Internship report on nbp 3(1)

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  • 1. Chapter – 10 Implementation Plan CHAPTER 1 INTRODUCTION OF STUDY 1.1 Background of Studies As part of the academic requirement for completing MBA (Banking and Finance) Master Business Administration of the students are required to under go six months of internship with an organization. The internship is to serve the purpose of acquainting the students with the practice of knowledge of the discipline of banking administration. This report is about National Bank Pakistan. NBP was established in 1949 and since then, it has expended its network, becoming the largest commercial Bank of the country. It offers different products of services to its customers. 1.2 Purpose of the Studies The main of the study in hand is together relevant information to compile internship report on National Bank of Pakistan. To observe, analyze and interpret the relevant data competently and in a useful manner. • • 1.3 To work practically in an organization. To develop interpersonal communication. Scope of Studies As an internee in National Bank of Pakistan the main focus of my study research was on general banking procedures in one of the branches of NBP. These operations include remittances, deposits, advances and foreign exchange. Similarly different aspects of overall of NBP are also covered in this report. 1
  • 2. Chapter – 10 1.4 Implementation Plan Research Methodology The report is based on my two months internship program in National Bank of Pakistan. The methodology reported for collection of data is primary as well as secondary data. The biggest source of information is my personal observation while working with staff and having discussion with them. Formally arranged interviews and discussions also helped me in this regards. • Primary data: Personal observation Interviews of staff • Secondary data: Manuals Journals Magazine Annual reports Internet 1.5 Scheme of Study SECTION 1 Chapter 1: An introductory chapter that discuss the introduction of study of report, its Background, Purpose, Scope, Methodology, limitations and Scheme of the report. 2
  • 3. Chapter – 10 Implementation Plan SECTION 2 Chapter2 This chapter concludes brief history of banking in general, evolution of banking, banking in Pakistan.. Chapter3: This chapter consist Nationalization of banking in Pakistan, History of NBP, mission statement, its objectives and functions of National Bank of Pakistan. Chapter4: In this chapter the services of NBP were discussed. SECTION III Chapoter5: In this chapter the in this section the departmentation of NBP is explained, and also NBP Hayatabad township branch. SECTION IV Chapter6: It tells about Strengths, Weaknesses, Opportunities and Threats of i.e. SWOT analysis of NBP. Chapter 7: It consists of comprehensive performance of NBP through past several years. Ratio analysis and those parties, which are interested in financial performance of Bank. Chapter 8: It covers the critical analysis of the bank. This chapter has been divided into four parts i.e. Problems at the Branch, Functional analysis, Administrative analysis, and Personal Management Analysis. 3
  • 4. Chapter – 10 Implementation Plan SECTION V Chapter 9: In this chapter recommendation for improvement on all aspects of the Bank are given. Chapter 10: Two implementation plans are given in this chapter. “Mare Gare Car Financing Scheme” and Need for Telephone Operator. 4
  • 5. Chapter – 10 Implementation Plan CHAPTER # 2 EVOLUTION OF BANKS IN PAKISTAN There are different opinions that how the word ‘Bank’ originated. Some of the author’s opinion that this word is derived from the word ‘Bancus’ or Banque’, which means a bench. The explanation of this origin is attributed to the fact that the Jews in Lombard transacted the business of money exchange on benches in the market place; and when the business failed, the people destroyed the ‘bench’. Incidentally the word ‘Bankrupt’s said to have evolved from this practice. Some of the authors are of opinion that the word ‘Bank’ is derived from the German word back, which means ‘joint stock fund’. Later on when the German occupied major part of the Italy the word ‘Back’ was italicized into ‘Back’. In fact human left the need of bank when it begins to realize the importance of money as a medium of exchange. Perhaps it where the Babylonian who developed banking system as early as 2000 BC. At that time temples were used as banks because of their prevalent respect. During the rule of king Hamurabi (1788 – 1686 BC) the founder of Babylonians Empire, loans were started being granted for interest. The borrower has to provide guarantee or he had to pledge his goods or valuables. King Hamurabi drew up a code wherein he laid down standards rules for procedures for banking operations by temples and great landowners. Also in Greece, the temples were used as banks, where the people deposited their money and other valuables for safe custody and security. In Europe with the ‘revival of civilization’ (Renaissance) in the middle of twelve century, trade and commerce started expanding and this development compelled the business community to borrow the money from the Hebrew money lenders on high rates of interest and usury. Seeing the great demand, these moneylenders started organizing themselves and bank started up at the principle seaports of southern Europe. Soon Venice and Geneva became the most important money markets of the time and banking though different from its present form, flourished. What we know as ‘modern banking’ originated in the 14 th century in Barcelona.1 5
  • 6. Chapter – 10 Implementation Plan 2.1 Definitions of Bank “Bank” "A financial institution, which deals with money and credit. It accepts Deposits from individuals, firms and companies at a lower rate of Interest and gives at higher rate of interest to those who need them.”2 A financial establishment which uses money deposited by customers for investment, pays it out when required, makes loan at interest, exchanges currency, etc. J.W Gilbert in his principles and practice banking defines a banker in these words: “A banker is dealer in capital or more properly, a dealer in money. He is intermediate party between the borrower and the lender. He borrows of one and lends to another”.3 Sir John Paget defines banker in these terms: “That no person or body, corporate or otherwise, can be a banker who does not  Take deposits accounts.  Take current accounts,  Issue and pay Cheques and  Collect Cheques crossed and uncrossed for his customers” 4 (The law of Banking by Sir John Paged, page 51). The American defined the term banker in a very broad sense as under: “By banking, we mean the business of dealing in credits and by a ‘Bank’ we include every person, firm or company having a place of business where credits are opened by deposits of collection of money or currency. Subjects to be paid or remitted on 6
  • 7. Chapter – 10 Implementation Plan Cheques or order, money is advanced or loaned on stocks, bonds, bullion, bill of exchange, promissory notes are received for discount or sale”.5 2.2 Evolution of Banking in Pakistan The first phase in evolution of banking in Pakistan sees very hard days for the whole banking sector. Starting virtually from scratch in 1947, the country today possesses a full range of banking and financial institutions to cope with various needs of the economy. The area now constituting Pakistan was, relatively speaking, fairly well provided with banking facilities in undivided India, in March 1947 there were 3496 offices of Indian scheduled banks out of which as many as 487 were situated in territories now constituting Pakistan. The Reserve bank of India was the central banking authority in India. At the time of partition it was decided that in the interest of smooth transition it should continue to function in newly emerging state of Pakistan, until 30th Sep.1948. In 1947 due to uncertainty and unsuitability the banking sector suffer heavy losses. This resulted in a negative effect on baking service in Pakistan. The banks, which had their registered offices in Pakistan, transferred them to India. In an effort to bring about the collapse of the new state by pushing a deliberate policy of withdrawals the Indian bank offices closed quickly. Those banks, which stayed, operated only in name pending the winding up of their business. The number of scheduled banks thus declined form 487 branches before independence to only 195 branches by 30th June1948.5 2.3 Banking Growth during (1948-1970) In this tense situation, a committee was immediately setup to formulate a scheme of central banking legislation for Pakistan. Many specialists were of the opinion that in view of the acute shortage of trained staff, any idea of establishing a central bank was I impractical and the best that could be attempted was the setting up of a currency board until such times as sufficient staff could be organize to operate a central bank. 7
  • 8. Chapter – 10 Implementation Plan The questions as to whether the institution should be only a currency board or a fullfledged central bank had exercised the mind of the Pakistan government since independence. Through, it was realized that the shortage of trained personal to run the central bank would present serious difficulty in view of the tangible advantages that a central bank enjoyed over currency board, the government ultimately decided to take the bold step of setting up a full fledged central banking authority. Among other factors, which led to this decision, there was the fact the banking facilities in the country had been totally disrupted and there was an urgent need for their rehabilitation, which a central ban alone could meet. As there was hardly any time to pass as Act, an order was drafted, known as the state bank of Pakistan order, which was promulgated by the government of Pakistan on 12th may 1948. The state bank declared open on July 1 , 1948 by the father of the nation. One of the first tasks of the state bank was to arrange for the replacement of the Reserve bank of India notes, which had continued to circulate in Pakistan during the transitional period, by Pakistan currency. The first Pakistan notes were issued in October 1948 in the denominations of Rs. 5, 10 & 100. An equally urgent task, which the new central bank had to address itself, was the creation of a national banking system. To this end, while extending every help and encouragement to Habib Bank to expand its organization, the state bank recommended the setting up of a new banking institution to serve both as an agent to the state bank recommended the setting up of a new banking institution to serve both as an agent of the state bank as well as the spearhead of its credit polices. Accordingly the NATIONAL BANK OF PAKITSN was setup under an ordinance in November 1949. It started with six offices in the former East Pakistan. In view of the special role assigned to the new institution, contrary to traditional practices the Governor of the state bank was appointed to head its board of Director in 1950. Under the fostering care of the state bank and the support of the government, the new institution developed rapidly. By using its special powers, the state bank made liberal advances to the new 8
  • 9. Chapter – 10 Implementation Plan bank to help it expand credit facilities in the country. By 1952, the National bank of India. Shortly, afterwards, in November 1952, the governor of the state bank ceased to function as the president of National bank of Pakistan. With a view to broadening the institutional framework of the financial system, the state bank also sponsored the establishment of specialized credit institutions in the filed of agriculture and industry. Banking companies (control) act was passed in December 1948 specifically empowering the state bank to control the operations of banking companies in Pakistan. Moreover realizing that the most serious limitation on the expansion of banking services in Pakistan was the lack of trained personal, the state bank sponsored a banking training scheme, which was repeated after year and turned out a large number of bankers. As the Commercial Banking facilities continued to expand, a new Pakistani bank, the National Commercial Bank was established and registered as a scheduled bank. In the filed of industrial finance a new institution known as the industrial credit and investment cooperation was set up. The year 1958 marked the completion of the first decade of the working of the State Bank of Pakistan. When it was established there were only 195 bank offices in existence. At the end of June 1958 their number had increased to 307, of which Pakistani banks accounted for 232 against 25 in mid 1948. Moreover at the end of June 1958. Pakistani banks held 60% of the total banks deposits, and were responsible for 65 of total bank credit. When the Ayub Government took over in 1958, the banking and monetary scene was significantly affected by Developments such as the liberalization of imports, transfer of business in food grains to the private sector, and the firming up of commodity markets. The demand of funds picked up and there was a substantial expansion of bank credit to the private sector. The pace of expansion in the institutional frame work of the country’s banking system quickened and a new Pakistani, bank, namely the United Bank Limited was established. 9
  • 10. Chapter – 10 Implementation Plan Owning the five years 1960-65, the credit structure in Pakistan made rapid progress. The bank extended its network by opening six new offices located at Chitagong, Peshawar, Quetta, Khulna, Layallpur and Rawalpindi. The number of scheduled bank offices rose from 430 at the end of June 1960 to 1591 in June 1965. Several new banks were added to the list of scheduled banks. Two principal additions were the commerce bank, and the standard bank. The number of scheduled banks, which stood at 29 in June 1960 rose to 36 by June 1965. Under the impact of economic growth and dear scope of private enterprises, bank credit to the private sector rose from Rs. 1,458 millions to Rs. 5759 million. Thus the total expansion in bank credit to the private sector during this period amounted to Rs. 4300 million, which gave a annual expansion of Rs. 860 million compared to the annual average increase of Rs. 144 million over the preceding five years. Banks deposits increased from Rs. 2,493 million to Rs. 6883 million during the five years period ended June 1965 compared to Rs. 231 million in the proceeding five years. Time deposits during this period increased from Rs. 946 million to Rs. 3228 million, where demand deposits rose from Rs. 1997 million to Rs 3655 million. The increase in time deposits was particularly rapid. The ratio of time deposits to total deposits in June 1965 stood at 49.6 percent age as against 32.01 percent age five years earlier. Another salient feature of banking development during this period was that since the rate of increase in bank deposits lagged behind the rate of expansion in bank credit, the banked has to depend increasingly on central bank finance. They borrowing from the state bank rose from Rs. 11 million in June 1960 to Rs. 1688 million in June 1965. Owing keen demand for bank credit, bank’s investments could not increase as rapidly as their advances. Their investments totaled to Rs. 1,874 million at the end of June 1965 compared to Rs. 1,231 million in June 1960. Investments which were almost equal to their advances in June 1960 were only about one third of the advances in June 1965. The third plane period witnessed a further expansion of banking facilities in the country the total number of scheduled banked offices increased from 1,591 at the end of June 1965 to 3133 at the close of June 1970. During the same bank credit to the private sector 10
  • 11. Chapter – 10 Implementation Plan rose from Rs. 5,789 million to Rs. 9492 million. There was also a substantial growth in the bank deposits, which increased from Rs. 6883 million June 1965 to Rs. 13147 million at the end of June 1970. A remarkable change occurred during this period related to the composition of deposits. Time deposit becomes greater than demand deposits forming about 54 percent age of the total deposits. As oppose to what happened in the previous period, banks were able to finance a mush higher level of credit expansion without having to increase their borrowings from the central bank.7 2.4 Banking Reforms 1972 After the assumption of office by a new government in 1971, may 1972 different reforms were introduced to make the banks more responsive to the requirements of economics growth with social justice. The reforms aimed at bringing about a more purposeful and equitable distribution of bank credit, improving the soundness and efficiency of the banks, and securing greater social accountability of the banking system as a whole. The role of the banking system had been truly spectacular in mobilizing savings of the community and meeting the credit needs of the economy. But at the same time, the banks had generally neglected their role in promoting social justice and had failed to play an effective role in ensuring a wider and more equitable dispersal of the benefits of economic growth. In particular the inter locking of ownership with commercial and industrial interests had led to the misuse of bank resources. There was a heavy concentration of credit in big accounts and in urban area. Credit facilities for agriculture, small business, newly emerging exports and housing had remained obviously inadequate while the banks indulged in capital financing in few selected business sectors and issued guarantees on behalf of favored clients, term clients, term financing facilities for industry were wholly absent. Under the banking reforms introduced in May 1972 the state bank of Pakistan was accorded wider powers. It was authorized to remove directors or managerial personnel, if necessary and supersede the board of directors of a banking company and appoint administrators during the period of such super session. It was also empowered to nominate directors on the board of every bank. As regard bank directors, it was provided 11
  • 12. Chapter – 10 Implementation Plan that anyone defaulting in meeting his obligations to bank would forfeit his directorship. Moreover, it was laid down that no person could serve as director of a bank for more than six years continuously. Each bank was required to have a paid up capital of not less than 5 percent age of its deposits to be progressively build up to 10 percent age over a period of time. The banks were also required to transfer 10 percentage of their profit their reserves every years after the reserve became equal to the paid up capital. With a view to diversity the ownership of the banks, the banks were required to raise new capital from the market. Unsecured loans to directors, their families or firms and companies, were totally prohibited. The bank reforms also brought about the establishment of new institutions to achieve new objectives. A national credit consultative was setup under the supervise of the state bank with representation form the government and the private sector. It was assigned the task of determining of economy’s annual credit needs within the safe limits of monetary and credit expansion with reference to the annual development plan. Such a credit plan was to cover the public and private sectors. Alongside the National credit council and Agricultural Advisory Committee was formed to allocate agriculture credit for various purposes, to coordinate the operation or the agriculture credit agencies and to oversee the flow of credit to the designated targets. A standing committee on exports in general and the new emerging exports in particular, was also established. With a view to encourage the banks to extend credit to small borrowers, a credit guarantee scheme was introduced under which the state bank under took to share any bonfire losses incurred by the commercial banks in case of small loans of advances to agriculture. At the same time two financing institutions were established. The people’s Finance Corporation was designed to provide finance to people of small means while the National Development Finance Corporation was setup of finance public sector owned and managed industries and enterprises.8 12
  • 13. Chapter – 10 Implementation Plan REFRENCES 1 Siddiqi H Israr Law and practice banking in Pakistan. 2 Gilbert J.W principles and practice. 3 Sir Paged John The law of Banking, page 51. 4 Sir Paged John The law of Banking, page 51. 13
  • 14. Chapter – 10 Implementation Plan CAHAPTER # 3 NATIONALIZATION OF BANKS (1974) The banking reforms turned to be transitional and interim step and when they were hardly eighteen months old the government nationalized the banking systems, with the following main objectives. To enable the government to use the capital concentrated in the hands of a few rich bankers for the rapid economic development of the country and the more urgent social welfare objectives. To distribute equitably credit too different classes sectors and regions. To coordinate the banking policies in various area of feasible joint activity without eliminating healthy competition among banks. The act passed for the nationalization of banks is known as the banks Nationalization Act 1974. Thus under this act the state bank of Pakistan and all the commercial banks incorporated in Pakistan and carrying business in or outside the country were brought under government ownership with effect from Jan 1, 1974. The ownership, management and control of all Pakistani banks stood transferred to and vested in the Federal government. The shareholders were provided compensation in the form of federal government bonds redeemable at par anytime within the period of fifteen years. Under the Nationalization act, the Chairman, Directors and Executives of various banks, other than those appointed by federal government were removed from their offices and the central boards of the banks and all local bodies were dissolved. Pakistan banking council was established to coordinate the activities of the Nationalized Commercial banks. At the time of Nationalization on December31, 1973 there were following 14 Pakistani commercial banks with 3323 offices allover Pakistan and 74 offices in foreign countries: 14
  • 15. Chapter – 10 Implementation Plan National banks of Pakistan Habib bank limited Habib bank (overseas) limited United bank limited Muslim commercial bank limited Commerce bank limited Standard bank limited Australia bank limited Bank of Bahawalpur limited Premium bank limited Pak Bank limited Sarhad bank limited Lahore commercial limited Punjab provincial co-operative bank limited The Pakistan banking council prepared a scheme for the recognition of banks. The bank (amalgamation) scheme 1974 was notified in April, providing for the amalgamation of the smaller banks with bigger ones and following the five units in there phases: National bank limited Habib bank limited United bank limited Muslim commercial bank limited 15
  • 16. Chapter – 10 Implementation Plan Allied bank of Pakistan limited The first phase was completed on 30 th June. 1974. When the bank Bahawalpur was merged with the National Bank of Pakistan. The premier Bank Limited with Muslim Commercial Bank limited and Sarhad Bank Limited and Pak bank limited and renamed as Allied Bank of Pakistan limited. The second phase was completed on 31st Dec.1974, when the commerce bank limited merged with the United Bank limited. The third and the final phase were completed on 30 th June, 1975 when the standard bank limited was merged with Habib Bank limited. The nationalization was very smooth and gave very positive results. The number of branches, which stood at 3397 on Dec31, 1973, reached on 7661 by end June 1992. The bank deposits which stood at Rs. 1925 corers at the end 1973 reached the highest mark about 323 corers.1 3.1 Islamization of Banking Another major development in the history of Pakistan Banking System was the introduced of interest free banking in selected Commercial Banks with effect form Jan1, 1981. This followed the effort to eliminated interest from the operation of Nation investment trust, the House Building Finance Corporation of Pakistan. Certain amendments were made in banking and other laws with the object of ushering in a new system of banking, which would confirm of Sharia. A new law Modaraba Companies Ordinance 1980 was promulgated. Separate interest free counters began to operate in all the nationalized commercial banks free counters began to operate in all the nationalized commercial banks. The state bank provides finance against participation term certificate and also against promissory notes supported by Modaraba certificate. In order to cover interest free transactions certain banking definitions such as creditors, debtor, and advances credits and deposits were revised. Stipulations concerning form of 16
  • 17. Chapter – 10 Implementation Plan business in which banking companies may engage may also have been modified schemes were introduced to provide interest free loans to formers and deserving students. A private Limited Company named as Bankers Equity limited was incorporated in 1979 to provide financial assistance to the industrial sector primarily on interest free basis. A scheme to extend interest free productive loans to farmers and fisherman has also been introduced. Instead of interest, a system based on mark-up in price, exchange rate differential, and profit and loss sharing accounts were introduced. Different financial schemes introduced in the Islamization process are: 2 ♦ Musharika Financing. ♦ Hire Purchase Financing. ♦ Modaraba Financing. ♦ Specific Purpose Modaraba. 3.2 Dis-Investment and Deregulation of Banking – 1991 When it was realized that the role of public sector in the economy is over extended and the banking sector has more earning potential in the private sector the process of privatization banking sector restarted in 1991 by the Muslim League Government. Muslim Commercial Bank was Dis-invested in to two phases while ABL was sold to its employees. Since then allot of investment is being made in the banking sector and several new banks were established and still the process is going on. Now only NBP is government bank other than SBP. The performance of this bank will be analyzed and judged in the following chapters. 3.3 INTEREST FREE BANKING A new concept of interest free banking was introduced in 1981 and by now it has been established on sound footing and new trends and techniques are being implemented to 17
  • 18. Chapter – 10 Implementation Plan make this system result oriented. New products and their systematic consumption are making Pakistani banking comparable to their several modern counterparts anywhere in the developed world. 3.4 HISTORY OF NBP: The NBP was established vide NBP Ordinance No. XIX of November 9. 1949. British Govt. devalued its currency in September 1949, India devalued its rupees but Pakistan did not. It led to a crisis in trading between the two countries and India refused to lift the Pakistan Jute. To solve this problem i.e. to export jute NBP was established through an Ordinance of GOP. National Bank of Pakistan maintains its position as Pakistan's premier bank determined to set higher standards of achievements. It is the major business partner for the Government of Pakistan with special emphasis on fostering Pakistan's economic growth through aggressive and balanced lending policies, technologically oriented products and services offered through its large network of branches locally, internationally and representative offices. The Bank in 1950 had one subsidiary ‘The Bank of Bahawalpur’ on December4, 1947 by the former Bahawalpur State. NBP was undertaking Treasury Operations and Managing Currency Chests or Sub Chests at 57 of its offices where the turnover of the business under the head amounted to Rs.2460 million. i) Deposits held by NBP constituted about 3.1% of total deposits of all Pakistani Banks in 1949, which rose to 38% in 1952. ii) Growth in Deposits was accompanied by increase in Bank portfolio in advances. NBP lent out to Textile, Yarn, Iron and Steel and played a pioneer role in support of agriculture and commerce. iii) NBP advances reached Rs.554.4 million by December 1959, which was one third of the total schedule bank credit.3 18
  • 19. Chapter – 10 Implementation Plan 3.4.1 MISSION STATEMENT make the Bank complete and “To competitive with all international Standard in performing, quality of, operations, staff, financial strength . And products and services To develop a culture of excellence in every spare of activity of the bank4”. 3.4.2 GOALS AND OBJICTIVES “An organizational objective is the intended goal that prescribes definite scope and suggests direction to the panning efforts of a organization.”6 3.4.3 GOALS AND OBJICTIVES NBP “To be the pre-eminent financial institution in Pakistan and achieve market recognition both in the quality and delivery of service as well as the range of product offerings.”7 3.4.4 BOARD OF DIRECTORS Table 1 NAME DISIGNATION Ali Raza Chairman & President Dr Waqar Masood Director Ifthikhar Ali Malik Director Syed Shafqat Ali Shah Jamoti Director M Zubair Motiwala Director Sikandar Hayat Jamali Director M. Khalid Malik Director S.M. Rafique SEVP & Sectorary to BD (Source Annual report 2003) 19
  • 20. Chapter – 10 Implementation Plan 3.5 MANAGEMENT Management is a distinct process consisting of activities of planning, organizing, actuating and controlling performed to determine and accomplish stated objectives with the use of human being and other resources.8 The management has two types. 1 Centralized. 2 Decentralized. Centralized Management tends to concentrate decision making at the top of the Organization . Decentralized disperses decision making and authority throughout and further down the organizational hierarchy.9 NBP have a centralized type of management because all the decisions are taken by the top management. 3.5.1 SENIOR MANAGEMENT OF NBP. Table 2 SEVP & Group Chief, Corporate & Masood Karim Sheikh Investment Banking Group and Chief Financial Officer S. M. Rafique Derick Cyprian Imam Bakhsh Baloch SEVP & Secretary Board of Directors SEVP & Group Chief, Special Assets & Remedial Management Group SEVP & Group Chief, Compliance 20
  • 21. Chapter – 10 Implementation Plan Group Shahid Anwar Khan Nadeem A. Dogar Muhammad Sardar Khawaja Dr. Asif A. Brohi Javed Mehmood Muhammad Nusrat Vohra Amim Akhtar Dr. Mirza Abrar Baig Uzma Bashir EVP & Group Chief, Commercial & Retail Banking Group EVP & Group Chief, Information Technology Group EVP & Group Chief, Audit & Inspection Group EVP & Group Chief, Operations Group EVP & Group Chief, Risk Management Group EVP & Group Chief, Treasury Management Group EVP & PSO to the President Group Chief, Human Resources Management & Administration Group Group Chief, Organization D&T Group (Source www.nbp.com.pk) 3.6 Net Work of Branches: NBP have wide range of branches inside the country and outside the country. In Pakistan it has 29 regional offices, 1189 Branches and 4 Subsidiaries. In overseas it has 16 overseas branches, 6 other branches.10 .3.7 Objectives of NBP National bank of Pakistan is also a commercial organization and its main objective is profit maximization. This is achieved in two ways: 21
  • 22. Chapter – 10 Implementation Plan 1. By increasing deposits. 2. By charging interest on loans provided to the private sector and business community. These are explained as: 3.7.1 Increase in deposits: Competition in banking is intense and every bank whether it is Pakistani, foreign, private or nationalized tries to increase its deposits by providing better facilities to its customers. By increasing its deposits a bank can extend greater amount of loan and hence achieves higher profit. NBP is also improving its facilities and services to attract customers with higher volume of deposits. There are two main factors involved in increasing the deposits. These factors are improving the services and courtesy. NBP is continuously working on these two factors to increase its deposits. 3.7.2 Extension of loans: The profitability of a bank largely depends on the amount given to people as loan and the type of people to whom credit is given i.e. the credit worthiness of the borrowers. This strategy has worked quite well for NBP. Deposits are collected from the people and invested in different projects. NBP prefers to give loans to financially sound and reliable parties, after securing the collators. NBP has an extremely well organized section. The staff is adequately trained, and educated and competent. They carry out extensive financial analysis before deciding on the loan. Interest charged on the loans potentially contributes to higher profits. Some of the other objectives of NBP are: i. Improve customer services. ii. Quick disposal of credit cases. iii. Efficient operation of the branches. 22
  • 23. Chapter – 10 Implementation Plan iv. Better Public Relations. v. Operational and advisory services for foreign exchange accounts activities 3.8 Functions of NBP Since NBP is a commercial bank, it performs a variety of functions. Like other commercial banks, NBP is engaged in financing international trade. Its other major functions include receiving deposits, advancing loans and discounting of exchange. The functions performed by NBP are: 3.8.1 Accepting Deposits This function is important because banks largely depend on the funds deposited with them by its customers. Deposits are of many types: i. Current deposits Current deposits are also called demand liability on current deposits. NBP pays practically no interest on current deposits. Businessmen usually open current accounts. In NBP current account can be opened with a minimum amount of Rs.500/-. ii. PLS saving deposit Profit and loss sharing deposits (PLS) are also called checking accounts. One can deposit and draw money easily. Profit on PLS is calculated every month but paid after six months. PLS account can be opened with a minimum amount of Rs.500/- 23
  • 24. Chapter – 10 iii Implementation Plan PLS term deposits Fixed term deposits are deposits with the bank for certain fixed period before the expiry of which they cannot be withdrawn unless giving due notice. In this case the rates of profit will be different depending upon the time period. 3.8.2. Discounting bills of exchange Discounting of bill is practically speaking lending for exchange at their market rate i.e. it pays to holder of the bill an amount equal to the face value after deducting interest at the current market rate for the period. This bill has to be mature. This is the common way used for keeping a part of assets of the bank in a liquid form. 3.8.3. Agency service NBP also provides best and unique service to its valued customers. NBP provide the following agency services to the customers: i. Collection of dividends As NBP deals with the purchase and sale of various types of securities, therefore NBP also provide dividend or interest earned on share or bonds or invested money. ii. Collection of Cheques In the collection and payment of Cheques, bills and promissory notes etc. National bank of Pakistan acts as an agent for its customers. iii. Acting as an agent NBP also acts as an agent correspondent or representative for its customer at home or abroad. iv. General utility services: Utilities provided by NBP are as follows: 24
  • 25. Chapter – 10 Implementation Plan a. Clearance of utility bills NBP provides the service of clearing the utility bills i.e. electricity, gas and telephone bills of its customers. For this purpose it also provides evening banking services. b. Lockers facility National bank of Pakistan also provides locker facilities to its customers to keep their valuable assets in it. The charges of different size of lockers are different. c. Acts as a referee NBP provides useful services to its customers by acting as a referee to their credit worthiness. d. Supply of information NBP provides operational and advisory service for foreign exchange accounts/activities. 3.9 Unmatched Banking Facilities  Deposit security, Guaranteed by Government of Pakistan.  Highest rates of return to attract the savings.  Lowest rates on exports and other borrowings.  Largest contribution towards Government and Semi-Government requirements.  Agents of the SBP handling Treasury Functions, receipts of Taxes & other Revenues.  Handling of salaries & pensions of federal/provincial/defense personnel.  Utility Bills collections. 25
  • 26. Chapter – 10 Implementation Plan  Hajj arrangements.  Sale and encashment of prize Bonds.  Sale and encashment of Defense Savings and Special Savings Certificates.  Safe Deposit Lockers for customers.  Rational Human Resource Management. The prestigious periodical “The Banker” UK recognized NBP as the best bank for 20012002 and NBP is the bank of the year for 2003-2004 of Pakistan. i. AAA rating awarded JCR-VIS Credit co. Ltd and affiliated of Japan Credit Rating Agency for 2001. ii. AAA+1 rating awarded JCR-VIS Credit Co.Ltd and affiliated of Japan Credit Rating Agency for 2002 3.10 NBP at the forefront of Pak-Afghan trade i. Booth at dry port Peshawar ii. Booth at Pak Afghan border (Torkham) NWFP iii. Booth at Pak Afghan border (Chamman).Baluchistan. iv. Establishing branch at Kabul in near Future.11 26
  • 27. Chapter – 10 Implementation Plan REFRENCES 1 Bank Nationalization act 1974. 2 Islamic Banking. 3 www.nbp.com.pk 4 Annual report 1998. 5 www.nbp.com.pk 6 Terry and Franklin Principles of Management. 7 www.nbp.com.pk 8 Terry and Franklin Principles of Management. 9 Terry and Franklin Principles of Management. 10 Annual report 2003. 11 www.nbp.com.pk 27
  • 28. Chapter – 10 Implementation Plan CHAPTER # 4 SERVICES OF NBP SERVICES Services are he outputs of the firm which are in intangible form. NBP offers the following services to the people. 4.1 DEMAND DRAFTS If you are looking for a safe, speedy and reliable way to transfer money, you can now purchase NBP’s Demand Drafts at very reasonable rates. Any person whether an account holder of the bank or not, can purchase a Demand Draft from a bank branch. 4.2 SWIFT SYSTEM The SWIFT system (Society for Worldwide Inter bank Financial Telecommunication) has been introduced for speedy services in the area of home remittances. The system has built-in features of computerized test keys, which eliminates the manual application of tests that often cause delay in the payment of home remittances. The SWIFT Center is operational at National Bank of Pakistan with a universal access number NBP-APKKA. All NBP overseas branches and overseas correspondents (over 450) are drawing remittances through SWIFT. Using the NBP network of branches, you can safely and speedily transfer money for our business and personal needs. 4.3 LETTERS OF CREDIT * NBP is committed to offering its business customers the widest range of options in the area of money transfer. If you are a commercial enterprise then our Letter of Credit service is just what you are looking for. With competitive rates, security, and ease of transaction, NBP Letters of Credit are the best way to do your business transactions. 28
  • 29. Chapter – 10 Implementation Plan 4.4 TRAVELER'S CHEQUES Traveler’s cheques are negotiable instruments, and there is no restriction on the period of validity of the cheques. Rupee traveler’s cheque is available at all 700 branches of NBP. This can be encashed in all 400 branches of NBP. There is no limit on purchase of this cheque. It is one of the safest ways for carrying money. 4.5 PAY ORDER NBP provides another reason to transfer your money using our facilities. NBP pay orders are a secure and easy way to move your money from one place to another. And, as usual, NBP charges for this service are extremely competitive. The charges of NBP are very low all over the Pakistan. It charges Rs 50/- for NBP account holders on issuing one payment order. And charges Rs 100/- for NBP non-account holders on issuing one payment order. It charges Rs 25/- for students on payment of fees of educational institutions. If some one want a duplicate of payment order they charges Rs 100/- for NBP account holders and Rs 150/- for non account holders. 4.6 MAIL TRANSFERS Move your money safely and quickly using NBP Mail Transfer service. And NBP also offer the most competitive rates in the market. They charges Rs 50/- exchange rate and RS 75/- postage charges on issuing mail transfer. 4.7 FOREIGN REMITTANCES: To facilitate its customers in the area of Home Remittances, National Bank of Pakistan has taken a number of measures to: • Increase home remittances through the banking system • Meet the SBP directives/instructions for timely and prompt delivery of remittances to the beneficiaries 29
  • 30. Chapter – 10 Implementation Plan 4.7.1 New Features: The existing system of home remittances has been revised/significantly improved and well-trained field functionaries are posted to provide efficient and reliable home remittance services to nonresident Pakistanis at 15 overseas branches of the Bank besides Pakistan International Bank (UK) Ltd., and Bank Al-Jazira, Saudi Arabia. • Zero Tariffs: NBP is providing home remittance services without any charges. • Strict monitoring of the system is done to ensure the highest possible security. • Special courier services are hired for expeditious delivery of home remittances to the beneficiaries. 4.8 SHORT TERM INVESTMENTS NBP now offers excellent rates of profit on all its short term investment accounts. Whether you are looking to invest for 3 months or 1 year, NBP’s rates of profit are extremely attractive, along with the security and service only NBP can provide. 4.9 National Income Daily Account (NIDA) The scheme was launched in December 1995 to attract corporate customers. It is a current account scheme and is part of the profit and loss system of accounts in operation throughout the country. 4.9.1 Salient Features: • Rs 2-million is required to open an account and there is no maximum limit. • Profit is paid on half yearly basis on monthly balances. • The rates of profit vary according to the slabs of deposit. On Deposits of Rs.2 million to 2,000 million, the rate fluctuates from 1.4 to 1.75 • It is a checking account and there is no limit of withdrawals. 30
  • 31. Chapter – 10 Implementation Plan 4.9.2 Rates on NIDA • From Rs 2/- million to Rs 50/- the rate is 1.4%. • From Rs50/- million but less than Rs 500/-million, the rate is 1.5%. • From Rs 500/- million but below Rs 1000/- the rate is 1.6%. • From Rs 1000/- and above the rate is 1.75%. 4.10 QUITY INVESTMENTS NBP has accelerated its activities in the stock market to improve its economic base and restore investor confidence. The bank is now regarded as the most active and dominant player in the development of the stock market. 4.10.1 NBP is involved in the following: • Investment into the capital market • Introduction of capital market accounts (under process) NBP’s involvement in capital markets is expected to increase its earnings, which would result in better returns offered to account holders 4.11 COMMERCIAL FINANCE NBP dedicated team of professionals truly understands the needs of professionals, agriculturists, large and small business and other segments of the economy. They are the customer’s best resource in making NBP’s products and services work for them. 4.12 RADE FINANCE OTHER BUSINESS LOANS There are two types of trade finance. 31
  • 32. Chapter – 10 Implementation Plan 4.12.1 AGRICULTURAL FINANCE NBP provides Agricultural Finance to solidify faith, commitment and pride of farmers who produce some of the best agricultural products in the World. 4.12.1.1 Agricultural Finance Services: “I Feed the World” program, a new product, is introduced by NBP with the aim to help farmers maximize the per acre production with minimum of required input. Select farms will be made role models for other farms and farmers to follow, thus helping farmers across Pakistan to increase production. 4.12.1.2 Agricultural Credit: The agricultural financing strategy of NBP is aimed at three main objectives:• Providing reliable infrastructure for agricultural customers • Help farmers utilize funds efficiently to further develop and achieve better production • Provide farmers an integrated package of credit with supplies of essential inputs, technical knowledge, and supervision of farming. 4.12.1.3 Agricultural Credit (Medium Term): • Production and development • Watercourse improvement • Wells • Farm power • Development loans for tea plantation • Fencing • Solar energy 32
  • 33. Chapter – 10 • Implementation Plan Equipment for sprinklers 4.12.1.4 Farm Credit: NBP also provides the following subsidized with ranges of 3 months to 1 year on a renewal basis. • Operating loans • Land improvement loans • Equipment loans for purchase of tractors, farm implements or any other equipment Livestock loans for the purchase, care, and feeding of livestock. 4.12.1.5 Production Loans: Production loans are meant for basic inputs of the farm and are short term in nature. Seeds, fertilizers, sprayers, etc are all covered under this scheme. If you require any further information, please do not hesitate to e-mail us. 4.12.2 CORPORATE FINANCE 4.12.2.1 Working Capital and Short Term Loans: NBP specializes in providing Project Finance – Export Refinance to exporters – Preshipment and Post-shipment financing to exporters – Running finance – Cash Finance – Small Finance – Discounting & Bills Purchased – Export Bills Purchased / Preshipment / Post Shipment Agricultural Production Loans 33
  • 34. Chapter – 10 Implementation Plan 4.12.2.2 Medium term loans and Capital Expenditure Financing: NBP provides financing for its clients’ capital expenditure and other long-term investment needs. By sharing the risk associated with such long-term investments, NBP expedites clients’ attempt to upgrade and expand their operation thereby making possible the fulfillment of our clients’ vision. This type of long term financing proves the bank’s belief in its client's capabilities, and its commitment to the country. 4.12.2.3 Loan Structuring and Syndication: National Bank’s leadership in loan syndicating stems from ability to forge strong relationships not only with borrowers but also with bank investors. Because we understand our syndicate partners’ asset criteria, we help borrowers meet substantial financing needs by enabling them to reach the banks most interested in lending to their particular industry, geographic location and structure through syndicated debt offerings. Our syndication capabilities are complemented by our own capital strength and by industry teams, who bring specialized knowledge to the structure of a transaction. 4.12.3.4 Cash Management Services: With National Bank’s Cash Management Services (in process of being set up), the customer’s sales collection will be channeled through vast network of NBP branched spread across the country. This will enable the customer to manage their company’s total financial position right from your desktop computer. They will also be able to take advantage of our outstanding range of payment, ejection, liquidity and investment services. In fact, with NBP, you’ll be provided everything, which takes to manage your cash flow more accurately 4.13 INTERNATIONAL BANKING 34
  • 35. Chapter – 10 Implementation Plan National Bank of Pakistan is at the forefront of international banking in Pakistan which is proven by the fact that NBP has its branches in all of the major financial capitals of the world. Additionally, we have recently set up the Financial Institution Wing, which is placed under the Risk Management Group. The role of the Financial Institution Wing is:• To effectively manage NBP’s exposure to foreign and domestic correspondence • Manage the monetary aspect of NBP’s relationship with the correspondents to support trade, treasury and other key business areas, thereby contributing to the bank’s profitability • Generation of incremental trade-finance business and revenues 4.13.1 NBP offers: • The lowest rates on exports and other international banking products • Access to different local commercial banks in international banking 4.14 Cash and Gold Finance. Cash and Gold finance means that loan is given against the gold. The gold is mortgaged with the bank and loan is taken. It is the area of consumer finance. And borrower can take loan for common use. 4.15 Advance salary loan: This loan is given to those people who are govt servants. They can get a loan up to the salary of fifteen months. 35
  • 36. Chapter – 10 Implementation Plan REFRENCES 1. http/www.nbp.com.pk .services 2. Annual reports 2001, 2002, 2003. 36
  • 37. Chapter – 10 Implementation Plan CHAPTER # 5 DEPARTMENTALIZATION Dividing an organization into different parts according to the functions is called departmentation. So NBP Hayatabad township branch is divided into two main parts. A) DEPARTMENTATION 5.1 CASH DEPARTMENT Cash department performs the following functions 5.1.1) Receipt The money, which either comes or goes out from the bank, its record should be kept. Cash department performs this function. The deposits of all customers of the bank are controlled by means of ledger accounts. Every customer has its own ledger account and has separate ledger cards. 5.1.2) Payments It is a banker’s primary contract to repay money received for this customer’s account usually by honoring his cheques. 5.1.3) Cheques and their Payment The Negotiable Instruments. Act, 1881, “Cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand”2. Since a Cheque has been declared to be a bill of exchange, it must have all its characteristics as mentioned in Section 5 of the Negotiable Instruments Act, 1881. Therefore, one can say that a Cheque can be defined as an: 37
  • 38. Chapter – 10 Implementation Plan “An unconditional order in writing drawn on a specified banker, signed by the drawer, requiring the banker to pay on demand a sum certain in money to, or to the order of, a specified person or to the bearer, and which does not order any act to be done in addition to the payment of money”3. (Law of Banking by Dr. Hart, p.327). 5.1.4) the Requisites of Cheque There is no prescribed form of words or design of a Cheque, but in order to fulfill the requirements mentioned in Section 6 above the Cheque must have the following. a) It should be in writing b) The unconditional order c) Drawn on specific banker only d) Payment on Demand e) Sum Certain in money f) Payable to a specific person g) Signed by the drawer 5.1.5) Parties to Cheque The normal Cheque is one in which there is a drawer, a drawee banker and a payee, or no payee but bearer. a) The Drawer b) The Drawee c) The Payee 5.1.6) Types of Cheques Bankers in Pakistan deal with three types of cheques 38
  • 39. Chapter – 10 Implementation Plan a) Bearer Cheques Bearer cheques are cashable at the counter of the bank. These can also be collected through clearing.4 b) Order cheque These types of cheques are also cashable on the counter but its holder must satisfy the banker that he is the proper man to collect the payment of the cheque and he has to show his identification. It can also be collected through clearing. c) Crossed Cheque These cheques are not payable in cash at the counters of a banker. It can only be credited to the payee’s account. If there are two persons having accounts at the same bank, one of the account holder issues a cross-cheque in favour of the other account holder. Then the cheque will be credited to the account of the person to whom the cheque was issued and debited from the account of the person who has actually issued the cheque. 5.1.7) Payment of Cheques It is a banker’s primary contract to repay money received for his customer’s account usually by honouring his cheques. Payment of money deposited by the customer is one of the root functions of banking. The acid test of banking is the receipt of money etc. from the depositors, and repayment to them. This paying function is one, which is the distinguishing mark of a banker and differentiates him from other institutions, which receive money from the public. However the bankers’ legal protection is only when payment is in ‘Due Course’. The payment in due course means payment in accordance with the apparent tenor of the instrument, in good faith and without negligence to any person in possession thereof under circumstances, which do not afford a reasonable ground of believing that he is not entitled to receive payment of the amount therein mentioned. It is a contractual obligation of a banker to honor his customer’s cheques if the following essentials are fulfilled. a) Cheques should be in a proper form: 39
  • 40. Chapter – 10 Implementation Plan b) Cheque should not be crossed: c) Cheque should be drawn on the particular bank: d) Cheque should not mutilated: e) Funds must be sufficient and available: f) The Cheque should not be post dated or stale: g) Cheque should be presented during banking hours: 5.2 CLEARANCE DEPARTMENT A clearinghouse is an association of commercial banks set up in given locality for the purpose of interchange and settlement of credit claims. The function of clearinghouse is performed by the central bank of a country by tradition or by law. In Pakistan, the clearing system is operated by the SBP. If SBP has no office at a place, then NBP, as a representative of SBP act as a clearinghouse. After the World War II, a rapid growth in banking institutions has taken place. The use of cheques in making payments has also widely increased. The collection as settlement of mutual obligations in the form of cheques is now a big task for all the commercial bank. When Cheque is drawn on one bank and the holder (payee) deposits the same in his account at the bank of the drawer, the mutual obligation are settled by the internal bank administration and there arises no inter bank debits from the use of cheques. The total assets and total liabilities of the bank remain unchanged. In practice, the person receiving a Cheque as rarely a depositor of the cheque at the same bank as the drawer. He deposits the cheque with his bank other than of payer for the collection of the amount. Now the bank in which the cheque has been deposited becomes a creditor of the drawer’s bank. The depositor bank will pay his amount of the cheque by transferring it from cash reserves if there are no offsetting transactions. The banks on which the cheques are drawn become in debt to the bank in which the cheques are 40
  • 41. Chapter – 10 Implementation Plan deposited. At the same time, the creditors’ banks receive large amounts of cheques drawn on other banks giving claims of payment by them. The easy, safe and most efficient way is to offset the reciprocal claims against the other and receive only the net amount owned by them. This facility of net inter bank payment is provided by the clearinghouse. The representatives of the local commercial banks meet at a fixed time on all the business days of the week. The meeting is held in the office of the bank that officially performs the duties of clearinghouse. The representatives of the commercial banks deliver the cheques payable at other local banks and receive the cheques drawn on their bank. The cheques are then sorted according to the bank on which they are drawn. A summary sheet is prepared which shows the names of the banks, the total number of cheques delivered and received by them. Totals are also made of all the cheques presented by or to each bank. The difference between the total represents the amount to be paid by a particular bank and the amount to be received by it. Each bank then receives the net amount due to it or pays the net amount owed by it. 5.2.1) In-Word Clearing Books The bank uses this book for the purpose of recording all the cheques that are being received by the bank in the first clearing. All details of the cheques are recorded in this book. 5.2.2) Out-Word Clearing Book: The bank uses outward clearing register for the purpose of recording all the details of the cheques that the bank has delivered to other banks. 5.3 ADVANCES DEPARTMENT Advances department is one of the most sensitive and important departments of the bank. The major portion of the profit is earned through this department. The job of this department is to make proposals about the loans. The Credit Management Division of Head Office directly controls all the advances. As we known bank is a profit seeking 41
  • 42. Chapter – 10 Implementation Plan institution. It attracts surplus balances from the customers at low rate of interest and makes advances at a higher rate of interest to the individuals and business firms. Credit extensions are the most important activity of all financial institutions, because it is the main source of earning. However, at the same time, it is a very risky task and the risk cannot be completely eliminated but could be minimized largely with certain techniques. Any individual or company, who wants loan from NBP, first of all has to undergo the filling of a prescribed form, which provides the following information to the banker. 5.3.1) Name and address of the borrower. a) Existing financial position of a borrower at a particular branch. b) Accounts details of other banks (if any). c) Security against loan. d) Exiting financial position of the company. (Balance Sheet & Income Statement). e) Signing a promissory note is also a requirement of lending, through this note borrower promise that he will be responsible to pay the certain amount of money with interest. 5.3.2) Principles of Advances There are five principles, which must be duly observed while advancing money to the borrowers. Safety Liquidity Dispersal Remuneration Suitability 42
  • 43. Chapter – 10 Implementation Plan a. Safety Banker’s funds comprise mainly of money borrowed from numerous customers on various accounts such as Current Account, Savings Bank Account, Call Deposit Account, Special Notice Account and Fixed Deposit Account. It indicates that whatever money the banker holds is that of his customers who have entrusted the banker with it only because they have full confidence in the expert handling of money by their banker. Therefore, the banker must be very careful and ensure that his depositor’s money is advanced to safe hands where the risk of loss does not exist. The elements of character, capacity and capital can help a banker in arriving at a conclusion regarding the safety of advances allowed by him. b. Character It is the most important factor in determining the safety of advance, for there is no substitute for character. A borrower’s character can indicate his intention to repay the advance since his honesty and integrity is of primary importance. If the past record of the borrower shows that his integrity has been questionable, the banker should avoid him, especially when the securities offered by him are inadequate in covering the full amount of advance. It is obligation on the banker to ensure that his borrower is a person of character and has capacity enough to repay the money borrowed including the interest thereon. c. Capacity This is the management ability factor, which tells how successful a business has been in the past and what the future possibilities are. A businessman may not have vast financial resources, but with sound management abilities, including the insight into a specific business, he may make his business very profitable. On the other hand if a person has no insight into the particular business for which he wants to borrow funds from the banker, there are more chances of loss to the banker. 43
  • 44. Chapter – 10 d. Implementation Plan Capital This is the monetary base because the money invested by the proprietors represents their faith in the business and its future. The role of commercial banks is to provide short-term capital for commerce and industry, yet some borrowers would insist that their bankers provide most of the capital required. This makes the banker a partner. As such the banker must consider whether the amount requested for is reasonable to the borrowers own resources or investment. e. Liquidity Liquidity means the possibilities of recovering the advances in emergency, because all the money borrowed by the customer is repayable in lump sum on demand. Generally the borrowers repay their loans steadily, and the funds thus released can be used to allow fresh loans to other borrowers. Nevertheless, the banker must ensure that the money he is lending is not blocked for an undue long time, and that the borrowers are in such a financial position as to pay back the entire amount outstanding against them on a short notice. In such a situation, it is very important for a banker to study his borrower’s assets to liquidity, because he would prefer to lend only for a short period in order to meet the shortfalls in the wording capital. If the borrower asks for an advance for the purchase of fixed assets the banker should refuse because it shall not be possible for him to repay when the banker wants his customer to repay the amount. Hence, the baker must adhere to the consideration of the principles of liquidity very careful. f. Dispersal The dispersal of the amount of advance should be broadly based so that large number of borrowing customer may benefit from the banker’s funds. The banker must ensure that his funds are not invested in specific sectors like textile industry, heavy engineering or agriculture. He must see that from his available funds he advances them to a wide range of sector like commerce, industry, farming, agriculture, small business, housing projects and various other financial concerns in order of priorities. 44
  • 45. Chapter – 10 Implementation Plan Dispersal of advances is very necessary from the point of security as well, because it reduces the risk of recovery when something goes wrong in one particular sector or in one field. g. Remuneration A major portion of the banker’s earnings comes form the interest charged on the money borrowed by the customers. The banker needs sufficient earnings to meet the following: a) Interest payable to the money deposited with him. b) Salaries and fringe benefits payable to the staff members. c) Overhead expense and depreciation and maintenance of the fixed assets of the bank. d) An adequate sum to meet possible losses. e) Provisions for a reserve fund to meet unforeseen contingencies. f) Payment of dividends to the shareholders. h. Suitability The word “suitability’ is not to be taken in its usual literary sense but in the broader sense of purport. It means that advance should be allowed not only to the carefully selected and suitable borrowers but also in keeping with the overall national development plans chalked out by the authorities concerned. Before accommodating a borrower the banker should ensure that the lending is for a purpose in conformity with the current national credit policy laid down by the central bank of the country. 5.3.3 Forms of Loans In addition to purchase and discounting of bills, bankers in Pakistan generally lend in the form of cash finance, overdrafts and loans. NBP provides advances to different people in different ways as the case demand. 45
  • 46. Chapter – 10 Implementation Plan a) Cash Finance This is a very common form of borrowing by commercial and industrial concerns and is made available either against pledge or hypothecation of goods, produce or merchandise. In cash finance a borrower is allowed to borrow money from the banker up to a certain limit, either at once or as and when required. The borrower prefers this form of lending due to the facility of paying markup/services charges only on the amount he actually utilizes. If the borrower does not utilize the full limit, the banker has to lose return on the unutilized amount. In order to offset this loss, the banker may provide for a suitable clause in the cash finance agreement, according to which the borrower has to pay markup/service charges on at least on self or one quarter of the amount of cash finance limit allowed to him even when he does not utilize that amount. b) Overdraft/Running Finance This is the most common form of bank lending. When a borrower requires temporary accommodation his banker allows withdrawals on his account in excess of the balance which the borrowing customer has in credit, and an overdraft thus occurs. This accommodation is generally allowed against collateral securities. When it is against collateral securities it is called “Secured Overdraft” and when the borrowing customer cannot offer any collateral security except his personal security, the accommodation is called a “Clean Overdraft”. The borrowing customer is in an advantageous position in an overdraft, because he has to pay service charges only on the balance outstanding against him. The main difference between a cash finance and overdraft lies in the fact that cash finance is a bank finance used for long term by commercial and industrial concern on regular basis, while an overdraft is a temporary accommodation occasionally resorted to. c) Demand Financing/Loans When a customer borrows from a banker a fixed amount repayable either in periodic installments or in lump sum at a fixed future time, it is called a “loan”. When bankers 46
  • 47. Chapter – 10 Implementation Plan allow loans to their customers against collateral securities they are called “secured loans” and when no collateral security is taken they are called “clean loans”. The amount of loan is placed at the borrower’s disposal in lump sum for the period agreed upon, and the borrowing customer has to pay interest on the entire amount. Thus the borrower gets a fixed amount of money for his use, while the banker feels satisfied in lending money in fixed amounts for definite short periods against a satisfactory security 5.4 REMITTANCE DEPARTMENT Remittance means a sum of money sent in payment for something. This department deals with either the transfer of money from one bank to other bank or from one branch to another branch for their customers. NBP offers the following forms of remittances. a) Demand Draft b) Telegraphic Transfer c) Pay Order d) Mail Transfer 5.4.1) Demand Draft Demand draft is a popular mode of transfer. The customer fills the application form. Application form includes the beneficiary name, account number and a sender’s name. The customer deposits the amount of DD in the branch. After the payment the DD is prepared and given to the customer. NBP officials note the transaction in issuance register on the page of that branch of NBP on which DD is drawn and will prepare the advice to send to that branch. The account of the customer is credited when the DD advice from originating branch comes to the responding branch and the account is debited when DD comes for clearance. DD are of two types. a) Open DD: Where direct payment is made. b) Cross DD: Where payment is made though account. 47
  • 48. Chapter – 10 Implementation Plan NBP CHARGES FOR DD5 I. Up to Rs. 50,000/- is Rs 50/- only II. Over Rs. 50,000/- is 0.1% 5.4.2) Pay Order Pay order is made for local transfer of money. Pay order is the most convenient, simple and secure way of transfer of money. NBP takes fixed commission of Rs. 25 per pay order from the account holder and Rs. 100 from a non-account holder. 5.4.3) Telegraphic Transfer Telegraphic transfer or cable transfer is the quickest method of making remittances. Telegraphic transfer is an order by telegram to a bank to pay a specified sum of money to the specified person. The customer for requesting TT fills an application form. Vouchers are prepared and sent by ordinary mail to keep the record. TT charges are taken from the customer. No excise duty is charged on TT. The TT charges are: Telegram/ Fax Charges on TT = Actual-minimum Rs.125. Cable telegram transfer costs more as compared to other title of money. In cable transfer the bank uses a secret system of private code, which is known to the person concerned with this department and branch manager. 5.4.4) Mail Transfer When the money is not required immediately, the remittances can also be made by mail transfer (MT). Here the selling office of the bank sends instructions in writing by mail to the paying bank for the payment of a specified amount of money. Debiting to the buyer’s account at the selling office and crediting to the recipient’s account at the paying bank make the payment under this transfer. NBP taxes mail charges from the applicant where no excise duty is charged. Postage charges on mail transfer are actual minimum Rs. 40/- 48
  • 49. Chapter – 10 Implementation Plan if sent by registered post locally Rs.40/- if sent by registered post inland on party’s request. 5.5 HUMAN RESOURCE MANAGEMENT Human Resource plays a vital role in the success of every service organization. They interact between man and machine. Their attitude can win or loose the customer. The positive attitude could only be created in a conducive environment, which can make the staff dedicated towards the organization and its objectives. In reality the man is more important than machine as it is the human which could get maximum out of machine to keep a happy customer. However, most organizations give little importance to this very important asset. Various aspects related to human resource of National Bank of Pakistan are critically examined in the following text: 5.5.1) Selection & Recruitment Although the Bank believes in merit but in practice the selection of employees is not done on merit. Most of the employees are low educated. This shows that candidates with some strong family background or political pressure are given preference in recruitment and qualified candidates are sometimes left behind. 5.5.2) Job for Life Like the employee of public sector organizations in Pakistan, the employees of NBP also enjoy their job for life. Since there is no risk of early retirement or redundancy in rank, they do not perform with their full potentials. This is one redundancy in rank, they do not perform with their full potentials, and this is one of the reasons responsible for the low productivity of the employees of the Bank. 49
  • 50. Chapter – 10 Implementation Plan 5.5.3) Performance Appraisal The performance of employees of the Bank are appraised though their annual confidential reports at the end of each year. This has become an outdated method of performance appraisal and no longer used due to the following reasons: 1. The performance of employees is evaluated after quite a long time. 2. Element of subjectivity is involved in this method. 3. Employee’s participation is not ensured in the process of evaluation. 4. Objectives of employee’s are not quantified. 5.5.4) Inter Personal Relationship Modern management acknowledges human resources as one ‘of the most important assets of an organization. But by their very nature, human beings are also the most unpredictable. Where a number of persons work together, interactions among them, of necessity, will lead to conflicts and NBP is no exception. Most interpersonal conflicts in NBP can be traced back to the following major heads. Lack of Communication Lack of communication is for the biggest reason for conflicts. Not only it is due to the failure to send a massage but to an interpretation given to the massage by the receiver is different from that intended. 5.5.5) Diversity in Values Diversity in values, perceptions, cultural background and life-style is another reason responsible for inter personal conflicts in NBP. Different values and perceptions about the same issue, event or personality hinder understanding. When things come to such a pavement, therefore, interpersonal conflicts are generated. 50
  • 51. Chapter – 10 Implementation Plan The dominant trend in all modern industrial societies of the world is merit and expertise, which helps promote cohesion and reduce conflicts. But the feudalistic mindset is still very strong in our set up and there is no tradition of tolerance for differing viewpoints. Hence, interpersonal conflicts are generated. 5.5.6) Corruption Our social acceptance of corruption gives rise to corruption at every level of social and organizational set up. Corruption involves financial embezzlement, favoritism, nepotism, cronyism and other number of such practices. All these cause resentment that keep building up and lead to conflict sooner or later. In the past few years, some cases of frauds have happened in different branches. The reasons can be linked with the employee dissatisfaction of NBP. 5.5.7) Discipline & Authority Maintaining discipline and implementation of authority (tables) in letter and spirit is the key to success of any organization. In NBP, The authority tables are not strictly maintained. Line managers are not fully equipped with the authority with no vertical or horizontal interference. 5.6) DEPOSIT DEPARTMENT: It controls the following activities: a) A/C opening. b) Issuance of cheque book. c) Current a/c d) Saving a/c e) Cheque cancellation f) Cash 51
  • 52. Chapter – 10 Implementation Plan 5.6.1 Account opening The opening of an account is the establishment of banker customer relationship. Before a banker opens a new account, the banker should determine the prospective customer’s integrity, respectability, occupation and the nature of business by the introductory references given at the time of account opening. Preliminary investigation is necessary because of the following reasons. i. Avoiding frauds ii. Safe guard against unintended over draft. iii. Negligence. iv. Inquiries about clients. There are certain formalities, which are to be observed for opening an account with a bank. • Formal Application • Introduction • Specimen Signature • Minimum Initial Deposit • Operating the Account 1. Pay-In-Slip Book 2. Pass Book 3. Issuing Cheque Book 52
  • 53. Chapter – 10 Implementation Plan a) Qualification of Customer The relation of the banker and the customer is purely a contractual one, however, he must have the following basic qualifications. • He must be of the age of majority. • He must be of sound mind. • Law must not disqualify him. • The agreement should be made for lawful object, which create legal relationship • Not expressly declared void. b) Types of Accounts Following are the main types of accounts 1) Individual Account 2) Joint Account 3) Accounts of Special Types  Partnership account  Joint stock company account  Accounts of clubs, societies and associations  Agents account  Trust account  Executors and administrators accounts  Pak rupee non-resident accounts 53
  • 54. Chapter – 10 Implementation Plan  Foreign currency accounts1 5.6.2 Issuing of cheque book: This deptt issue cheque books to account holders. Requirements for issuing cheque book a) The account holder must sign the requisition slip b) Entry should be made in the cheque book issuing book c) three rupees per cheque should be recovered from a/c holder if not then debit his/her account. 5.6.3 Current account These are payable to the customer whenever they are demanded. When a banker accepts a demand deposit, he incurs the obligation of paying all cheques etc. drawn against him to the extent of the balance in the account. Because of their nature, these deposits are treated as current liabilities by the banks. Bankers in Pakistan do not allow any profit on these deposits, and customers are required to maintain a minimum balance, failing which incidental charges are deducted from such accounts. This is because the depositors may withdraw Current Account at any time, and as such the bank is not entirely free to employ such deposits. Until a few decades back, the proportion of Current Deposits in relation to Fixed Deposits was very small. In recent years, however, the position has changed remarkably. Now, the Current Deposits have become more important; but still the proportion of Current Deposits and Fixed Deposits varies from bank to bank, branch to branch, and from time to time. 5.6.4 Saving account Savings Deposits account can be opened with very small amount of money, and the depositor is issued a cheque book for withdrawals. Profit is paid at a flexible rate 54
  • 55. Chapter – 10 Implementation Plan calculated on six-month basis under the Interest-Free Banking System. There is no restriction on the withdrawals from the deposit accounts but the amount of money withdrawn is deleted from the amount to be taken for calculation of products for assessment of profit to be paid to the account holder. It discourages unnecessary withdrawals from the deposits. In order to popularize this scheme the State Bank of Pakistan has allowed the Savings Scheme for school and college students and industrial labor also. The purpose of these accounts is to inculcate the habit of savings in the constituents. As such, the initial deposit required for opening these accounts is very nominal. 5.6.5 Cheque cancellation: This deptt can cancel a cheque on the basis of; a) Post dated cheque b) Stale cheque c) Warn out cheque d) Wrong sign etc 5.6.6 Cash This deptt also deals with cash. Payment of cheques, deposits of cheques etc. 5.7 FOREIGN EXCHANGE/DEPARTMENT: This deptt mainly deals with the foreign business. The main functions of this deptt are: a) L/C dealing. b) Foreign currency accounts dealing. c) Foreign Remittance dealing. 55
  • 56. Chapter – 10 Implementation Plan 5.7.1 L/C dealing NBP is committed to offering its business customers the widest range of options in the area of money transfer. If you are a commercial enterprise then our Letter of Credit service is just what you are looking for. With competitive rates, security, and ease of transaction, NBP Letters of Credit are the best way to do your business transactions. 5.7.2 Foreign currency account dealing: This deptt deals with the foreign currency accounts which mainly include dollar account, euro account etc. 5.7.3 Foreign Remittance dealing. This is very important function of this deptt. B) DEPARTMENTATION OF HAYAT ABAD TOWNSHIP BRANCH NBP. Dividing an organization into different parts according to the functions is called departmentation. So NBP Hayatabad township branch is divided into two main parts. 1. Cash Department 2. General Banking Department. 5.1 Cash Department: Cash department mainly deals in cash. The Head of department is Mr. Imdad Khan and two cashier Mehraban Shah and Faiq Shah the objective of cash department. “To facilitate people in the payments of their bills and taxes and repayments of cash” There are two main functions of cash department. i. i. Payment ii. Receipts Payments are the function that they pay their cheques and pay cash. 56
  • 57. Chapter – 10 Implementation Plan ii. Receipts mean collection of utilities bills, taxes etc. 5.2 General Banking In this section of the bank the general banking function is performed. It is divided into five departments. i. ii. Computer Department. iii. Advances Department. iv. Clearing Department. v. 5.2.1 Remittances Department. Establishment Department. Remittances Department: This department is header by Zahoor Ahmad a very competent person. The objective of this department is:“To transfer the money of people from one place to another place in safe and comparable way” The main functions of this department are: i. Issuing of demand draft. ii. Issuing of Mail transfer. iii. Issuing of Telegraphic transfer. iv. Issuing of payment order. v. Issuing of call deposit. vi. Pension payments etc. vii. Closing and scrolling of government collections. 57
  • 58. Chapter – 10 5.2.2 Implementation Plan Advances department: Every bank has a department which advances money to borrowers. In NBP Hayatabad township branch the advances department is head by the Business Manager Sir Asim and Operation Manager Sir Pervez. Both are very competent persons. The objective of Advances Department is “To facilitate people by giving short term and long term loans on easy terms and conditions”. The main function of this Department is to take surplus money from the people at low rates and lend this money to borrowers at high rates to earn profit. 5.2.3 Clearing Department: A clearing house is an association of commercial banks set in State Bank of Pakistan for the purpose of interchange and settlement of credit claims. In NBP Hayatabad Branch this department is headed by Ameer Shehzad having experience of about thirty years. The objective of this department is to “To facilitate customers for payment their Cheques of other banks”. Two type of clearing books are maintained. i. In word clearing books: The bank uses this book for the purpose of recording all the cheques that are being received by the bank in the first clearing. All detail of the cheques are recorded in this book. ii. Out word clearing book: The bank uses outward clearing register for the purpose of recording all the details of the cheques that the banks have delivered to other banks. 58
  • 59. Chapter – 10 5.2.4 Implementation Plan Computer Department: This department headed by the accountant Tariq Afridi and two other persons Mr. Junaid and Mr. Shahid are performing the real function. The objective of this Department is to facilitate customers in payment of their cheques”. The main functions performed by this department are: a) Checking balance. b) Deduction from balance on clearing cheques. c) Issuing bank statements. d) Dealing Western Union. 5.2.5 Establishment Department: NBP Hayatabad Branch having an Establishment Department. This Department consists of only one person Haji Misri Kha very competent and experienced person. This department mainly deals with the branch employees. The main objective of this department is to “To regulate bank business”. Main functions of this department are: a) Keeps the record of attendance of employees. b) Employee’s salaries distribution. c) Employee’s bonuses etc. 59
  • 60. Chapter – 10 Implementation Plan REFRENCES 1 Sir Paged John The law of Banking 4th edition page 431. 2 The Negotiable Instruments. Act, 1881. 3 Dr Hart Law of Banking, p.327 4 Dr Hart Law of Banking, p.327 5 Circular bank charges June 2003.page 15. 60
  • 61. Chapter – 10 Implementation Plan CHAPTER #6 SWOT ANALYSIS SWOT analysis is an acronym that stands for strengths, weakness, opportunities, and threats SWOT analysis is careful evaluation of an organization’s internal strengths and weakness as well as its environment opportunities and threats. “SWOT analysis is a situational which includes strengths, weaknesses, opportunities and threats that affect organizational performance.”1 “The overall evaluation of a company strengths, weaknesses, opportunities and threats is called SWOT analysis.”2 In SWOT analysis the best strategies accomplish an organization’s mission by: 1. Exploiting an organizations opportunities and strength. 2. Neutralizing it threats. 3. Avoiding or correcting its weakness. SWOT analysis is one of the most important steps in formulating strategy using the organization mission as a context, managers assess internal strengths distinctive competencies and weakness and external opportunities and threats. The goal is to then develop good strategies and exploit opportunities and strengths neutralize threats and avoid weaknesses. 6.1 STRENGTHS: 6.1.1 OLDEST INSTITUTION: NBP in one of the oldest bank of Pakistan and first nationalized bank Hence its customer base is strength from this plus point as customers have more confidence in the bank. The additional value services as the privilege for the bank. 61
  • 62. Chapter – 10 Implementation Plan 6.1.2 ALTERNATE DUTIES IN SBP ABSENCE The NBP performs additional services for its customers as well as the other bank customer in the absence of SBP. 6.1.3 MORE DEPOSITS THAN OTHER BANK NBP has the relative competence in having more deposits than the other bank. This is because of the confidence the customer have in the bank. The bank being the privileged and oldest bank in banking sector of Pakistan enjoys this edge over all others, lacking it. 6.1.4 EMPLOYEE BENEFITS The employers at NBP are offered reasonable monetary benefit. Normally two bonuses are given Eid-Ul-Fitar & Eid-Ul-Azha. This serves as an additional benefit and competency for the bank and a source of motivation for the employees. 6.1.5 BROAD NETWORK The bank has another competency i.e. it has broad-basses network of branches throughout the country also more than one branch in high productive cities. The customers are provided services at their nearest possible place to confirm customer satisfied. 6.1.6 STRICTLY FOLLOWED RULES &REGULATION: The employees at NBP are strict followers of rule & regulation imposed by bank. The disciplined environment at NBP bolsters its image and also enhances the over all out put of the organization. 6.1.7 PROFESSIONAL COMPETENCE The employees at NBP here have a good hold on their descriptions, as they are highly skilled Professionals with back ground in business administration, banking, economics etc. These professional competencies enable the employees to understand and perform the function and operation in better way. 62
  • 63. Chapter – 10 Implementation Plan 6.1.8 HEALTHY ENVIROMNMENT The working condition in the NBP branch here is very conductive and favorable for better output. The informal environment affects the performance of the employees in a positive way. 6.1.9 RELATION BETWEEN STAFF AND OTHER EMPLOYESS The bank enjoys a good plus point when it comes to the employee manager relationship the hearing as removing of discrepancies if any, between the employees, and between the manager and employees. 6.2 WEAKNESSES 6.2.1 LACK OF MARKETING EFFORT: The bank does not promote its corporate image, services, etc on a competitive way. Hence lacks far behind in marketing effort .A need for aggressive marketing in there in the era marketing in now becoming a part of every organization. 6.2.2 NBP UNDER POLITICAL PRESSURE The strong political hold of some parties and government and their dominance is affecting the bank in a negative way. They sometime have to provide loan under the pressure, which leads to uneven and adjusted feeling in the bank employees. 6.2.3 FAVORITISM AND NEPOTISM The promotions and bonuses etc in the bank are often powered by senior’s favoritism or depends upon their wills and decision. This adds to the negative factors, which denominate the employees thus resulting in affecting their performance negatively. 6.2.4 LACK OF FINACIAL PRODUCT The bank falls far behind when the innovative and new schemes are considered. It has not been involved in the tug of war between the competitors to the accounts and strengthens 63
  • 64. Chapter – 10 Implementation Plan the existing customer base. This stands out to be the major incompetence and weakness of the banks. 6.2.5 INEFFICIENT COUNTER SERVICES IN THE RUSH HOURS During the rush hours, the bank is founded out to be a total flop to handle the mob of people peaking from windows and doors. The bank has deficiency to operate in the stages of rush hours where the people find them services entangled in a situation of nowhere because they are not well served. 6.2.6 LACK OF COMPUTERIZED NETWORK The bank lack the strength of being powered by the network of computers, which have saved time, energy and would have lessened the mental stress, the employees have currently. This would add to the strength if it were powered by network of computers. 6.2.7 LACK OF MODERN EQUIPMENT The bank lacks the modern Equipment that is note counting machine computers. Even if there is any equipment they lack to fall in the criteria of being rearmed as update and upgraded 6.2.8 UNEVEN WORK DISTIBUTION. The workload in NBP is not evenly distributed and the workload tends to be more on some employees while others abscond away from their responsibilities, which server as a demotivation factor for employees performing above average work. 6.3 OPPORTUNITIES 6.3.1 ELECTRONIC BANKING The world today has become a global village because of advancement in the technologies, especially in communication sector. More emphasis is now given to avail the modern technologies to better the performances. NBP can utilize the electronic 64
  • 65. Chapter – 10 Implementation Plan banking opportunity to ensure on line banking 24 hours a day. This would give a competitive edge over others. 6.3.2 MICRO FINANCING Because of the need for micro financing in the market, there are lot of opportunities in this regard. Other banks have already initiated, now the time has arrived when the NBP must realize it and take on step to cater an ongoing demand. 6.4 THREATS 6.4.1 EMERGENCE OF NEW COMPETITORS The bank is facing threats with the emergence of new competitors especially in terms of foreign banks. These foreign banks are equipped with heavy financial power with excellent and innovative ways of promoting and performing their services. The bank has to take initiative in this regard or will find itself far back in competition. 6.4.2 POLITICAL PRESSURE BY ELECTED GOVERNMENT The ongoing shift in power in political arena in the country effects the performance of the bank has to forward loans to politically powerful persons which create a sense of insecurity and demoralization in the customer as well as employees. 6.4.3 DOWNSIZING The bank is currently acting upon the policy of downsizing which threaten the environment of the bank Employees feel insecurity in doing their jobs and work, hence affecting the over all performance of employees negatively. 6.4.4 CUSTOMERS COMPLAINTS There exists no regular and specific system of the removal of customer complaints. Now a day a need for total customer satisfaction is emerging and in their demanding consequences customer's complaints are ignored 65
  • 66. Chapter – 10 Implementation Plan 6.5 COMPETITIVE ANALYSIS Porter’s five forces model: 3 This approach is widely used for competitive analysis. It is because of the high intensity of competition among companies there five main competitive forces. 6.5.1 Rivalry among competitive firms: It is a very powerful force among the competitive forces the strategies pursued by one firm can be successful only to extent that they provide competitive advantages over the competitor. These competitive strategies may be lowering prices, best quality series. The NBP offering very low charges an demand draft, telegraphy transfer, mail transfer and give other additional services to the customers and to the Nation. Because NBP is a “Nation’s Bank”. 6.5.2 Potential entry of new competitors: Whenever new firms ca easily enters a particular industry, the competition increases. The gout restriction, tariffs, patents etc can stop new firm to enter into the business as per Banking industry is concerned this market is already very situated in Pakistan and there are banks with quality services and low charges. So there is no threat to NBP from potential entry and NBP is also a public sector bank because of that no other new bank not takes over it. 6.5.3 Potential Development of substitute products: This is the third factor affecting the competitions. There may be some other product can be substitute the product of that industry. For example banks offering sawing schemes in Pakistan and these schemes are also offered by GPOs in Pakistan so they must compete them in this field. If they offer low rates than GPOs so people will go to deposit in GPOs. People concentration high rates so that’s why sawing PLS accounts are more then current accounts. The next examples will ATM which 66
  • 67. Chapter – 10 Implementation Plan substitute presenting cheques at counter and encash it. The NBP is lacking in this field. It must improve in this field to compete the competitors. 6.5.4 Bargaining Power of Suppliers: The bargaining power of supplier affects the intensity of competition, especially when there are a large number of suppliers. In case of banks the suppliers are customers they supply the money to banks. Now they must offer good services, quality, and safety. Low charges etc to customers. In this field NBP is very good. B/C at offers good quality services to customers. They charge low charges on remittances. So that’s it is competitions other banks. 6.5.5 Bargaining Power of Consumers: When customers are concentrated or large, or buy in volume, their bargaining power represents a major force affecting intensity of competition. Now the number customers in Pakistan for banks are very high. Banks offering variety of products and services to their customers. NBP have a large number of customs. Now it must offer good services and products to their customers to attract them to come to NBP. 67
  • 68. Chapter – 10 Implementation Plan References 1. Daft l Richerd “Management” 4th Edition Pages 254, 256, 269. 2. Kottler Philip “Marketing Management” Millennium Edition Page 76. 3. Fred R. David “Strategic Management Concepts Cases” 7th edition. 68
  • 69. Chapter – 10 Implementation Plan CHAPTER# 7 FINANCIAL ANALYSIS Financial analysis, though varying according to the particular interests of the analyst, always involves the use of various financial statement primarily the balance sheet and income statement. The balance sheet summarizes the assets, liabilities, and owner’s equity of a business at a point in time, and thee income statement summarizes revenues and expenses of the over a particular period f time. A conceptual framework for financial analysis provides the analyst with an interlocking means for structuring the financing. 7.1 National Bank of Pakistan Ten Years Performance at glance Years 2003 2002 2001 2000 Items Total 471860 432803 415089 371636 assets Deposits 395568 362866 349617 316493 Advances 160990 140547 170319 140318 Investment 166196 143525 71759 72609 S,s holder equity 18134 14279 11959 11378 pre tax profit 9009 6045 3016 1023 After tax profit 4198 2253 1149 461 Earning per share 10.23 5.49 3.08 1.24 Return on assets 2% 1.40% 0.80% 0.30% No of Branches 1189 1204 1245 1428 No of Employees 13272 12195 15163 15351 (Source Annual reports 1998, 2000, 2002, 2003) 1999 1998 1997 1996 1995 1994 350406 417680 400890 369236 320180 271779 294754 122559 91486 273391 109356 102356 254863 105598 109485 235032 85854 108206 7046 208283 81528 95649 7842 170476 62548 85094 7233 10358 9987 9203 (1260) 3081 2799 520 2135 996 -------- ------ ------- 31 0 0 ------- ----- ------- 0.21 0 0 ---------- ------ ----- 0.20% 0 0.00% 1555 1537 1463 1431 1434 1468 23730 21549 20667 15541 15785 18096 From the above table it is very much clear that the NBP performance is going higher and higher total assets are at the crest in 2003. If we draw a graph this will shows that the graph is upward trend. Profit is increasing from year to year. NBP decrease the number of its branches and employees because of automation and large networks of other banks. But this bank can compete and now NBP is the best bank of year. 69
  • 70. Chapter – 10 Implementation Plan 7.2 RATIO ANALYSIS Financial analysis is the process of identifying the financial strengths and weakness of the firm by properly establishing relation ship between the items of balance sheet and profit and loss account, in order to make rational decision in keeping with the objective of the organization, for that purpose the management use analytical tools. To evaluate the financial condition and performance of the business entity, the financial analyst needs to perform "checkups" on various aspects of the business financial health. A tools frequently used during these checkups is a financial ratio analysis, which relates two piece of financial data by dividing one quantity by the other we calculate ratios because in this way we get a comparison that may prove more useful than the raw number by themselves. The business itself and outside providers of capital (creditors and investors) all undertake financial statement analysis. The type of analysis varies according to the specific interest party involved. The nature of analysis is depending at the purpose of analyst. 7.3 Parties interested in ratio analysis 7.3.1 Trade creditors Trade creditors are interested in firm's ability to meet their claims over a very short period of time. Their analysis will, there fore confine to the evaluation of the firm's liquidity positions. .7.3.2 Suppliers of long-term debt Suppliers of long-term debt on the other hand are concerned with firm's long-term solvency and survival. They analysis the firms profitability over time, its ability to generate cash to be able to pay interest and repay interest and repay principal and the relationship between various source of funds. (Capital structure relationship). 70
  • 71. Chapter – 10 Implementation Plan Long-term creditors do analyses the historical financial statements but they place more emphasis on the firm's projected financial statement to make analysis about its future solvency and profitability. 7.3.3 Investors Investors who have invested their money in the firms share are most concerned about the firm steady growth in earning. As such, they concentrate on the analysis of the firm's present and future profitability. They are also interested in the firms financial structure of the extent it influence the firms earning ability and risk. 7.3.4 Management. An organization would be interested in every aspect of the financial analysis. It is their overall responsibility to see that the resources of the firm are used most effectively and efficiently and that the firm's financial condition is sound. So thus management employee financial analysis for the purpose of internal control and to better provide what capital supplier seeks in financial condition and performance from the business and from an internal control standpoint, management needs to take financial analysis in order to plan and control effectively. 7.4 Ratio analysis Ratio is the comparison between two figures of balance sheet and income statement. 7.4.1 Cash Ratio: “This ration is obtained by dividing cash by current liabilities / liabilities”. This ratio shows that the cash is enough for payment of current liabilities or not. It is calculated as cash Ratio=Cash/current liabilities 71
  • 72. Chapter – 10 Implementation Plan Table 3 Year 1997 1998 1999 2000 2001 2002 2003 Cash Ratio 0.118 0.169 0.19 0.21 0.22 0.15 0.134 Graph 1 Cash Ratio 0.25 0.2 0.15 ratio 0.1 0.05 0 1997 1999 2001 2003 Cash Ratio years It means that how much cash is available for payment its current liabilities. This ratio of NBP shows a downward trend. Because of high advances cash is less to cover its current liabilities. 7.4.2 Gross Profit Margin Ratio: “This ratio shows the profit margin in sales/ revenue”. This is calculated as. Gross profit/ interest earned 72
  • 73. Chapter – 10 Implementation Plan Table 4 Year 1997 1998 1999 2000 2001 2002 2003 24.8 27.7 28.9 29.59 39.67 46.6 51.9 Gross profit margin % Graph2 Gross profit margin% year 2003 2001 Gross profit margin% 1999 1997 0 20 40 60 ratio G. profit margin relates profit of the organization to its sales (interest earned in case of Bank). From calculation it is very much clear that the gross profit margin ration have upward trend which shows that how much they using their deposits to earn interest. This show the profit of the firm relative to its revenue. It is a measure of the efficiency of the firm’s operations too. As it is clear that the ratio gong high this is the indication of good performance. 7.4.3 Net Profit Margin: This ratio measure the firm’s profitability of sales/ interest earned after taking account of all expenses and income taxes. This ratio can be calculated as: 73
  • 74. Chapter – 10 Implementation Plan Net profit margin ration = Net Profit after taxes / interest earned Table5 Year 1997 1998 1999 2000 2001 2002 2003 0.2 1.6 1.7 1.55 3.67 3.18 21.6 Net profit Margin % Graph3 30 20 10 0 20 03 20 01 Net profit Margin % 19 99 19 97 ratio Net profit Margin % year Explanation: from the calculation and graph it is very much clear that the performance of NBP is very good. And the trend is upward. It tells us a firm’s net income per rupee of revenue. As the trend is upward it shows the high profits in revenue per rupee in case of NBP. It is because of high advances the NBP has given to the people. 7.4.4 Return on Equity: Dividing profit after taxation by share holder’s equity. ROE compares net profit after taxes to the Share holder’s Equity. This ratio is calculated as: ROE=Profit after taxes/Share holder’s Equity 74
  • 75. Chapter – 10 Implementation Plan Table6 Year 1997 1998 1999 2000 2001 2002 2003 Return on Equity 0.67 5.3 0.2 2.7 6.55 9.4 23.1 Graph4 30 20 10 0 3 20 0 1 20 0 9 Return on Equity 19 9 19 97 ratio Return on Equity year Explanation: from the calculation it is clear that the ROE Ratio have an upward trend of NBP. It is because of high net profit they have earned. It tells us the earning power on the shareholder’s investments. It is because of high investments by NBP and effective expense management. 7.4.5 Return On Assets: This ratio shows the efficiency of organization that how efficiently utilizes their assets. This ratio relates profits to assets. It is calculated as: Profit after Tax/Total Assets Table7 75
  • 76. Chapter – 10 Implementation Plan Year 1997 1998 1999 2000 2001 2002 2003 Return on assets 0.01 0.16 0.008 0.124 0.225 0.52 0.9 Return on assets year 2003 2001 Return on assets 1999 1997 0 0.5 1 ratio Graph5 From calculation it is clear that this ration of NBP is going high and high. It shows that NBP using it’s assets very efficiently. That is why they are earning very high profits. This shows that how efficiently they investing the assets that’s why they are earning high profits. 7.4.6 Investment deposit Ratio: This ratio shows the comparison of investments and deposits. This is calculated as. Investment deposit Ratio=Investment/deposits Table8 Year Investment ratio 1997 1998 1999 2000 2001 2002 2003 42.9 37.7 31.03 22.94 20.54 39.66 42.01 Deposit 76
  • 77. Chapter – 10 Implementation Plan Graph6 Investment Deposit ratio 50 40 30 ratio 20 10 0 1997 Investment Deposit ratio 2000 2003 year Explanation: From above table and graph it is very much clear that NBP are using their deposit very efficiently. And earning high profits. The ratio has an upward trend, which shows the performance of NBP is very good. Now it is the retraction from top management to invest 30% of its deposits. This may reduce its profits. But can be fruitful in long term. 7.4.7 Debit to Equity Ratio: This ration shows the amount contributed by creditors and shareholders. It shows to what extent the firm is using borrowed money. It is computed simply dividing the total debt of the fire by its shareholders equity. This calculated as. Total debt/shareholder’s equity 77
  • 78. Chapter – 10 Implementation Plan Table9 Year 1997 to 1999 2000 2001 2002 2003 32.42 Debt 1998 31.4 30.4 20.9 22.7 28.6 24.5 equity ratio Graph7 Debt to equity ratio year 2003 2001 Debt to equity ratio 1999 1997 0 20 40 ratio From the table and graph it is clear that this ratio is decreasing which show the high efficiency of NBP. In 2002 it was high but in 2003 it decreases to 24.5 from 28.6 which is a good sign. Here the creditors are interested in low ratio. The lower the ratio the high the level of the fire’s financing that is being provided by the shareholders. 7.4.8 Debt to assets ratio: This ratio shows that to which extent the organization assets are financed by debit. It is calculated as. Total debt/total asset Table1 Year 1997 1998 1999 2000 78 2001 2002 2003
  • 79. Chapter – 10 Implementation Plan Debt to asset ratio 0.94 0.944 0.957 0.954 0.92 0.954 0.961 Graph8 Debt ratio 0.98 0.96 0.94 ratio 0.92 0.9 0.88 1997 1999 2001 2003 Debt ratio year This ration is directly related to risk high ratio means high risk and low ratio means low risk. From calculation it is clear that the ratio is decreasing which show low risk. This ratio serves the similar purpose to the debt to equity ratio. This ratio is high because of more deposits in the bank, and deposits are the liability of customer on bank 7.4.9 Advances deposit Ratio: This ratio show that how much efficiently the bank advances the deposits of their customer to borrower. It is calculated as. Advances deposit ratio = Advances/ deposit 79
  • 80. Chapter – 10 Implementation Plan Table11 Year 1997 1998 1999 2000 2001 2002 2003 Advances deposits ratio 0.414 0.399 0.416 0.443 0.487 0.387 0.406 Graph9 Advances Deposits ratio 0.5 0.4 0.3 ratio 0.2 0.1 0 1997 Advances Deposits ratio 2000 2003 year From above table and graph it is clear that the ratio is going high. Which means the efficiency on NBP is good and they use their deposits efficiently in advancing to borrowers. Here high ratio is required. The next side of the picture is that the people will think that is risky to deposit the money in the bank. 7.4.10 Assets Turnover Ratio: The relationship of net sales /revenue to total assets is known as the total asset turnover ratio. It is calculated as. Total revenue / total assets 80
  • 81. Chapter – 10 Implementation Plan Table12 Year 1997 1998 1999 2000 2001 2002 2003 Assets turnover ratio 0.099 0.097 0.093 0.079 0.075 0.079 1.07 Graph10 Assets turnover ratio year 2003 2001 1999 Assets turnover ratio 1997 0 0.5 1 1.5 ratio Explanation: This ratio shows us the relative efficiency with which a firm utilizes its total assets to generate revenue. We can see that the ratio is going high and which is a good sign and shows that NBP is utilizing its assets efficiently. 7.4.11 Price to earning Ratio: This ratio show the relation ship b/w face price per share and earning per share. This ratio is calculated as: Price to earning ratio= face price of share/earning per share 81
  • 82. Chapter – 10 Implementation Plan Table13 Year 1997 1998 1999 2000 2001 2002 2003 2.4 2.7 47.62 3.17 3.25 1.6 0.97 Price to earning Ratio Graph11 Price to earning Ratio ratio 2003 2001 1999 Price to earning Ratio 1997 0 20 40 60 year As from the above calculations it is clear that the ratio decreased tremendously in 2003, it is because of the reason that earning per share increased resulting in decreasing price to earning ratio. From calculation it is clear that it have a downward slope. It is b/c of increase in earning per share. 7.4.12 Dividend yield: Anticipated annual dividend divided by the market price of the stock. It is calculated as. Dividend yield =Total dividend/ market price 82
  • 83. Chapter – 10 Implementation Plan Table14 Year 1997 1998 1999 2000 2001 2002 2003 0.2 0.1 2.3 3.32 1.63 2.45 0.23 Dividend Yield Graph12 Dividend Yield 4 3 ratio 2 1 0 1997 Dividend Yield 2000 2003 year Year 2000 was best as far as dividend yield is concerned; it was mainly due to the decreased amount of number of shares outstanding. In year 2001 increase in outstanding shares decreased dividend yield, but due to increase in total dividend in 2002 it has recovered to 2.45. From the above table it is clear that the dividend is increasing but in 2003 it is low. It is because of high market price and low dividend. 7.4.13 Deposit growth Ratio: This ratio shows the growth rate of deposits. This is calculated as Current year deposits- previous year deposits /previous year deposit Table15 83
  • 84. Chapter – 10 Year Implementation Plan 1997 1998 1999 2000 2001 2002 2003 0.08 0.07 0.08 0.07 0.1 0.037 0.09 Deposit growth ratio Graph13 Deposit growth ratio 0.1 0.08 0.06 ratio 0.04 0.02 0 1997 Deposit growth ratio 2000 2003 year Explanation: This ratio shows an excellent move from 1997 to 2003. It upward slope which shows that the people trust NBP and its management that our money is in safe hands. The reason for this good move is only govt support to this bank. 7.4.14 Advances Growth Ratio: This ratio shows the growth rate of advances. This is calculated as Current year advances- previous year advances / previous year advances. 84
  • 85. Chapter – 10 Implementation Plan Table16 Year 1997 1998 1999 2000 2001 2002 2003 0.23 0.04 0.12 0.14 0.21 -0.17 0.15 Advances Growth ratio Graph14 Advances Growth ratio 0.2 Advances Growth ratio 20 03 20 01 -0.2 19 99 0 19 97 ratio 0.4 year Explanation: from calculation and graph it is clear that NBP show a good growth rate in respect of advances. Only in 2002 it is negative b/c of high advances in 2001 and low advances in 2002. This shows that NBP is utilizing the deposits efficiently. The over all performance of NBP is very good. That’s why it is declare the best bank of the year 2003. 7.5 Predicting failure: Where one wants to lend money to a company that is about to fail. The ability to predict corporate failure before the event has been the holy grail of financial analysis for move than 50 years. The collapse comes much unsaddled. One a company will be successful and next year it will be fail. For this a tool is used which is Z=0.012A+ 0.014B + 0.033C + 0.006D = 0.010E Where 85
  • 86. Chapter – 10 Implementation Plan A = net current assets ÷ total assets. B = Retained earnings ÷ total assets. C = Profit before interest and tax ÷ total assets D = capitulation ÷ total debt E = Sales ÷ total assets Now Z score blow 1.8 was an indicator of probable failure, and a score of over 3 was seen as a clean bill of health the advantage of this approach is that using a combination of several financial ratios makes it less likely that the result will be affected by manipulation of financial statements. If the portion of current asset is greater compared with total assets the healthier is short term position. If the retained earning is greater the greater is the extent of the company’s self financing. The profit before tax and interest in the third ratio indicates the contribution of a company’s profitability toward the end index score. In fourth ratio the investor’s view of the further potential of the company is set against total debt. The last ratio shows the ability of the company to use its assets to generate revere. Predicting failure of NBP - 1998. Z = 0.012(.86) + 0.014(0.026) + 0.033(0.014) + 0.006(0.13) +0.010 (0.11) = 0.010 + 0.0004 + 0.0005 + 0.0008 + 0.001 = 0.0129 This shows that the calculation is below 1.8 and it is an indicator of failure 86
  • 87. Chapter – 10 Implementation Plan REFERENCES 1 National Bank of Pakistan (2000, 2003) Annual Report. 2 Block, Stanley B and Hirt Geoffrey A (1994). “Foundations Of Financial Management” 7th edition USA: Michael W Junior, p121-148 3. Van Horne James C and JR Wachowicz M. Jhon” Financial management” 11 editions 4. Meigs “Financial Accounting” 11th edition. 5. R.B Hisrich and Peter P Michael “Entrepreneurship” 5th edition. 6. Simons Harry and Smith J.M “Intermediate Accounting” 5th edition. 7. Watson James “Fundamentals of Accounting” 7th edition. 8. Sober P Parey “Advance accounting” 2nd edition . 9. Tarry Franklin “Principles of Management” 8th edition 11. Vause Bob “The Economist “Guide to analyzing companies”. 3rd edition. WEBSITE: www.onlinewbc.gov/docs/finance/fs.ratio/. Html 87
  • 88. Chapter – 10 Implementation Plan CHAPTER # 8 GENERAL OBSERVATION I have divided general observation in four parts. Which are as under. This analysis is mainly based on my general observation. • Problems at the branch. • Function analysis. • Administrative analysis. • Personal management’s analysis. 8.1 PROBLEMS AT THE BRANCH 8.1.1 Customer Satisfaction In NBP customer dealing is will, but during rush hour the customer has to wait for a long time for their turn. It’s quite hard for a new customer or potential customer to get the required information. 8.1.2 Poor record management and filing system During my internship I observed that filing system of branch is not good. When certain record is needed the staff has to struggle to find it out and a lot of time is wasted. 8.1.3 Unequal distribution of work Work is not equally distributed. On one hand some employee have to work all day without relaxing while some others have nothing to do at all. This not only creates confusion among employees but also hurting and disturbing for overall setup of the bank. And above all it results in dissatisfaction among customers as well. 88
  • 89. Chapter – 10 Implementation Plan 8.1.4 Marketing visits A useful mode of contact is through personal marketing visits. Such visits are important in informing and perusing the existing and potential customers about the products and creating a sense of belongingness with them. 8.2 FUNCTIONAL ANALYSIS 8.2.1 Formal Organization Formal organization includes the activities of two or more person, which are cautiously determined groups and coordinated towards a given objective. It provides base when people are able to communicate with other, when they have common purpose and they are willing to work. In NBP, we find a formal organization. Bernard referred to an organization as a formal when the activities of two or more persons are coordinated towards a given objective. The formal organization comes into being when people are able to communicate with one another or willing to act and share a purpose. In this formal organization of NBP the activities are carried out in a more formal way. In theoretical terms it provides basis for communication with one another but in practice it is not exercised because an employee at high level cannot get straight away to manager or SVP and ask him about of his problem faced by him, because first he has to talk to his immediate superior and follow a proper channel of communication. 8.2.2 Difference between theory and practice A vast difference exists between theory and practice and NBP has written procedure but practical work done by employees is a bit different from written procedures. 8.2.3 Bank duty to maintain secrecy. They don’t care about maintaining secrecy, especially during the rush hours. They speak loudly about the account position and while getting clearance of cheque the person can 89
  • 90. Chapter – 10 Implementation Plan easily get the whole information from the ledge. The deposit clerk must be careful while passing any cheque. In this regard another shortfall is in giving the information about the balance on telephone. 8.2.4 Excessive paper work It is notified that due to the lengthy procedure of paper work the bank employee are over burdened. They are unable to give proper attention to the clients and face difficulties in getting their job done. One reason for lengthy procedure and excessive paper work in the bank is the lack of computerized technology. 8.2.5 More accounts fewer deposits. Efficient banking is one which does not emphasize on number of accounts but on greater amount of deposits. NBP is more interested in increasing its number of account irrespective to its deposit. The main reason behind it is that bank does not provide personalize service to all the account holders and does not improve its quality and services 8.2.6 Delegation of authority Manager has very limited authority; he has to take the approval from his management authority i-e. In case of advance he has to take the approval of general and regional manager. The other problem is created, when the manager is not present in his office, the customer have to wait for hours. This discourages both customer and officers because they have to suffer a lot 8.3 ADMINISTRATIVE ANALYSIS 8.3.1 Job analysis is not effective Only on the basis of job analysis it can be decided how a right person can be hired, trained, compensated or promoted. It is very important for an organization that nature of the job is described and job specifications are mentioned. Most of the employees are simple graduate and do not have proper background about their job. This creates 90
  • 91. Chapter – 10 Implementation Plan problems both for organization and for the employees. In NBP salaries are given according to the seniority and grades. People with simple or complex responsibility are getting the same salary and facilities. This creates dissatisfaction among employees. 8.3.2 Carelessness in opening of account When customer comes to open an account, the staff does not bother to check his/her place phone number and permanent address. It is important because in case of overdraft by mistake or anything which places his account in debit it will be difficult to trace him. On the other hand he may be involved in any fraudulent activities against the bank. In this case the bank will be in awkward position. 8.3.3 Lack of specialized training NBP does not provide adequate facility of specialized training to their staff. Training is generalized rather than specialized. As the worker finishes his training, he is inducted into a specific field without having great deal of knowledge about the field. In the Hayatabad branch the newly recruited employee training was not imparted, they all learned things on the job. 8.3.4 Low Profit Rates Most of the customers shifted their account to the National Saving Center because of the low rates of saving deposit discourages the customers. Bank should increase their profit rates to attract customers. 8.3.5 Poor job rotation. There is absence of job rotation in NBP Hayatabad branch. A person placed in one department remains their forever. It reduces career opportunities as well boredom and in the end results in career platueing. Job rotation is very important for employee especially for those who are newly recruited. The newly recruit should be rated in all department of the banking in order to get familiar with working of different departments so that when they get a responsible position they have know how of the whole system. 91
  • 92. Chapter – 10 Implementation Plan 8.3.6 Delays in Loan Advancement It has been observed that there are delays in sanctioning of cases form the head office, which results in customer dissatisfaction. 8.3.7 Lack of appreciation Another very important thing which is ignored in the bank is appreciation if the employee on their good performance. If hard work and performance of employees is not recognized and appreciated they become dishearten which results in decline in performance. 8.4 PERSONAL MANAGEMENT ANALYSIS 8.4.1 Need for better training program Need of training is greatly emphasized all around the world. Training of the personnel is part of human resource management. It has been noticed that the training program of NBP is not adequate. Once the candidate is selected and placed on the respective job. It becomes essential to train him adequately for the task. They should learn new methods for motivating customers. The training programmed of the bank should include scientific techniques to improve the decision making and interpersonal as will individual needs of the employee both specialized to fresh as well as on job to maintain the high standards of service. 8.4.2 Developing Managerial Leadership Leadership is a practical term of visible, clear on objective and communicating better control on financial and administrative matters. Manager is not only responsible for their own units in business, but also in people terms i.e. training, recruiting, grievance handling and taking immediate initiative in crisis situation to take major decision affection the future of the bank and banking community. 92
  • 93. Chapter – 10 Implementation Plan 8.4.3 Recruitment policy Human resources are the lifeblood of the organization. If the personnel are recruited carefully they can become asset to the organization in the case of carelessness a liability on the organization. Bank is not following its recruitment policy properly due to favoritism, nepotism and political pressure. Both the top authority and staff union tries their best recruit their favorites, indulgence of political pressure add salt to the wounds. The persons selected through these channels are infantile and do not work for the betterment for the bank. 8.4.4 Promotions Promotion in NBP is purely on the basis of seniority, so the new young person having high qualification remains behind for quite a lot of time. Top management and staff union put pressure for the promotion of their favorites, which gives a sense of deprivation to the deserving employee and their efficiency is affected. As the concept of promotion is attached with better in terms of greater responsibility, more prestige, greater skills and increased rate of salary. Thus a better and impartial policy of promotion needs to be followed. 8.4.5 Transfer Transfer means when a person is shifted from one place to another place. It is done either that person is needed more on the other branch or for improving his skill variety. It is the policy of the Bank to transfer each employee 3 to 4 years. 8.4.6 Marketing at desk Bank employee come in daily contact with many people who happen to deal with the casual remittance, travelers cheques, safe custody, pensioners, depositing license fee and variety of other functions and variety of other people with whom the Bank has no account or regular business relationship. The Bank employees are doing very little on their own to explore the possibilities of selling banking services to them as a marketing contributor. The entire Bank community should make a conscious effort in addition to their normal 93
  • 94. Chapter – 10 Implementation Plan work to explore the possibilities of selling banking services to them. The market opportunities are hidden in every dealing a banker handles; the question is that if he has the art and urge to seize such opportunities. 8.4.7 Lack of business communication There is no proper way to give information to their customer. To avoid this minor dissatisfaction and tension in the mind of customer, and deficiency of the service, it is recommended that the bank should provide brochures etc containing information in details. Some general information should be placed in information notice board on the entrance where customer can see it easily or it should be self-attractive. 94
  • 95. Chapter – 10 Implementation Plan Chapter # 9 GENERAL SUGGETIONS NBP is an effectively operating and profit making organization and carrying out its activities under a specified system of procedure. The main regulatory body is State Bank of Pakistan, which provides policy guidelines and ensures that the money market operates on sound professional basis. While the head office specifies the whole procedure of function and operations. This procedure has been modernized with the passage of time with a view to streamline the approach and underlying procedure for effective overhauling of its own capabilities so as to bring them at par with international practices. Here I am giving some suggestions, which in my view can add some input for efficiency and better performance of NBP as an organization in genera and City branch in particular. The recommendations are as follows: 9.1 Professional training NBP staff lacks professionalism. They lack the necessary training to do the job efficiently and properly. Although staff colleges in all major cities but they are not performing well. For this purpose these staff colleges should be reorganized and their syllabus should be made in such a way to help the employee understand the ever changing global economic scenario. Banking council of Pakistan should also initiate some programs to equip the staff with much needed professional training. 9.2 Delegation of authority Employees of the bank should be given a task and authority and they should be asked for their responsibility. 95
  • 96. Chapter – 10 Implementation Plan 9.3 Performance Appraisal The manager should strictly monitor the performance of every staff member. All of them should be awarded according to their performance and result in the shape of bonuses to motivated and incite them to work more efficiently. 9.4 To Over Come Problem of Space and Furniture In the critical analysis this, problem is discussed. To overcome this problem it is suggested that a special section should be made inside the branch. Which should only handle the treasury function, salaries and pensions of federal personnel or the bank should do these functions in the evening time. Also management should purchase more furniture and arrange them in such a way which provides maximum space and convenient specially in deposit department and there should also be convenient sitting place for customers. 9.5 Transfer Transfer is not properly carried out. Some of the employees are continually serving at the same post. They are simply rotated at the same branch. Therefore it is recommended that evenly rotation of every employee should take place after every three years in different braches of the bank. 9.6 Changes in Policies There should not be any abrupt policies change by the upper management, as this practice hurts the customer confidences in the bank. Government should make long term policies 9.7 Need of Qualified Staff Required, qualified staff should be provided to branch in order to improve the functioning of the branch. Especially a telephone operator should be appointed. 9.8 Utility Bill Charges 96
  • 97. Chapter – 10 Implementation Plan Bank gets Rs. 2 to 3 to processes a utility bill, and it is very tire, tough and hard job despite this working resulting in a loss to then Rs 3 to5 per transaction. These charges should be increased to RS 10 per bill to enable the branch to cover their handling costs and make some profit. 9.9 Link with the Head Quarter 100 major branches of NBP should established a direct link with the, head quarter In Karachi, through Internet or Intranet. This will make the functions and decision making of the management easier and convenient. 9.10 Credit Card National bank of Pakistan should start its operation in credit card. These cards are very helpful for the ordinary customer in general and the business people in particular. To make it mores secure and to eliminate the misuse of it, the management is required to keep proper security against the card. 9.11 Installing Validator and ATM Validator machine is used to count the currency notes and its installation will help to eliminate to counting errors and will save time. This branch is situated in the City, which is supported to be the hub of business activates. In this area an auto teller machine (ATM) is the need of the hour businessmen can easily check their balance in the bank and also with draw their money conveniently. 9.12 Interest on Overdraft: Overdraft is a short-term credit facility provided by the bank to its trustworthy customers free of interest. Only bank commission is charge small amount of mark-up on the overdraft, which will help the bank to improve its revenue position. 97
  • 98. Chapter – 10 Implementation Plan 9.13 Clean Loans Clean loan or clean overdraft is the credit facility extended to the customers to the customers without any security. These types of small term loans should not be extended to anybody, because sometime these loans are provided to blue-eyed people of the management and they become a part of bad debts. 9.14 Cash Financing In this mode of financing the amount of credit not utilized by the borrower is remained tax-free. It is recommended that a small amount of interest should be charge on this amount as well because the bank gas kept-aside the amount for that borrower and can not advance it anywhere. 9.15 Decreasing Administrative Expenses Bank should their administrative expenses. This was Rs 8 billion in the year 2000. That can be done by lying off the surplus pool of employee with golden handshakes scheme. The branches that are not much used could also be closed. Employee can also be how to control the bank expenses. That will give positive results in the future. 9.16 Needs to be Flexible in credit Policy As mentioned earlier, NBP is very conservative in advances and loans policy. It reduces the investment opportunities. Also loans should be given to the small businessmen and the agriculture sector at the low markup rate. It should adopt flexible credit policy while giving credit to the agriculture sector. 9.17 Technological Advancement I would like to suggest that at least all the main branches of NBP should be fully computerized in order to expedite the dealing process among bankers and their customers. Every department should be provided a computer with adequate training (especially Advances, Deposits and Foreign Exchange departments). 98
  • 99. Chapter – 10 Implementation Plan Daily records should be entered directly into these computers, (instead entering the overall daily transactions after the banking hours). It will not only reduce transaction time, will increase accuracy but will also be efficient as well. Not only it will be economical but will also reduce the extra burden of work of the bank. It will also help in reducing the use of excessive paper work. 9.18 Staff Relationship Good relationship among staff member leads to the peak performances in any organization. I observed that the staff relationship was normal other wise but some time I noticed that there existed a little conformity among the staff members. Another syndrome from which the staff suffered was that all of them considered themselves more important than others. Some of the officers used to say that if I am absent for a day the bank would stop working. So this sort of attitude is not good because it mars bank image and juniors’ willingness learn and work hard and in the end will hurt the whole team. 9.19 Improper Distribution of Work Proper distribution work leads to success in every organization. Proper distribution of work prevents the employee from over and under work situation. So for a smooth running of an organization proper distribution of work is the hint to be followed. During my internship I observed that there was no proper distribution of work in the bank. I saw that some of the employee worked like ants other sat idle starting here and there. So this created a lot of over work situation for while relaxation for other. 9.20 Favoritism and nepotism In the City branch during my internship I saw that when some of the employees are transfer to other places, due to their relation with influential people and with top management they can cancel their transfer in few weeks, when they are unsatisfied at that place. 99
  • 100. Chapter – 10 Implementation Plan So I suggest that in the organization there should be no favoritism, nepotism and politics and their transfer and promotion should be made on merit and according to the rules and regulations of the bank and provided favorable environment to the employee to show their performances. 9.21 Inter Departmental Transfer I watched during my internship that, there is number of employee who have worked on one seat for many a year. It can have negative effects motivation of employee who is hard working and intelligent. Take the example of advances section. In advance section if the employee is transfer after sixth month or seven month, how can he be able to show his performances and how can he be able to know the bank customer in a short period of time. 9.22 Foreign currency Account For the internship the place I have selected was City branch, which is my forefather land and I know that from area many people have traveled to other country for different kind of jobs, and I have heard personal complaint about the unavailability of foreign currency account in banks. So I thick it is wonderful opportunity for the bank to open foreign currency account. 9.23 Marketing Policy The branch should adopt various marketing strategy and promotion strategy to promote the bank and its product. The most important in my opinion is personal marketing; it is the most effective of all when you think in term of branch level. But on the whole organization level, they should arrange the seminar with in the bank and outside the bank. They should introduce various prizing schemes just like Allied Bank. Karamad Scheme, Bank Al-Falah (monthly income earning scheme) and various others. They should do more advertising through newspaper and media and through channel of personal contacts. 100
  • 101. Chapter – 10 Implementation Plan 9.24 Complaints of Customer There should be an information desk to provide the information and to receive the complaints of the customer in the bank. There is no complaint box available in the branch and not any person appointed to hear the complaints. Every person cannot go to the manager for the complaint because most of the people are hesitant. So I suggest management to install a compliant box in the branch, and recruit a special person for that guidance of the customer when they are unable to manage some difficulties in banking matters. 9.25 Analysis of the Business: Proper analysis of the business reports should be conducted before extending any type of loan. For this purpose professional training of the stuff member is required. 9.26 Organizational Commitment It is suggested that employees working on daily wages basis should be given some benefits, which the other employees are getting. Their salaries must increase according to efficiency, performance and service. 9.27 Managerial Leadership In the analysis, we have discussed the difficulties of the assistant in taking any initiative; therefore it is recommended that the assistants should he given special training to make them ready for the leadership. 9.28 Credit Monitoring The credit department of the bank should carries out vigilant credit monitoring. They should ensure the proper payment of installments and the mark-up by the borrower. 101
  • 102. Chapter – 10 Implementation Plan The staff members who have done all the paper work of the loan extension should perform the monitoring, as he/she will be having more information about the borrower. 9.29 Extended Banking Hours The banking hours may be extended up to six, as being practiced by HBL opposite to it. Some of the business community due to law and order situation are now reluctant to keep the fund in their premises and would want to depart with it. Therefore, City Branch may extend the night banking to cater to demand of this business community. The branch could also be opened to cater the requirements of this business community Limited staff: 9.30 Housing and House Hold Goods loans Bank should initiate these loans because most of bank’s customers are middle class and they cannot afford to buy house or house hold goods at once by their own 9.31 Avoiding Bad Debts Great care should be taking while extending the loan. Loans should be awarded against reasonable securities, where market value should be equal to the loan granted. Policies should be crafted in a way to ensure that no loan is extended on political pressure. SBP regulation for loan approval should be strictly followed. According to which the current ration of borrower’s business must be 1:1 and the debt to equity ratio should be 60:40, means the liquidity position of business should be healthy. 9.32 Car Financing Scheme Another financing scheme with the name of “MARE GARE CAR FINANCING SCHEME” should be initiated This finance scheme will help the general public to buy the car of their choice in easy quarterly installments The bank monitors will do strict monitoring and the car will be hypothecated with the bank against the car loan. Scheme’s implementation plan is give in the next chapter. 102
  • 103. Chapter – 10 Implementation Plan CHAPTER # 10 IMPLMENTATION PLAN From the above recommendation, two recommendations are selected for implantation plan. 10.1 IMPLEMENTATION PLAN FOR “MARE GARE CAR FINANCING SCHEME” Implementation of this financing scheme is initiated to provide long term loans to the general public for buying their own car in easy installments. This financing scheme will help bank to increase its revenue immensely 10.1.1 Rules and regulations Name of finance Mare Gare Car Financing Minimum amount of finance Rs. 300000 Maximum amount of finance Rs. 1500000 Rate of Mark up (on daily product basis) Rs. 0.43 per Rs. 1000 Period of finance 3 or 5 years Repayment to Bank Quarterly (12 or 20 equal installments) 10.1.2 Documents required for extension for loan Documents of title to car. Bank monitoring team approval certificate. Car dealer certificate of authentication. Insurance. 103
  • 104. Chapter – 10 Implementation Plan 10.1.3 Securities Required for Extension of Loan To ensure the safe recovery of loan the car will be hypothecated. Guarantee of two 17th grade government or semi government officer. Personal liability of the borrower. 10.1.4 Finding out Quarterly Installments Mark up will be calculated for the whole time period and will be added to the principle amount. The total of that will be divided by number of installments to get the amount for each installment The formula for extracting mark up is Mark up =F*R(1+N) 2M Where F = Total amount of financing R = Rate of mark up for one year N = Total number of installments M = Number of installments in one year 104
  • 105. Chapter – 10 Implementation Plan Case study Amount of finance Rs. 200000 Rate of mark up Rs. 0.43 per 1000 Total number of installments 20 (5 years) Number of installments in one year 4 Rate of mark up for one year ® = .43 * 365/1000 =.157 Mark up for the whole financing will be Mark up = 200000 * 0.157*(1+20) 2*4 = Rs. 82425 Now the quarterly installments will be Quarterly installment = principal amount + total markup Total installments =200000 + 82425 / 20 = Rs. 14121/The borrower will pay Quarterly installment of Rs. 14121/- 105
  • 106. Chapter – 10 Implementation Plan 10.2 Implementation plan for NBP Hayatabad branch “Telephone Operator” The ingredients of the implementation plan are. • Need/problem at the branch. • Qualities of a telephone operator • Benefits of a telephone operator. • How the need created and bank’s staff decision. • The implementation plan cost. 10.2.1 Need problem at the branch. Every organization has some problems. NBP Hayatabad branch has the problem of telephone operator. It can save the precious time of not only manager but other staff as well. On the other hand bank’s communication system was not doing well overall. Therefore as an internee I felt that there should be a telephone operator who can easily handle this situation. 10.2.2 Benefits of the telephone operator • It saves precious time of the manager and staff members. • It saves the time of the customers. • Creates good impression on the customer. • Communication within the bank improves. • Communication of Bank with outside enhances. 106
  • 107. Chapter – 10 Implementation Plan 10.2.3 How the need was created The need for telephone operator was created because the staff members would have to leave their work and attend the telephone but some times it would be a wrong call, other’s call or the calls which they wanted to avoid this would not only waste their time but also affect their performance a great deal. Therefore they think it’s useful to have a spare person for this facility. 10.2.4 ACTION/IMPLEMENTATION PLAN COST 1- Cost of HRM department Advertisement in newspaper cost Selection cost 10000 Training cost 12000 Total HRM cost 2- 4000 26000 Telephone networking Additional telephone sets 2500 Cable (Rs. 5/ foot, 5*800) 4000 Telephone mechanic 2000 Labor 2000 Separate cell cost 5000 Other expenses 2000 Total networking 17500 Total action plan cost 435000 107