including overseas branches, banks and correspondents and his head office, is generally called an advice, such as credit advice (which is sent to the customer when a credit in his account has been received), debit advice (which is sent to the customer when his account has been debited for charges, mark up and debit raised in compliance of his instructions/standing orders), draft advice (when a draft has been issued), pak account advices (credit or debit) when branches accounts have been credited or debited.
As per contract act 1872, section 182, and agent is a person employed to do any act for another or to represent another in dealing with third persons. The person for whom such act is done, or who is so represented, is called the principal. Thus an agent has powers to bind his principal according to the terms of the authority. Before dealing with an agent, may have limited authority to act for some particular or special duty such as authority to purchase house only or to collect rent of a particular building or buildings. The authority given to a person may be for performance of multifarious duties, in that case the is regarded as general agent. Where un-limited powers are given to a person, he is called a universal agent and he can bind his principal by all his acts provided these are in accordance with the law of land.
A slip or a sheet of paper attached to a bill of exchange (or cheque) for the purpose of writing endorsements when the place on the back of the bill (or cheque) has been filled up with the endorsements of the parties through which the bill (cheque) has passed. In order to prevent fraudulent use of the allonge, the first endorsement on the allonge is recorded in such a way at the junction of the two documents that half of the endorsement is on the bill while other half is on the allonge. Since it is permissible to use copy (photo copy) of the bill in place of allonge, in certain countries, in view of which bill of exchange act 1882, section 32(i), provides that in a country where such a copy is recognized the endorsement written on the copy shall be deemed to have been written on the bill itself.
7. ALTERNATE PAYEE.
One of the two parties or one or some of the several parties to whom a negotiable instrument or an account is payable, is an alternate payee.
8. AMBIGUOUS INSTRUMENT.
Ambiguous means doubtful or of uncertain nature-difficult to distinguish or classify – obscure. Thus an ambiguous instrument is that which has been drawn in such a manner that it is doubtful to classify it as a bill of exchange or a promissory note. The holder may treat it either as a promissory note or bill of exchange and when option of the holder is in favour of any one of them ,in future , the instrument shall be treated accordingly . In the following cases the instrument is ambiguous where: (a) in the bill the drawer and drawee are the same person (b) the drawee mentioned in the bill is a fictitious person (c) Drawee mentioned in the bill is incapable of contracting (d) the instrument in the form of bill of exchange is not addressed to any person.
9. ARTICLES OF ASSOCIATION
In a document, which contain various regulations for the internal management of a company and terms and conditions regarding issues of shares, transfer of shares , alternation of capital , borrowing powers , general meeting , voting rights , appointment of directors and their powers, dividends, accounts, audit of accounts , winding up and others .
10. BANKER AND CUSTOMER.
The relationship of banker and his customer in primarily that of a debtor and creditor and not of a trustee and beneficiary. Customer on depositing money to the credit of his account with the banker banker becomes the creditor the banker becomes the debtor. On obtaining finance/loan, the position is reversed and the customer is then, the debtor and the banker the creditor. This relationship confers certain rights and duties to each others. One of the fundamental duty which sprung out of it, unless revoked, is honouring of customer’s cheques is technically in order and there is no legal bar on it. However, it is entirely in the banker’s discretion to allow overdraft (finance) to his customer.
11. BANKER’S BOOKS
It has been defined in S. 2(3) of the banker’s book evidence act, 1891 as under:-
“banker’s books include ledgers, day books, cash books, account books and all other books used in the ordinary business of bank”.
12. BANKER’S DRAFT.
Draft is an order cheque drawn by one branch of a bank upon itself i.e. on another branch of the same bank. It is a negotiable instrument and cannot be made payable to bearer.
13. BANKER’S LIEN.
Lien is a right in one man to retain the property held by him legitimately belonging to another against present and accrued claims (debt) till such claims (liability) are satisfied. Property ownership remains with the debtor (borrower) while the creditor (lender) keeps its possession.
14 BANKER’S RIGHT OF SET-OFF.
It is statutory right of bankers to combine two or more accounts enjoying same rights of the same customer, in order to arrive at the net balance due between them. Where a customer has more than one account at the same branch of a bank or at two or more branches of the same bank, the bank has a right to combine these accounts of the same customer to work out the amount due to him or from him. In order to exercise such right without notice a letter of set-off duly signed by the customer is obtained confirming the right of set-off without notice and to return cheques, which would overdue the combined balances.
15 BANKER’S REFERENCES.
It is a well-established practice amongst banks to exchange information regarding their customer’s mean, standing and credit worthiness. A bank usually collects such status opinion from another bank at the request of the customer or conversely other banks may refer for such an opinion about his customer.
It is also in practice that banks call such opinion for their own information respect of their new customers, special, when any financing is likely to be approved in their (customer) favour. The reference so made is called Banker’s Reference or Status Enquiry or Status Opinion.
16 CHEQUE-STATE AND POST-DATED.
As per practice, a cheque antedated by six months or more i.e. presented after six months which it was drawn is regarded as a stale cheque in Pakistan. On presentation such a cheque is returned unpaid with the remarks that the cheque is out of data. A post-dated cheque is one, which bears the date after the day of issue i.e. the date given on the cheque has yet to arrive. The bank has no authority to pay a post-dated cheque until the due date. Post-dating of a cheque convert it from Demand Instrument to time instrument. On presentation such a cheque will be returned with cheque post-dated, it may be paid on or after the date mentioned on it.
17 CONTRIBUTORY NEGLIGENCE.
Where a banker has been found negligent in case and his customer (plaintiff) has also been negligent, he (customer) is said to have contributed to such a loss as well. The courts according to his contribution reduce the claim of the customer. Examples are: customer recklessly issuing blank signed cheques or by failing to exercise proper check over his clerk or agent, handling or writing his cheques books.
18 GARNISHEE AND GARNISHEE ORDER
Garnishee means a person who is Garnished and warned through a garnishee order. Garnishee order is process of law, which warns a garnishee (bank) to attach a debt (deposit) owing or accruing due at the time of service of order of his customer to paid to the person who has secured final orders against such customer.
A garnishee order “nisi” is issued first by the court, which means that this order will become final on a particular date unless set aside or invalidated by certain specified contingencies. Thus the bankers on service of such notice is required to attach all the debts due by him to the judgment debtor for payment to the judgment creditor as directed by the court. The banker has to attend the court for paying the debt or to show cause why it cannot be paid. On hearing the concerned parties the court issues garnishee order or set aside the earlier order i.e. garnishee order “nisi”. By issuing garnishee order absolute the garnishee is ordered to pay the debt due or accruing in satisfaction or part satisfaction or part satisfaction of the judgment debt.
On receipt of garnishee order “nisi” it should be carefully examined which account(s) of the customer has/have been attached and upto what extent? The amount earnmarked should be in the same mane or names of the customer as per garnishee order. The funds marked should be those, which are repayable on demand including those term deposits, for which notice for payments has been received before receipt of the order.
As applicable to bill of exchange, promissory note or cheque, means the payee or indorsee or bearer of an instrument who is entitled in his own name, to its possession and to receive or recover the amount from the parties thereto. Mere possession f the instrument would not entitle a person to recover its amount from the parties thereto, as in case of person finding a bearer instrument or a thief or forged indorsee. Even the payee of an instrument will not be entitled to receive the amount who has been restrained by the court orders. But where the instrument has been lost or destroyed its holder would be the person who was entitled to its possession at the time of its loss or destruction.
20. HOLDER IN DUE COURSE
Holder in due course is a person who fulfills the following four conditions.
(i) That he is holding negotiable instrument for value either as bearer, payee or indorsee.
(ii) That he got the possession of the instrument before the maturity i.e. before the amount mentioned therein became due.
(iii) That he took the negotiable instrument in good faith.
(iv) That he became the holder with due care or without notice of any defect in the title of the person (indorser/transferor) from whom he derived his title.
21. IMPERSONAL PAYEE.
Cheques drawn payable to “Cash or Order” or “Wages or order” etc., are instruments, which are payable to impersonal payee as these are not payable to any specified persons, these are paid to the drawer or his known agent only against an indorsement. Similarly cheques drawn in favour of “Income Tax or ordre or water rates or order” are payable to impersonal payee. In such cases, indorsement of concerned official is obtained before payment i.e. in the first case from the income Tax officer and in the second case from the revenue officer or director revenue, water and sanitation agency, LDA, Lahore.
22. INCHOATE INSTRUMENT
Inchoate means begun but not completed or nt perfected. Inchoate instrument is an instrument, which is incomplete in some respect, e.g. a cheque issued with no payee stated thereon or bill form signed by a person and handed to another person to fill up and make into a complete bill.
It is also spelt as endorsement. In its literal sense, it means to write at the back of an instrument. Technically it is to inscribe one’s signature on the back or face of a negotiable instrument i.e. cheque, bill, note etc., with the intention of transferring the instrument and the property therein. This act is, to indorse and the person signing it is called indorsement. The person specified in the instrument is called indorsee. The indorsement can be made by the holder of the instrument and its maker (when it is drawn o the maker’s order). A strange to the instument can not indorse it. It may be noted that no specific form has been prescribed by law for an indorsement, any form of words over the signature of the indorser, which imports intention to transfer the instrument, is sufficient.
24. INDORSEMENT – TYPES
(i) Indorsement in blank or blank indorsement or general indorsement.
An indorsement is described as indorsement in blank or blank indorsement when theindorser simply signs on the instrument without mentioning an indorsee. The effect of such an indorsement is tht instrument becomes bearer one unless it is converted into special indorsement or indorsement in full by writing over the signature of the indorser.
Example; “Muhammad Naeem-ud-Din.”
(ii) Special or full indorsement.
The indorser under his signature also states the name of person (indorsee) to whom such instrument is desired to be paid as per his order.
Example; “Muhammad Naeem-ud-Din.”
A legal term used in banking and finance to denote cheque, draft, promissory note, bill of exchange, bond, shares certificates, bill of lading, trust receipt etc. the term also includes any kind of legal document by which some right is conferred or contract is expressed such as deed, grant etc.
26. MANDATE MANDATORY
A mandate is an official order, command or charge, but as applicable to banking it is a written authority given by a bank customer (the mandator) to another person (the mandatory) to sign cheques or conduct banking business on his behalf. Thus a mandatory is a person to whom a mandate or an authority is given. The person who gives the mandate is called the mandator. The relationship of banker and customer in this context is that of mandatory and mandator.
A mandate is terminated by the death, bankruptcy or mental incapacity of the person or one of the persons in case of joint account, who gave the authority. It should be noted that the person (the mandatory) who has authority to sign on behalf of other, has not, as a rule, any power to delegate that authority.
27. MATERIAL ALTERATION
Section 3(f) of negotiable instrument act, 1881 defines material alteration as “material alteration’” in relation to a promissory note, bill of exchange or cheque includes any alteration of the date, the sum payable, the time of payment, the place of payment, and , where any such instrument has been accepted generally, the addition of a place of payment without the accepter’s assent.
The list of material alterations given above is not an exhaustive and there may be some other alterations which one. As has been stated that “any alteration is material, which would alter the business effect of the instrument if used for any purpose for which such an instrument is used.”
Maturity as relating to banking and finance means: (a) state of being due (b) the time when a note or bill of exchange becomes due. Section 22 of negotiable instrument act, 1881, describes maturity as “the maturity of a promissory note or bill of exchange is the date at which it falls due. “three days of grace are allowed to every bill or note which is not payable on demand, at sight or after a certain event will be at maturity 3 days after the day on which it is payable.
29. MEMORANDUM OF ASSOCIATION.
Memorandum of association is Magna Charta of company. It detail the scope and conditions on the basis of which certificate of incorporation is given by the Registrar of the companies. The clauses and the conditions recited in the memorandum of association are fundamental and unalterable. Only certain specified particulars can be changed in accordance to the provisions of law. Objects of the memorandum can not go beyond the provision of the companies ordinance, but the articles of association, which contains bye-laws or regulations to control its internal management despite being limited to companies ordinance are also subordinate to memorandum. Since the memorandum is in the nature of a contract between the company or a persons dealing with the company is required to know the provisions of memorandum (and articles of association) of the company especially pertaining to the nature of business, extent of the powers of the company and directors and those concerning conduct and operation of banking transactions.
Negotiation is a process by means of which an instrument is transferred from one person to another in such a manner that the transferee becomes its holder. Where the instrument is payable to the order, it is negotiated by necessary endorsement and by delivery. In case of a bearer instrument, negotiation is completed by delivery only.
31. NOT NEGOTIABLE
The phrase “not negotiable” does not restrict the transferability of cheque, but it destroys its characterity of negotiation and it cannot be negotiated in an ordinary way. It resembles a bill bearing a “restrictive indorsement”. As indicated in section 130 of negotiable instrument act 1881, the transferee of such a cheque does not acquire the rights of a holder by negotiation, he gets no better title than that of transferor.
32. NOT NEGOTIABLE CROSSING
An important feature of negotiable instrument is that bona fide transferee getting it in good faith and for value will acquire a good title despite any prior defect in the chain of title.
33. NOT PROVIDED FOR
The answer to the unpaid cheque indicates that the drawer was supposed to provide funds for payment of the cheque which he has failed to meet with.
34. NOT SUFFICIENT
The answer is used when the funds at the credit of customer are insufficient to clear the cheque presented for payment. This term is also likely to convey the idea that the customer is maintaining balance lesser than the amount of cheque as such use of term “not sufficient” should also be abandoned in favour of “Refer to Drawer”.
35. NOT TRANSFERABLE
The crossing of cheque “Not Transferable” restricts its characteristic of transferability as well as negotiability. The cheque bearing such crossing cannot pass from one person to another and no one else, but the payee of the cheque is entitled to the proceeds.
36. OBLITERATING A CROSSING
Obliterating means to rub of or to erase. So obliterating a crossing is quite different from opening of a crossing. This method is used by fraudulent people to deceive the banks to obtain cash payment on the counter. Since no particular safety rules can be prescribed for such cases but all the cheques presented for cash payment must be scrutinized carefully at every stage. More detailed scrutiny should be done of the cheques of big amounts presented by a stranger. However, protection is available to the bank under section 89 of negotiable instrument act under the following circumstances.
(i) the alteration is not apparent and can not be noticed even with minute scrutiny.
(ii) The payment has been made in good faith and according to the apparent tenor of the cheque.
37. OPENING OF CROSSING
The act of drawer, canceling crossing of the crossed cheque by writing upon it “Pay Cash” under his signature is called opening of crossing. By this action a crossed cheque is converted into an open cheque and its payment can be obtained at the bank’s counter. It need not be presented through a bank in case it was crossed generally or to the specified bank in case it bore special crossing. Although no provisions exists in law for cancellation of crossing but writing of words “Pay Cash” in this way has recognition of the custom.
38. PAYMENT IN DUE COURSE
Section 10 of the negotiable instrument act, 1881 has laid down following conditions for a payment to be a payment in due course.
(a) That the payment should be made in accordance with the apparent tenor of the instrument.
(b) The person to whom it is made should be in possession of instrument.
(c) The payment should be made in good faith, without negligence and under circumstances, which do not afford a reasonable ground for believing that the person to whom it is made, is not entitled to receive the amount.
Thus the payment to be in due course, must be according to the directions appearing on the face of the instrument as per intention of the parties. A payment cannot be a payment in due course if it is made before due date, to a person not entitled to it. A payment without good faith and without care and caution is not a payment in due course. The payment made on a forged cheque is not a payment in due course.
39. POWER OF ATTORNEY
Power of attorney is a written document by which authority is given by one person (donor) to another (donor) to act on his behalf either generally or for some specific transaction. The power of attorney contains, names, addresses, and descriptions of donor and the done, the reason or the purpose for giving the authority, and the scope of the authority.
40. REFER TO DRAWER.
The term “Refer to Drawer” is one of the mostly used answers for returning the cheque for conveying various reasons of dishonour i.e. “balance insufficient”, “balance under lien” or “service of garnishi order”. By stating this term the banker indicates to the presenter (payee) of a cheque, “we are not paying, go back to the drawer and ask why”, or else “go back to the drawer and ask him to pay”. The use of the term should always be with due care and would not be is leading to the presenting party which is to be construed properly by him, a any misunderstanding can cause damage to the credit of the customer.
Signature includes a person’s name, sign, cross or mark impressed or written by him. The signature of a customer (which must conform to the specimen provided to the bank) on cheque (or on a paper) is an authority to comply with his instruction; to pay cheque if otherwise in order or to debit his account.
42. TRAVELLER’S CHEQUES
Also known as international cheques. These are widely used by the persons traveling within the country or abroad. The instrument is preprinted in various convenient denominations of the currencies, in which these are issued. Most popular currencies are U.S. Dollars and U.K. pound sterling. They are not drawn on a particular bank or banks, but are encashable at all banks or authorised business houses and institutions through out the world.