Internship report on State bank BSC Multan

ALFALAH INSTITUTE OF BANKING AND FINANCE 1

Acknowledgment

All praises to almighty ALLAH who gave me the courage and patience for completion of this final report.

First and foremost, I am thankful to ALMIGHTY ALLAH, for responding my prayers and giving me the

strength to plod on despite my constitution wanting to give up and throw in the towel. My heartiest

gratitude and compliments to My Parents, without their love, prayers and trust I would not be capable of

doing this task.

I feel great pleasure and honor to express my heartiest gratitude and deep sense of obligation to Mr.

Javed Iqbal Chief Manager SBP-BSC for giving me this excellent opportunity of doing internship and

let me open new facets of practical life.

I offer my humblest thanks to Mr. Abdullah Khan Asst. Director of SBP-BSC Multan for his endless

support and encouragement during internship and especially in my project report.

I shall also very thankful to my project supervisor Sir Asif and Sir Umair they helped me throughout

my project and I am immensely obliged to Mr. Mustabsar who provided me the enlightenment and

showed me pathway to be followed for my internship report.

My thanks and appreciations also go to my Project fellow in developing the project and people who

willingly helped me out with their abilities.

Regards.

Ahmad Saleem

Alfalah Institute of Banking and Finance

Bahauddin Zakariya University, Multan


Table of Contents

Executive Summary .......................................................................................................................................... 3

1. Introduction .................................................................................................................................................... 4

1.1 Objective of State Bank of Pakistan: ............................................................................................................... 4

1.2 Vision Statement .................................................................................................................................................... 4

1.3 Mission statement .................................................................................................................................................. 4

1.4 Functions of SBP:.................................................................................................................................................... 4

1.5 Subsidiaries of SBP: ............................................................................................................................................... 5

2. Units in SBP BSC (MULTAN) ................................................................................................................... 6

2.1 Deposit account unit (DAU) ............................................................................................................................... 6

Learning outcome: ........................................................................................................................................................................ 8

2.2 Public Accounts Unit (PAU) ............................................................................................................................... 9

Learning Outcome: .................................................................................................................................................................... 16

2.3 Prize Bond Unit (PBU) ....................................................................................................................................... 17

Learning outcome: ..................................................................................................................................................................... 19

2.4 Refinance Scheme unit RSU ............................................................................................................................ 20

Learning Outcome: .................................................................................................................................................................... 23

2.5 Foreign Exchange Operation Unit ................................................................................................................ 24

Learning outcome: ..................................................................................................................................................................... 27

2.6 Currency Management Unit (CMU) .............................................................................................................. 28

Learning outcome ...................................................................................................................................................................... 29

3. SWOT analysis ............................................................................................................................................. 30

4. Financial Analysis: ..................................................................................................................................... 32

5. Economic Analysis: .................................................................................................................................... 35

6. Project Report ............................................................................................................................................. 38

7. Conclusion .................................................................................................................................................... 41

8. Recommendations ..................................................................................................................................... 42

Bibliography ..................................................................................................................................................... 43

Appendix ........................................................................................................................................................... 44


Executive Summary

For the students of Banking and finance, it is very necessary to have some information about how

hypothetical ideas could be connected to viable working learning.

SBP is a highly dynamic organization working since 1948. Its main function is to regulate all commercial

Banks and control the money supply in the country by making effective monetary policies. Main function

of any central Bank is to control the currency in the country as excess of currency in the market cause

inflation. So, major function of SBP is to control the money supply in the country.

Reason for joining the SBP as my internship is that there are lot of learning opportunities for me especially

being student of Banking and finance here in true sense practical knowledge is incorporated by giving

knowledge about the operations of the bank and then, afterwards doing project report of worth importance

and knowledge.

This report is divided into three parts first part contains the introduction of State Bank of Pakistan, its

core values and information about its subsidiaries SBP-BSC and NIBAF. Second part contains the Details

of working of each unit OF SBP-BSC Multan like DAU, PAU, RSU, FEOU, CMU & PBU etc. SWOT

analysis Of SBP-BSC Multan, financial Analysis of SBP and finally some suggestions and

recommendations.

Third part contains brief overview about Commercial and Microfinance banks and overview about the

pricing mechanism of Commercial and microfinance banks. This part contains only main and important

aspects of our working on the project of Pricing Mechanism and the detail pricing comparison of Pricing

of Each bank’s Products and comparison of charges of products. In this project we discussed in detail the

product and services of commercial and microfinance banks. We discuss pricing mechanism of 6

Conventional banks, 4 Islamic Banks and 5 Microfinance banks.


1. Introduction

The State Bank of Pakistan is the central bank of Pakistan. While its constitution, as originally laid down

in the State Bank of Pakistan Order 1948, remained basically unchanged until January 1, 1974, when the

bank was nationalized, the scope of its functions was considerably enlarged. The State Bank of Pakistan

Act 1956, with subsequent amendments, forms the basis of its operations today. The headquarters are

located in the financial capital of Pakistan, Karachi with its second headquarters in the capital, Islamabad.

1.1 Objective of State Bank of Pakistan:

State Bank of Pakistan is a service sector- nonprofit organization. Its main objectives are managing and

maintaining the money/currency supply in the country. The increase or decrease in the money/currency

supply either creates inflation or deflation in the country. Thus, the objective of State Bank of Pakistan

is to handle currency supply and regulate monetary policy.

1.2 Vision Statement

To develop SBP-BSC into a dynamic and efficient organization equipped with requisite technology and

human resource which are capable of extending sustainable support to the State Bank of Pakistan in

achieving its objectives.

1.3 Mission statement

SBP’s mission is to provide excellent banking and financial services to stakeholders besides ensuring

implementation of SBP policies in order to command their trust and respect.

1.4 Functions of SBP:

There are two types of functions of SBP

1. Traditional function

2. Nontraditional function

1.4.1 Traditional function

Traditional functions are the main and necessary functions performed by the SBP and they have Further two types.

1. Primary function

Banker’s Bank

Banker to the Government

Conduct of Monetary and Credit Policy

Issue of notes etc.

http://en.wikipedia.org/wiki/Central_bank

http://en.wikipedia.org/wiki/Pakistan

http://en.wikipedia.org/wiki/Karachi

http://en.wikipedia.org/wiki/Islamabad


2. Secondary Functions

Advisor to the government

Public debt management

Management of foreign exchange etc.

1.4.2 Nontraditional function

Nontraditional functions can be called as development functions or promotional functions to achieve the

macroeconomic goals.

Training facilities to bankers

Islamic banking system

Development of financial institutions.

1.5 Subsidiaries of SBP:

1.5.1 NIBAF

National Institute of Banking and Finance is also referred as State Bank Training Institute (SBTI) NIBAF

Islamabad. All major training activities /courses and State Bank’s Training Programmes are held at

NIBAF. Functions of NIBAF as under:

Joint Directors Training Program

Research Officers Training Program

International Courses on Central and Commercial banking

1.5.2 State Bank of Pakistan (Banking Service Corporation), Multan

Banking Services Corporation (BSC) – set up in January 2002, is the subsidiary of the State Bank of

Pakistan and is entrusted with the task of currency management and operational and administrative

oversight of foreign exchange departments, export and other finance, management of Government

accounts and operational work related to Government certificates. With the changing environment of

banking sector, BSC has undergone significant change. SBP has 16 offices OF BSC in Pakistan.


2. Units in SBP BSC (MULTAN)

Sr. No. Units

1 Deposit Account Unit (DAU)

2 Public Account Unit (PAU)

3 Management of Prize Bonds and Govt. Saving Schemes (PBU)

4 Refinance Scheme Unit (RSU)

5 Foreign Exchange Operation Department (FEOD)

6 Currency Management Unit (CMU)

2.1 Deposit account unit (DAU)

2.1.1 Introduction:

SBP is the Banker’s Bank and it is providing all Banking services to all commercial Banks, Employees

of SBP and companies. Banks can open an account in the SBP in case of excess of cash which they think

needs to be in safe custody. For this deposits SBP does not charge any fee to the commercial Banks. They

can deposits cash and soiled note as well in their accounts. They can withdraw their cash when they think

there is shortage of cash for them.

All this cash deposit, payments and remittances deal in DAU (Deposit account unit) of SBP. As BSC is

the subsidiary of the state Bank of Pakistan so each is subsidiary performing same function as describe

above to their local Banks of the city. Presently there are 30 commercial Banks operating in the Multan

region and SBP BSC has their accounts in the SBP BSC.

2.1.2 Functions of DAU:

1. Deposit and withdrawal of money:

All main branches of the commercial Banks of the city has the account in SBPBSC and they can deposit

money into the Bank for safe custody as the SBP is the custodian of the money of the commercial Banks.

Cash from banks is received on the counter but heavy amount is not received except four banks viz.,

UBL, MCB, and ABL & HBL. The representatives of these banks bring cash in SBP that is kept

separately in vault temporarily and their accounts are credited. After counting if balance is short, penalty

is imposed on the bank. Further, RTGS is not available in few banks such as Pak Kuwait, Pak Oman and

IDBP. The transfers of these banks are done through GLOBUS.

Withdrawal Procedure:

Withdraw procedure is that concerned Bank’s nominated person has to present the cheque to the deposit

account unit and in which the officer (OG 1) checks all the particulars, amount in words, amount in

figures, signature of the two authored person of the commercial Bank and stamp of the concerned Bank.

After checking all the particulars than he will check the account balance of the Bank whether there is

sufficient amount is available in their account or not than he/she will mark stamp on the cheque and then


this cheques will be transferred to the Officer (OG 2) he/ she will verify all the particulars and account

balances and after doing signature on the cheque than cheque will transfer to the ACM (Assistant chief

manager) to final approval. After approval Bank’s person can withdraw cash from the cash counter.

Reconciliation

Reconciliation is a process where central bank reconciles the balances of commercial banks accounts.

SBP reconcile the balances of these commercial banks and this facility is provided under this unit.

For employees of SBP:

DAU is also deal with the employees’ payment of allowances, rest and recreation allowances, half salary

allowance, personal loan, car loan, house loan, medical vouchers and pension payments. SBP is providing

interest free loan to their employees. DAU make the payment orders for employees and employees can

withdraw cash from cash counter.

In case employees want to apply for loan they go to the loan unit and then loan unit sent request to DAU

to make the payment order than employee can withdraw cash from cash counter. In payment order

employee pin number is written.

2. Remittances

SBP facilitates the movement of funds from one place to another in the Pakistan

Movement of funds of commercial Banks

From branch to head office

From head office to branch

Movement of government funds

If any government organization want to transfer funds to their other department outside the city than they

can request to SBP to facilitate them to transfer their funds. They sent request to SBP than SBP make

payment order with the name of National Bank of the respective city and tell the beneficiaries for whom

the funds will transfer. It is clearly mention the names of the beneficiaries on the payment order.

If government institute want to transfer their funds in the city where SBPBSC is operation than one city

SBPBSC make payment order with name of other City SBPBSC and mention the beneficiary’s name.

Within the region SBP does not charge any fee of transfer of funds but outside the City they charge fee

for the transfer.

Employee fund transfer

Employees of the SBP can transfer their funds free of cost with SBP to SBP. The same procedure is

follows. Employee will deposit cash to cash counter and after getting deposit slip he will come on the

DAU and request for payment order with the name of other employee of SBP.


Types of remittances:

1. Mail transfer

It is for the employees of the SBP. Employee can avail it by getting payment order from the DAU.

It is the fastest way of transfer of money.

It is free of charge.

Physical movement of funds is avoided.

2. Bank draft

It facilitate the employee to transfer the funds outside the SBP free of charge. It is basically used officially

payment of SBP.

Facility to transfer funds in every place of country

Free serviced

3. Government draft

It facilitates the transfer of receipts and payments of government free of charges.

E.g. payment of salaries of government employees to any government department.

Free facility to government

PAU facilitation

4. Telegraphic transfer

All transfers from one branch of any bank to the other branch of that bank are made through TT and

0.07% service charges as also Rs. 100 advice mailing charges are received.

Learning outcome:

While working in this unit I have learned so many things like:

I came to know the exact working about the central bank’s role Banker’s bank.

This unit take deposits from commercial banks and also these banks can also withdraw from

their account.

I have learned all mechanism of this unit mainly withdraw procedure and clearance procedure.

I came to know about the remittances facilities of this unit for the SBP employees and for

general public.


2.2 Public Accounts Unit (PAU)

2.2.1 Introduction:

One of the major and important function of the SBP being central bank of the country is Banker to

Government. Being banker to the government this unit facilitate government sector organization to

perform their task effectively and efficiently by providing their Banking services to all public sector

organizations. This unit is considered as the backbone of the State Bank of Pakistan. This unit is

performing their services to all the public sector organizations.

Structure of the PAU:

2.2.2 Receipt:

All money coming from the government departments is dealing in this section either in the form of cash,

transfer or clearing. This section contains three subsection:

Cash

Transfer

Clearing

Banking Department

PAU

Payment

Cash Clearing

Reciept

Cash Transfer Clearing

DAU


Cash

In the first subsection all the money which is coming from the government departments in the form of

cash deal in this section. Now a days cash transactions are usually discouraged at large extent. Most of

the transaction are made on account of transfer.

Procedure:

The depositor fill the Challan form having 2 to 3 copy consist of Name, Amounts in words & figures,

Sign, stamp of the department etc. and submit that challan form on cash counter with cash. The officer

after stamping the challan form return one copy of that challan form to the depositor and one copy sent

to the PAU unit receipt section.

Transfer receipt:

As we know that now a days cash transaction are usually discouraged at large extent and all organizations

prefer to make transaction on account of transfer. We can say it in easy wording that when cheque of one

Government department or SBP submitted into other government department than this amount is

transferred after verification from one department to other Government department.

Procedure:

Normally government cheques have the validity of 3 months after the issuance date but in case of end of

the financial year 30 June these cheques will stand invalid after the 30th June. Government cheques first

go to the scrutiny in which that cheque is properly match with the scroll. Those scrolls are sent by the

department who did issue a cheque. In scrolls all the details of the cheques have been written. After

scrutiny that cheque come into the receipt section and the officer of input will input that cheque into their

record and stamp it and then sent it to the Officer of authorization. That officer will check the details

again and after verification stamp on that challan and give that to the depositor.

In case of SBP cheque of one commercial bank which has been submitted by other account holder of

SBP ( commercial Banks) to deposit amount to its account. In that case checks with transfer receipts first

go to the DAU section for verification in which the DAU unit will check the joint signature of the two

authorize signatories, stamp of that Bank, amounts in words and figures and Bank’s balance in account

etc.

In case of NBP as the nominated Bank work as the SBP’s subsidiary accept government receipt like fee,

tax etc. on counter of NBP. In 24 hour detail of that receipt is sent to the SBP BSC if this would not

practice than that branch will be penalized by the SBP. NBP sent statement of Government receipt in

which all the receipt of the day is written.

Debt Advice:

NBP collect taxes on behalf of SBP so it has to submit the Debt advice at the end of each day and at the

end of the day NBP account is debited and government account is credit.


Clearing

In this section when one government department submit receipt invoice with the cheque of commercial

bank in which they had an account. Than in that case PAU section uses NIFT (National Institutional

facilitation technology) to clear that cheques from the respective branch of that Bank on which name

cheque is drawn. Clearing done in receipt section is also called Outward clearing.

Types of clearing:

There are three types or instruments of clearing.

Government/ commercial Banks cheques drawn on Multan.

Intercity cheques

Small city

Government/ commercial Banks cheques drawn on Multan

Whenever the cheque comes from in the clearing section with the receipt invoice/Challan form that was

submitted to counter of receipt section than the officer give that person a paper token in which no. of

cheques and branch name of that cheque is written and also name of the Government department is

mention on which amount will be deposited. Officer of the input will input that cheque into their record

and will sent it to the officer of authorization. Authorization officer after stamping that cheque this cheque

will be given to the NIFT. NIFT will give that cheque to the respective branch and on the next day will

give information to the PAU that cheque has been cleared. In that case one copy of challan is sent to the

government department and one copy return against the paper token.

If cheque has issues and did not clear by the respective branch. In that case NIFT return that cheque to

the PAU receipt Section and then this cheque will be return to the depositor.

Intercity Clearing:

This type of clearing deals with the cheques drawn on major cities other than Multan like cheques drawn

on Banks of Lahore , Islamabad etc. same procedure to deliver that cheques used but the time of clearing

that cheques will be more than 1 Day. Because NIFT will sent that cheques to their respective Branches

in other cities and that cheques will be cleared city wise.

Small city Clearance:

This type of clearing is done for the small cities in which NIFT is not operational. In this case that cheques

will sent to the NBP Branch of that city than NBP plays a role of NIFT to clear those cheques. For this

purpose a Register maintained called Collection register in which particulars, Sr. No, SC No., Cheque

No. Date, Amount and remarks are maintained.


Tax Collection/ FBR:

All the Government Organization can submit their Tax on the counter placed inside the SBP BSC in the

form of cash. In the case of Cheque that person can submit their Tax on the counter of PAU receipt

section.

In 2011FBR develop a Collection automation project (CAP) in collaboration with SBP and NBP. To

facilitate the Tax payer. SBP is using dual entry system of clearing in case of tax collection. First the

information is submitted in to the CAP-2 and then into the GLOBUS.

Procedure:

First the individual have to make their PSID number to submit their tax. Any individual can generate

their PSID Form by sitting at home by using FBR website or he/she can come into the FBR counter and

can make the PSID form then submit cheques along with that form on which NTN number is mentioned

to the counter of PAU receipt section. Officer of input will input that Form details in to the CAP-2 and

then into the GLOBUS. On next day after clearing CPR (computer printed receipt is generated. One of

the copy is return to the customer, one copy is sent to the RTO.

What is Scroll?

At the end of each day scroll is maintained head wise in which all the cash, transfer and clearing amount

is maintained and to check that instruments are recorded correctly or not.

Abstract: After Scroll Abstract is maintained in which all information summarized head wise.

Major heads:

Provincial

P-1 Non food

P-2 Food

P-3 Zakat

P-4 District account

Central

C-1 Non food

C-2 Food

C-3 Railway

C-8 Zakat

C-11 Railway special

C-17 Pay and pension

C-18 PSDP Special railway Account


Verification authority of cheque:

OG-2 will have the authority to verify the cheques have amount not greater than 2 million.

ACM has the authority to verify above 2 Million cheques

DCM has the authority to authorize cheque up to 100 million

CM has the authority to authorize cheques up to 500 million and above

2.2.2 Payment

In the PAU payment will be made to only the Public sector organizations like hospitals, agriculture, health

education, police, social welfare, livestock, courts, fisheries etc.

There two types of Payments

Cash payment

Clearing payment

Cash payment

In this section of the PAU cash payments is made on the counter against the respective cheques of that

public sector organizations. Only the amount will be given to the DDO (Drawing and disbursement

officer) of the respective public sector organization. Cheque Book is issued to that DDO and by using

that cheque book he/she can collect that amount form the counter after verification process.

DDO registration process: DDO will submit the application to the PAU cash payment section.

Documents required for DDO registration:

Application with specimen signatures ( new incumbent)

Copy of CNIC

Charge assumption report

Charge relinquishing report

Office order notification

All documents must be attested by a DDO, whose signature can be verified from SBP record.

DDO will nominate a person to withdraw cash on behalf of him/her. That person will be called cashier.

That person will have a spate card from office verified by the DDO.

Procedure of cash payment:

Whenever the cheques is presented after checking of cheque apparent view and particulars like, signature,

heads properly filled or not, date of expiration of cheque etc. a metallic token is issued to the cashier.

Cheque details is now be inputted into the GLOBUS by OG-1. Now cheque will be forward to the OG-2

for verification and particulars will be match with scroll. Those scrolls are sent by the district account

officer to the SBP on daily basis. OG-2 will match records with scroll and then mark on that scroll too.


After proper verification a stamp will be placed on cheque and the cashier will collect that amount form

the cash counter.

Limit to authorize cash:

OG-2 can authorize amount 1 million

OG-3 can authorize amount above one million.

Validity of cheques: Validity of cheque is of three months after issue or 30th June whichever comes

earlier.

Color of head of accounts:

Central Green

Provincial Pink

District Mauve

Expire or theft:

In case of theft or expiry the DDO have to collect the NPC (no payment certificate) from SBP and then

submit this in to district account officer. Than DDO will issue next cheque.

Clearing payment:

When cross cheques is issued by provincial or federal government to an individual or big firm that firm

or individual will present that cheques to its commercial bank, bank will hand over that cheque to NIFT

which will bring that cheque to PAU clearing section. This clearing is also called inward clearing.

Clearing house will check the following things

Clearing stamp of commercial Bank

Crossing stamp.

Endorsing stamp of bank to take all risk on themselves.

District account signature will be verified.

Endorsed seal of account office.

Tally the amount and name with schedule with schedule provided by account office.

If all the particulars are correct then the cheque will be passed as under

OG-2 up to 2 million

ACM up to 100 million

DCM above 100 million


2.2.3 Clearing before NIFT:

Before NIFT every bank’s representative will come to the SBP clearing Office having cheques of

different Banks and then they interchange that cheques to each other.

NIFT:

NIFT means National institutional facilitation technology private ltd. This institute acts as bridge between

all banks to facilitate them in clearing their instruments.

Procedure of NIFT:

NIFT Riders collect cheques from the all Banks. These instruments than come into the data

department in each instrument checked properly one by one. After that instrument is sent to the

encoding machine in which encoder puts a micro line pin number on instrument? This pin number

contains the information like branch code, bank code etc.

In 2nd step the instrument is sent to the operation department. In this department pictures of

instruments have been made. Speed of capturing images is in 1 minute 120 pictures. Any missing

information is manually entered in on the images.

After taking images operation department match the balances of each instruments and generate a

report called bank transfer scroll.

After bank scroll system generates a bank summary in which all instrument amounts is written

branch wise and bank wise.

These instruments put in to the bag and riders deliver that instrument to the respective banks for

clearing. Banks retain the cleared instruments and return the instruments those have issues.

NIFT attach reason memo with return instruments and then return to the respective banks in

evening. Than make list of that cheques branch wise and then sent that cheques to their respective

branch for clearing after clearing give feedback to the respective Bank on which it is collected the

Cheque.

Types of clearing:

Normal clearing

Intercity clearing

Same day clearing

Normal clearing: In this clearing all the normal procedure which is given above will be follow

through NIFT to clear cheques.

Intercity clearing: In this type of clearing all cities will sent their cheques to their main branches

where NIFT is operating and then this Main branch will give this cheque to the NIFT and NIFT will

make list of that cheques and sent for clearing to the respective Banks.

Same day clearing: In this type of clearing cheque will be clear on the same day on that special

service NIFT will charge greater to the depositor Up to Rs. 400 per instrument for clearing.


Types of accounts

Drawing accounts

Drawing account is general account.

It does not have any restriction or limitation regarding amount.

The State has to pay what is drawn on it.

The balance of this account may be in debit or credit.

Personal ledger account

Government of Pakistan allocates a specific and limited budget for different government

institutions

Those institutions are entitled to draw the amount up to the extent of their budget.

The cheque must be endorsed by federal treasury officer (FTO)

The State bank has the right to dishonor the cheque without the endorsement.

The cheque drawn on this account has validity of one month from issuing date.

Assignment Accounts

This account is similar to personal ledger account and is entitled to agencies ISI, FIA etc. A book is

created by OG-2 of a definite amount as per CMA authorization.

Learning Outcome:

By visiting this unit I learned most of the things about the central’s bank role banker to the government.

Accounts maintaining procedure of public sector organizations and modes of transactions in this

unit of SBP-BSC.

Detail working of DDO registration procedure.

Complete Clearing procedure of receipt and payment sides.

Detail working of NIFT by visiting NIFT center how they collect cheques from all banks and

facilitate with their efficient working.

Tax collection procedure through cash payment and through the clearing payment.


2.3 Prize Bond Unit (PBU)

It is central directorate national savings scheme. SBP BSC as the operational arm of SBP issuing and

payment of Prize Bonds to the general public on behalf of the Government. PBU basically deals not only

with the prize bonds but this section also deals with other government schemes.

2.3.1 Government schemes:

There are three government by which government collect debt from the public.

Prize bonds

DSC ( Defense savings certificates)

SCC ( special savings certificates)

Prize bonds:

Prize bonds basically a short term debt instrument. The new prize bond is initially issued for the period

of three months. As the currency prize bods are also printed in the PSPC Karachi.

Small denominations: There are four categories in small denominations

100, 200, 750, 1500. Draw of these bonds held on 15th of the month.

Large denominations: There are also four denominations in large denominations

7500, 15000, 25000, 40000. Draw of these bonds will be held on 1st of the month.

Some features of the prize bonds:

Draw of each bond will be held on after 3 months.

One series contain 000001 to 999999 numbers.

Each bond will have six digit code.

Open period is of one month. Fresh and reissue Prize bonds will be issue in this period.

After one month of open period there will be two months shut period in which no sale occurs but

only sale of fresh serial can be held on that period.

Prize bonds purchased during shut period would not be included in the draw.

Each prize bond must be issued before two months of draw.

After open period one statement called PB-35 is created to show the bonds which have not issued

yet and bonds which have returned by the public.

Before one day of draw PDO takes custody of that PB-35

Each prize bond can be used five times after the announcement of prize.

Prizes bonds will be retained by the SBP is the prize amount is greater than 10000.

Total 1700 draws are being drawn for the purpose of nomination of prizes.

1st draw-1 PRIZE

2nd draw-3 PRIZES

3rd draw 1696 PRIZES


Lapsing to the Government Account:

If fresh bundles of bonds are partially sold and partially unsold, then a list is prepared for the unsold

bundles of the bonds. When lucky draw is held, if there are some of the bonds or list of the bonds which

get their number in the draw then the prize money of these bonds will be credited to the Government

account. This process of crediting Government account by the amount of prize is called Lapsing to the

Government Account.

PDO (PUBLIC DEBT OFFICE)

There are basically Two PBO on is situated in Karachi and other in Lahore. As the proper record of the

series of the prize bonds that are being allotted to the field offices are held by PDO and are issued by the

field office for that purpose the bond details are send to the PDO for the verification purpose.

Procedure for the payment of Prize Bond: If the prize amount is up to RS 18500 it can be cashed on

the counter on the other hand if the prize amount is more than that the prize bond holder have to fill up a

claim process. The claim process consists of following steps.

Claim form filled by the prize bond holder. (PB 23-A).It includes following documents.

Draw number must be mentioned

Denomination of the bond

Series and number of the bond

Date of issue

Place of issue

Original bond is being attached with that form.

A copy of the bond also must attached with the claim form.

National identity card copy.

Both the original and the photo copy of the bond must be signed twice by the bond holder.

After filling the form PB 23-A the box office makes the entry in the system that comprises of all the

details stated above the prize bond holder. While entering the bond no in system the box office confirm

all the security precautions of the bond to make sure that it I original and not be forged out.

After confirmation from the PDO the bond is again verified.

If the claim is between 93000 -185000 the claim period is 10 days.

If the claim is between 185000-1MILLION the claim period is 15 days.

If the claim is between 1MILLION-ABOVE the claim period is 20 days. If the claim of the

prize bond is more than 1 million the bond will be send to PSPC for the confirmation of that

bond.


SPOILED PRIZE BONDS & BONDS THAT ARE IN VAULTS AND IN COMMERCIAL BANKS

There is a proper procedure to accept the spoiled bonds, the spoiled bond are firstly verified by the box

officer, He may use the ultraviolent technology and concave glasses to verify the originality of the bond.

After that the bond it is enters in a register and that in the system and then kept in VAULT and after that

they all are shredded.

Before the day of the draw PB 35 ids filled that contains the information regarding the prize bond number

that are available in Vault and the other PB-35 in favor of commercial banks the t list of the bond is under

possession of the commercial banks, All of these the bonds are entered in the system OF SBP that is

named as GLOBAS.

In case if the draw if the prize is announced whose possession in the field office or the commercial bank

the prizes will be credited in to the government accounts.

SPECIAL SAVING CERTIFICATES (SSC)

These certificates are issued by the government for the period of maturity of 3 years. The profit on the

certificates can be collected after every six months at the time of issuance of the certificate a checkbook

is given to the customer. The rate of interest is fixed on these certificates and are supervised by CDNS

(CENTRAL DIRECTORATE OF NATIONAL SAVING.

DEFENSE SAVING CERTIFICATES (DSC)

These certificates are long term investment scheme issued for the period of 10 years. ).To get the profit

these must be hold for the ten years .if the person comes after one year and claim its profit the profit will

be given an the DSC will be taken and the payment actual is made.

Learning outcome:

By visiting this unit I came to know that;

Features of prize bonds their denominations and their purchasing and selling period that is

called open and shut period.

Detail working of sale and purchase of bonds and encashment of bonds.

Claim process of defective bonds.

Process of luck draw for prize bonds.

Detail procedure of payment of prizes.

I came to know about the other government schemes which this unit is also dealing with.


2.4 Refinance Scheme unit RSU

As the central Bank of the country SBP has the prime responsibility to develop infra-structure for exports

and boost up exports in the country because by increasing exports in the country it will increase the

foreign reserves in the country which leads to help in the stability of economy. Commercial bank acts as

an intermediary between the SBP and exporter for refinance for exports.

The purpose of this unit to boost exports and diversify exports in Pakistan. Attract and promote small

producers to exports their goods by providing finance to them.

Scope of the RSU is to promote exports of eligible commodities like finished goods. SBP does not

promote the export of negative list of commodities like raw material etc. because if you will export your

raw material to other country this mean you are strengthening their economy not yours.

2.4.1 Types of refinancing schemes

There are two types of refinancing schemes

1. Short term refinancing scheme

2. Long term refinancing scheme

We will discuss each of the scheme in detail below:

1. Short term refinancing scheme

This scheme is for the short term period like less than one year. Usually loan is given to the exporter for

the period of 180 days. There is further two types of short term refinancing scheme.

Part-1 of export refinancing scheme

Features of this Part-1 of Export refinance scheme as under

This scheme is limit free. Give finance to new exporter irrespective of any limit

It attracts the new customer for export their goods.

Duration of the repayment of loan is 180 days.

Basically this scheme is transaction based.

As this is short term financing that’s why it is linked with the 6-months T-bills.

Rate of financing

SBP charge 8.4 % rate to the commercial banks plus the SBP 1% commission and total rate charge to

exporter is 9.4 % which is very low.

Repayments:

Repayments of markup is made after end of every quarter.

Principal amount would be recover after 180 days from the commercial banks.

In addition early and partial payments are also allowed by SBP for the exporter.


In case of partial payments Commercial bank will report to the SBP with in 48 hour and submit

the payment to SBP.

Grant time: Grant time is started after commercial banks submit application to SBP for the refinancing.

Usually SBP have 48 hours to scrutinize the documents and then they can accept or reject the application.

Transaction cycle:

Pre shipment loan: It is the financing to the exporter before the shipment occurs.

Following documents are required to for pre shipment repayments

L.C or purchase order

Agreement

D.P note

• producer who want to export their goodsExporter

• exporter submit application to commercial bank with legal documents, details of input, packing certificate etc.

Application to Commercial Banks

• After verification of documents commercial bank give finance to exporter Finance to Exporter

• commercial bank approach SBP for Refinance SUbmit an application with in one day

Commercial bank approach SBP for refinance

• SBP scruitinize the application and documents attach with it like bonafide certificate, EE,EF form,availment certificate form DE-3

Application Scruitny

• SBP has 2 days to secrutinize the application if application fulfills all criteria it will Accept the Application otherwise rejected

Grant time Accept/Reject

• if Application accepted than loan is granted.Loan Granted


Post shipment loan: This is the financing after shipment had occurred. Following documents are

required to for it:

L.C or purchase order

Agreement

D.P note

Shipment document

Part-1I of export refinancing scheme

Under Part II of scheme, a revolving finance is sanction to the exporter equivalent to 50% of his export

performance during the previous year on July- June basis. Exporter can avail this financing facility for a

period of 180 days. Facility once availed needs to be repaid in totality. Exporter having availed part II

facilitates have to export/ship eligible goods and realize export proceeds and submit the evidence of

performance on the prescribed statement with in two months from close of each financial year.

Bank limit: Firstly commercial banks send request to its head office, then it sends request to head office

SBP main office (Karachi) which determines the limit on the following basis:

Bank size

Previous year loan utilization

Credit worthiness

Exporter limit:

As this is for existing exporters that is why the exporter has to perform double to get finance under this

scheme. This limit is set by SBP BSC Banks. It contains 2 statements; Exports Entitlement Statement

(EES) and Exports finance Statement (EFS). Exports Entitlement Statement (EES) is sent to FEOD up

to 31st august of every year to check its previous year performance. As a result 50 % of exports is provided

to the exporters as loan, and if exporter does not perform then penalty is imposed on the previous

performance. If an exporter apply for loan in inter wearing period (1st July to 31st August), then this limit

can be extended to 31st August but all the accounts are closed on 31st August.

Four Copies of E-Form (Export Form):

These copies are kept by

Exporter

SBP

Customs

Commercial Bank


2. Long Term Financing Facility:

LTFF provides necessary finance to exporters for adoption of new technology and updating of their plant

and machinery in line with international competitive environment. This facility is available to export

oriented projects with at least 50 percent of their sales constituting exports or annual exports equivalent

to US$ 5 million, whichever is lower. Following are the schemes which are currently in function:

EFS Part 1 & Part 2

Long Term Financing Facilities (LTFF)

Islamic Export Refinance Scheme (IERS)

Schemes for Modernization of Cotton Ginning Factories & Rice Husking Mills

Agri-loans Refinancing & Guarantee Scheme for KPK and FATA

Financing Scheme for Power Plants using Renewable Energy

Financing Facility for Storage of Agricultural Produce

Export oriented businesses which are facilitated with these schemes includes;

Textile

Leather

Surgical instruments

Sports goods

Rice processing

Carpets

Learning Outcome:

It was great experience to work in this unit because it was an innovative effort by the SBP to boost exports

in the country and to increase foreign reserve in the country. After visiting this unit I came to know:

Detail procedure of refinancing to the exporter.

Detail of rate of financing to the exporter

I came to know how SBP is facilitating the small exporters and encouraging them to export their

goods.

I also came to know the types of refinancing schemes and full procedure of transaction based

refinancing schemes and their documents attach with them.

Details of eligible goods that an exporter can export by availing refinance scheme.


2.5 Foreign Exchange Operation Unit

This is the separate department in SBP but in field offices it is called FEOU (foreign exchange operation

unit) instead of FEOD (foreign exchange operation department. This department deals with the cases of

foreign exchange, sale purchase of foreign currency and import export of foreign currency. This unit is

facilitating importer and exporter of their region and also doing strict monitoring of all transactions.

Structure of the FEOU

2.5.1 Returns

It is also called foreign exchange monthly returns. SBP authorizes the Banks for the dealing of foreign

exchange/ currency. For this purpose only those commercial banks can be nominated as (A.D) authorize

dealer which have license from the SBP to do this operation. Currently 318 commercial banks are

working as A.D in the Multan region from Sahiwal to Rajanpur. Companies other than commercial banks

can also perform the operation of foreign exchange by getting license from the SBP. Currently 8 money

changers are working in the Multan region.

In the return section all A.D will have to submit the bank statement of all imports/exports or sale or

purchase of currency on 3rd of each month. In this department documents of E-form and I-form are

separated and sent to export or import section.

Watch register:

All monthly sale purchase of foreign currency of each branch of bank and code of that bank is recorded

and date of receiving of that statement.


Foreign currency balance register:

Currently SBP is maintaining record of six currencies e.g. U.S dollar, U.K Pound, Euro, Saudi Riyal,

Japanese Yen, Dirham. All monthly sale and purchase of that currencies is recoded in this register in

chronological order with Bank name and branch code.

Irregulatory register:

If any bank does not send the statement prior to the respective date than their record is maintained in

irregulatory register and a letter sent to the respective branch and copy of that letter sent to the regional

head branch.

2.5.2 Exports/E-form

Document E-form is checked in this section. E-form consist of 7 digits and have green color. Schedule

attached against E- form is A-1/O-1. Statement S-1 is used for this purpose. Following particulars is

checked in this form:

I.D card number, NTN number, date of issue, place of issue, origin of goods, name and address of A.D,

name of beneficiary, description of goods, quantity, invoice, port of shipment and date of shipment. This

form is also duly signed with stamp of the bank. Following documents are checked with this form.

Invoice ( terms and conditions, buyer name, description of goods, code of each commodity)

Bill of landing ( shipping company issue a bill of landing)

Packing list

Goods declaration certificate from customer

Payment from Importer

Authorized Dealer

SBP(Currency Conversion)

Authorized Dealer

Exporter


2.5.3 Imports/ I-form:

This form is used for imports. This form consist of 6 digits code and white color. Schedule used against

this form is E-2/P-2. Statement S-1 is used for this purpose. Following particulars is checked in this

form:

I.D card number, NTN number, date of issue, place of issue, origin of goods, name and address of A.D,

name of beneficiary, description of goods, quantity, invoice, port of shipment and date of shipment. Other

particulars which are present in E-form like goods declaration certificate etc. are also checked against

this form.

2.5.4 M-form/ Miscellaneous form

This form is contained the 6 digits code and red color. Schedule attached with this form is E-4/P-4. This

form is used there is need to bring currency outside the country. E.g. for medical check up to foreign

hospital, to pay university fee in abroad etc.

2.5.5 Overdue section

Overdue cases are those cases which have exceeded the time limit and they are not due after

ending of a certain date.

There are two notices issued to AD in overdue case.

1st show cause notice is issued to AD after 21 days of due date. If shipment is realized in this

period then show cause will be removed and case file will be closed.

In case of no realization of shipment after 21 days, other show cause notice is issued to AD. Copy

of show cause notices is sent to AD and he is called for explanation about registration/realization

of shipment by SBP.

After 21 days, if case is not realized then, it will be further referred to the Adjudicating Court of

SBP.

Whole proceedings are recorded and reported in the system and ERP is used for maintaining the

record of it.

Two complaints are made for overdue cases. One is against AD and other is against exporter.

2.5.6 DLTL/R & D section

Drawback of local taxes and levies is type of benefit given to the exporter for encouraging him. When

payments of shipment are received then taxes are deducted from that payment. DLTL is a government

scheme to promote exports by encouraging exporters and giving back some percentage of the tax

deductions to the exporter. This percentage varies from category to category and it can be 1%, 2% or 3%.

This is given on textile basis, on the basis of garment etc.


2.5.7 Statements used in FEOU

Statement S-6

When sale and purchase of currency take place in cash. After covering letter statement s-6 is attached

and enclosure attached with that statement is called schedule. For every currency separate statement is

attached. This statement is duly signed with the operation and branch manager of the bank with bank

stamp on the statement. In this statement trade Nestro is also given mean the in hand balance of all

currencies at the end.

Statement S-4

This statement is sued when imports and exports are dealing in Pak rupee.

Statement S-1

When purchase and sale of currency or import and export of currency is place in shape of cheque or bank

draft etc.

Learning outcome:

By visiting this unit I came to know

How state bank is doing strict regulatory duty on authorized dealers on foreign exchange

operations.

I have learned about the import and exports form.

I have learned about different statements that are attach to the application of import or exports

like S-6 S-1 etc.

I have learned about the complete mechanism of foreign exchange


2.6 Currency Management Unit (CMU)

The unit basically deals with management of the currency, and insure the required amount of currency is

floated in the market.

Remittances IN and remittances OUT are being properly handled.

Matters related to fresh notes are handled

Need assessment and preparation of daily currency chest slip of cash balances.

VAULT checking on the daily basis.

Number of spoiled notes, the sanction from commercial banks.

2.6.1 Remittances in & Remittance out

The unit basically overseas all the operations that are related to supply, distribution and withdrawal,

verification and cancellation of currency. The main function of CMU is to insure that the optimum

amount of flow of currency should be exist their must not be any shortage.

Remittances IN means all the currency that is being deposited the cash counter is being assessed, the

currency received from commercial banks and the chest branches. In the same way the remittances out

means that the amount of currency that is being withdrawn by the commercial banks or chest branches is

also being analyzed.

2.6.2 Matters related to fresh notes.

Firstly, acceptance of the currency from the issuance offices and then distrusted to the various banks

under the declared quota. A pre formulated pattern is being observed by the department for the allocation

of fresh currency. The patter consists of following steps. CMU department receives the fresh note stock

from the issuance office.

Respected banks are informed to process their request order for issuance of new currency, the unit deals

with the head office. In the request letter the number of branch s and the cash requirement of each branch

is being defined. The office allocates the quota to those branches that are registered one. Furthermore the

process can be defined in a table below e.g. Say that NBP has demand 1600 bundles of the currency of

denomination RS 10 ,20 ,50 ,100 each.

DENOMINATION RS 10 RS 20 RS 50 Rs 100

TOTAL

STOCK(BUNDLES

15000 25460` 33480 13565

DEMAND IN

BUNDLES

1600 1600 1600 1600

Recommended

bundles after

assessment

1250 1250 1250 1250


The recommended quota is being allotted in two ways

The head office assign the certain quota himself.

Sometime the unit also may define the designated branches of commercial banks for distribution

in which the a representative of the SBP(BSC) are being nominated

The authority is given to the field office the assign quota. The field office allocate the quota under

following characteristics’.

Number of branches.

The burden of the public in the branch.

Status of the bank.

After the quota has been allotted than an indent is being given by the respective banks to the SBP (BSC)

account and \currency is given. For the purpose of stopping the black market of the currency notes the

issuances bundles series are mentioned in the system with respect to certain bank. If any of that serial; is

found in the black market, the bank may penalize for that action.

2.6.3 Daily Currency Chest Slip:

Another function that is related to CMU department is to prepare daily currency chest slip, In this chest

slip the three basic channels are put under consideration, the notes that are cancelled because they were

spoiled and completely shredded .the position of Currency is being received from the chest branches is

also been determined and the amount of currency that is available in the VAULT is also been counted

and the end of the each day, On the basis of complete assessment the chest slip is prepared and this chest

slip is being send to the issuances office, the issuance offices send their reports to the head office and the

policy are formulated for printing of currency notes.

PSPC stand for Pakistan security printing council .it is basically a private entity which prints the currency

notes on the request order by the head office. PSPC has only the authority to print the currency notes of

various denominations but the issuance is made by the 4 issuance offices.

2.6.4 Quota for employees:

The quota for fresh notes for the employees in the SBP (BSC) is being allotted by the head office and

special counter is being defined to get that currency with showing the pay slip.

Learning outcome

CMU is responsible for circulation of money in all over the country.

I have learned mechanism of issuance of notes FROM PSPC.

I have learned about the mechanism treatment of forged notes.

Distribution of currency to all the banks and then to general public, all are under the umbrella of

CMU.

This unit ensures that how much currency is in circulation and how much currency is available to

all over the Pakistan.


3. SWOT analysis

Strengths

Principal Association:

State Bank is one of the premier institutions of Pakistan and it is responsible for the regulation of

monetary policy and banking system since its formation.

Functionary to Government:

The State Bank of Pakistan performs multiple services to government by providing loans as well as

managing accounts of government and other commercial banks.

Proper Monitoring:

The SBP ensures proper monitoring of employees and therefore there are very less chances of any

unethical activity observe in State bank and its subsidiaries. The rules are advised to follow strictly

otherwise, the penalties are imposed.

Employee Oriented:

The SBP and its subsidiaries are very well managed and unlike other governmental organizations, it

employees are monitored and given good monetary incentives.

Weaknesses:

Technological backwardness

Unlike most of the Central Banks of other countries SBP-BSC is not updated in technology. They are

using old Pentium processor computers and CRT monitors. The GLOBUS software used is not updated.

Computers and GLOBUS software was introduced in 2003 and they are in the same form, not updated.

This causes system freezes and hang ups and hence time wastage.

Latest procedures and best practices are not adopted

Just like computing technology, the procedures are not updated and best practices of the similar

organizations are not adopted, which is causing stagnation. SBP-BSC has to work with other institutes

and conduct regular research to develop and modify their procedures.

Staff is not well trained in IT

SBP-BSC employees in general and imputers should be trained at least for improving their typing speed.

It will speed up the payment process and entry system.


Poor interior

The furniture is needs to be replaced. And SBP BSC Multan needs to be re interior. The voice of stamping

disturbed the other officer sitting near to them. So, there should be proper separate cabins for each officer.

Personal Learning Experience

There is no personal learning experience. People working here is like machine they have to do same work

for all of their working life.

Opportunities

Investment in IT and latest technology.

The world today has turned into a worldwide town in light of headway in the advances, particularly in

correspondence division. More accentuation is now given to benefit the advanced innovations to better

the exhibitions. SBP can utilize the electronic keeping money chance to guarantee on line managing an

account 24 hours a day. This would give a focused edge over others.

Financing

This is a time that SBP take steps to launch more financing schemes that will enable common people to

help progress the economy. Like schemes that enable common people to take stand up for achievements.

Threats

Political instability and pressure can harm the operations of SBP

Frequently changing governments and their policies harm the functionality and consistency of SBP-BSC

policies.

Excessive government borrowings

Excessive borrowings of the present government is making difficult for SBP to maintain foreign

exchange reserves.

Circulation of fake currency

A huge amount of fake currency is floating in the market which is causing inflation in the economy and

is devaluing rupee. Fake money makers have improved the quality of their fake notes and it is hard for

general public to distinguish them from original currency notes.


4. Financial Analysis:

Vertical Analysis Horizontal Analysis

2013 2012 2011 2013 2012 2011

ASSETS % Age %Age

Gold reserves held by the Bank 6.077 8.013 7.168 (8.16) 16.83 100.00

Local currency - coins 0.023 0.046 0.060 (58.43) (18.47) 100.00

Foreign currency reserves 15.859 26.501 34.497 (50.21) (19.71) 100.00

Earmarked foreign currency balances 0.095 0.128 2.019 (94.90) (93.38) 100.00

Special Drawing Rights of the International

Monetary Fund

2.105 2.338 2.733 (16.58) (10.62) 100.00

24.159 37.025 46.476 (43.70) (16.74) 100.00

Reserve tranche with the IMF under quote

arrangements

0.00044 0.0004 0.00044 8.32 4.34 100.00

Securities purchased under agreement to

resale

4.909 2.889 1.703 212.26 77.35 100.00

Current accounts of Governments 0.147 0.326 0.016 912.10 2074.14 100.00

Investments 61.509 49.976 40.330 65.19 29.51 100.00

Loans, advances, bills of exchange and

commercial papers

8.294 8.703 10.303 (12.81) (11.72) 100.00

Assets held with the Reserve Bank of India 0.129 0.162 0.151 (7.37) 11.65 100.00

Balances due from the Governments of India

and Bangladesh (former East Pakistan)

0.181 0.174 0.169 15.93 7.68 100.00

Property and equipment 0.552 0.600 0.661 (9.63) (5.14) 100.00

Intangible assets 0.000 0.001 0.001 (24.44) 43.67 100.00

Other assets 0.120 0.144 0.190 (31.32) (20.78) 100.00

Total assets 100 100 100 8.31 4.51 100.00


LIABILITIES

Horizontal analysis Vertical Analysis

2013 2012 2011 2013 2012 2011

% Age % Age

Bank notes in circulation 50.411 45.478 42.792 27.60 11.07 100.00

Bills payable 0.015 0.015 0.021 (22.59) (24.69) 100.00

Current accounts of Governments 3.294 3.809 5.830 (38.80) (31.73) 100.00

Securities sold under agreement to

repurchase

0.313 - - - -

Payable under bilateral currency swap

agreement

2.015 - - - - -

Deposits of banks and financial institutions 11.746 10.139 9.346 36.12 13.38 100.00

Other deposits and accounts 3.857 3.929 5.060 (17.43) (18.83) 100.00

Payable to the International Monetary Fund 10.649 16.794 19.600 (41.15) (10.45) 100.00

Other liabilities 2.793 2.670 0.981 208.44 184.45 100.00

Deferred liability - unfunded staff retirement

benefits

0.592 0.549 0.519 23.61 10.64 100.00

Capital grant rural finance resource center - 0.000 0.002 0.00 0.00 100.00

Endowment fund 0.002 0.002 0.000 0.00 0.00 100.00

Total liabilities 85.375 83.698 841.51 (89.01) (89.60) 100.00

Share capital 0.002 0.003 0.003 0.00 0.00 100.00

Reserves 4.345 4.503 4.736 (0.62) (0.62) 100.00

Unrealized appreciation on gold reserves 5.990 7.923 7.194 (9.81) 15.10 100.00

Unrealized appreciation on measurement of

investments

3.646 3.208 3.222 22.56 4.07 100.00

Surplus on revaluation of property and

equipment

0.642 0.665 0.695 0.00 0.00 100.00

Total liabilities and equity 100 100 100 8.31 4.51 100


Income Statement

Vertical analysis Horizontal analysis

2013 2012 2011 2013 2012 2011

%Age %Age

Discount, interest / mark-up and /

or return earned

100.00 100.00 100.00 16.23 9.52 100.00

Less: Interest / mark-up expense (3.03) (4.80) (6.21) (43.31) (15.35) 100.00

96.97 95.20 93.79 20.17 11.16 100.00

Commission income 0.70 0.83 0.91 (10.20) (0.28) 100.00

Exchange gain - net 2.67 18.13 0.89 247.81 2122.12 100.00

Dividend income 6.57 6.64 5.53 38.22 31.65 100.00

Other operating (loss) / income - net (0.41) 3.82 (5.38) (91.20) 22.11 100.00

Other income / (charges) - net 0.02 (0.05) (0.17) (116.37) (66.38) 100.00

106.54 124.57 95.57 29.56 42.75 100.00

Less

Direct operating expenses

Bank notes printing charges 2.25 2.41 2.12 23.14 24.35 100.00

Agency commission 2.53 2.52 1.95 50.68 41.40 100.00

General administrative and other

expenses

8.90 8.53 7.26 42.38 28.67 100.00

Provision for / (reversal of

provision against):

loans and advances (0.42) 0.00 (0.24) 107.38 0.00 100.00

claims (0.22) 0.80 0.51 (149.79) 70.40 100.00

diminution in value of investments-

net

0.27 (0.03) 0.04 705.46 (170.35) 100.00

other doubtful assets 0.00 (0.04) 0.04 (87.25) (226.72) 100.00

Profit for the year 93.23 110.38 83.89 29.18 44.11 100.00


5. Economic Analysis:

5.1 Growth and investment

After a period of slack growth during last few years, Pakistan’s economy witnessed higher and broad

based economic growth in outgoing fiscal year 2013-14 accompanied by significant recovery in industrial

sector and moderate growth in services and agriculture sectors.

The success in economic growth includes:

inflation contained at single digit, improvement in tax collection, reduction in fiscal deficit, better growth

in exports and imports, achievement of GSP plus status, remarkable improvement in workers’

remittances, successful launching of Euro Bond, auction of long pending 3G and 4G licenses; significant

improvement in country’s foreign exchange reserves, Rupee strengthened, rise in foreign direct

investment.

The GDP growth accelerated to 4.14 percent in 2013-14 against the growth of 3.70 percent recorded in

the same period last year. The three major sectors namely agriculture, industry and services have provided

support to improve economic growth. The agriculture sector grew at an estimated rate of 2.12 percent

against the growth of 2.88 percent in the last year. The industrial sector expanded by 5.84 percent against

the growth of 1.37 percent in last year, while large scale manufacturing posted growth of 5.31 percent

against the growth of 4.08 percent in last year. The services sector grew at 4.29 percent as compared to

3.45 percent in last year. Fig 1 shows the overview of GDP of previous years.


5.2 Relationship between inflation and GDP

The link between growth and inflation is well documented phenomena in the economic statistics

Around the world. Inflation at very high level as well as at very low level is harmful for the economy.

High inflation effect more the poor than rich, while low inflation can have negative impact on growth.

Inflation rate as measured by Consumer Price Index (CPI) represent the trend of prices of goods and

services in the economy. Average inflation rate from 1957 to 2013 is 8.0 percent with the highest 38

percent in December 1973 and lowest -10.3 in February 1959. Since 2005-06, it was observed that

whenever the inflation was contained within 8 percent, there was high growth, while whenever the

inflation posted value of double digit the growth remained low as shown in figure below:

5.3 Monetary policy

Central banks generally use the monetary policy as an important tool to achieve certain objectives that

are crucial for economic growth and stability. The effectiveness of monetary policy is contingent upon

improvements in the fiscal and the balance of payment position. SBP has adopted relatively an

expansionary monetary policy for the last few years and money supply (M2) is increasing each year.

Money Supply M2 in Pakistan increased to 9778624 PKR Million in June of 2014 from 9369885 PKR

Million in May of 2014. Money Supply M2 in Pakistan averaged 6614506.93 PKR Million from 2008

until 2014, reaching an all-time high of 9778624 PKR Million in June of 2014 and a record low of

4431502 PKR Million in July of 2008. Money Supply M2 in Pakistan is reported by the State Bank of

Pakistan.


5.4 Policy rates

The benchmark interest rate in Pakistan was last recorded at 10 percent. Interest Rate in Pakistan averaged

12.55 Percent from 1992 until 2014, reaching an all-time high of 20 Percent in October of 1996 and a

record low of 7.50 Percent in November of 2002.

Date Apr / 13 Jul / 13 Oct / 13 Jan / 14 Apr / 14 Jul / 14

Policy rate 9.5 9 9.5 10 10 10


6. Project Report

“Study and critical review on Pricing mechanism of Commercial and Microfinance

Banks”

6.1 Brief Overview of Project:

The topic which is assigned to us is related to the Study on the pricing mechanism of commercial and

microfinance banks and comparative analysis of their product’s prices. This project covers brief overview

about Pakistan banking sector, conventional banks, Islamic banks, microfinance banks and product’s

prices.

Commercial banks in Pakistan like banks operating in the developed countries are putting more emphasis

on providing more facilities and services to their customers. A well-established banking system provides

funds to all economic sectors including small businessman, industrialists, contractors, formers,

cultivators, importers, exporters and traders. Commercial banks are providing sufficient amount of capital

to the various sector of the economy.

Different microfinance banks are also established to help those customers who are not eligible to avail

the services of commercial banks. Basic objective of microfinance banks is to provide the financing for

small businesses sectors and entrepreneurs. The introduction of Islamic banking sector in Pakistan is the

remarkable step taken to sort out the problems related to the interest and its prohibition in Islam.

In this project our prime focus is on Commercial banks and Micro finance banks. Further we can divide

commercial banks into two categories Conventional banks and Islamic banks.

The conventional banks which have been chosen for the product’s pricing comparison and their analysis

are:

Habib bank limited (HBL)

United bank limited (UBL)

Allied bank limited (ABL)

Bank Alfalah limited (BAL)

Faysal bank limited (FBL)

MCB limited (MCB)

The Islamic banks which have been chosen for the product’s pricing comparison and their analysis are:

Al Baraka bank limited

Meezan bank limited

Bank Islami limited

Burj bank limited


The Micro finance banks which have been chosen for the product’s pricing comparison and their

analysis are:

FINCA microfinance bank

Waseela microfinance bank

Khushhali microfinance bank

Tameer microfinance bank

First microfinance bank

6.2 Overview of Pricing Mechanism:

Simplistically speaking a loan is when you give someone money for certain period and charge them a

certain amount (usually expressed as certain percentage and is called markup or interest) for the use of

that money the borrower is expected to pay back the principal as well as mark up. Pricing of the loan is

the markup rate. This markup rate charge has two component.

Base component can be derived from the internal cost of funds and market based cost of funds. Internal

cost mean the minimum rate of return that banks give to their depositors on their deposits and market

based cost of funds mean that banks bear while lending from the market like KIBOR etc.

Variable component means the banks spread which they set according to their preferences to get higher

or low profit. Usually spreads are higher because the lending is risk full operation of the banks because

they have to the administrative cost while lending to anyone.

There are certain factors that can also be included in the pricing formula of banks like bank specific

factors (administrative cost, bank policy, bank balance sheet etc.), industry specific factors (regulatory

supervision, bank reserve requirements etc.) and last is macroeconomic indicators (inflation, GDP etc...)

BSF are only vary bank to bank because they depend on the policy of the bank than bank decide how

many portion of BSF would be included in the pricing formula but other two factors like ISF and ME are

same for every bank so they effect equally to each bank’s pricing formula.

Limitation of our study was that banks are unable to provide the data about the pricing mechanism

because banks in Multan don’t know about the exact pricing portion of these factors and each bank head

offices make pricing policies. So, Personnel working in banks of Multan don’t know about the pricing

mechanism they only know about the spread which they have to charge according to the bank’s policy.

That’s why instead of doing the empirical research on pricing mechanism we did conceptually based

research on pricing mechanism and strategies of pricing of banks. We did comparative analysis of pricing

of each bank’s products.

While visiting to each bank and upon comparing the pricing of each product of our selected banks we

came to know that all banks are using the “Relationship based pricing” they charge prices according to

the relation of the customer with them and customer relationship department of the bank will record all


data of customer and make credit rating of the customer. On the basis of credit rating bank charges high

or low spread to the customer.

At last every bank mostly set fluctuating rates on lending and fix rates on deposits because they have to

earn profit from lending side and fluctuating rates would be beneficial for them because in the present

environment interest rates and inflation increasing and by setting fluctuating rates they can enjoy

maximum benefit.

6.3 Comparison of Conventional Bank’s prices

6.4 Comparison of Microfinance bank’s prices

5 0 0 5 5 5

17 17

0

15.7517.5 17

33

39

0

19

12

3836

39

28

39

36 36

HBL MCB ABL UBL ALFALAH FAYSAL

HOME FINANCE0 AUTO FINAINCE PERSONAL CREDIT CARDS

40

29

36

21.5

3128 29 29

33

2826

2932

23

28

FINCA WASEELA FIRST MICROFINANCE TAMEER KHUSHHALI

PERSONAL LOANS GOLD LOANS AGRI LOANS


7. Conclusion

The internship report on state bank of Pakistan is very fruitful for in number of ways. We came to know

the all the working of state bank of Pakistan as well as pricing mechanism of different banks and the

reasons of high and low rate being provided by each bank.

State bank of Pakistan is regulatory body. State bank is entirely responsible for monetary policy of its

country and it manages the monetary policy to regulate the economy. For stability and ensuring economic

development, monetary policy provides backbone to the country’s economic system. Main function of

the state bank is to control the money supply in the country by doing this state bank control the inflation

as well as deflation in the country. Other functions of the state bank includes the Banker’s bank and

banker to the government. State bank is providing their service to all commercial banks as well as to the

government organizations by giving receipt, transfer and clearing facilities.

Banking Services Corporation (BSC) is a fully owned subsidiary of the State bank of Pakistan and it is

called the operational arm of State bank. BSC is providing assistance to the State bank to perform its

operations on regional level efficiently and effectively. Almost BSC is performing all functions of state

bank on the regional level like currency management, banking department etc.


8. Recommendations

In my opinion there should be latest technology match with the other commercial banks. Using

latest software like Temenos which is more user friendly than GLOBUS.

There should be separate cabins for each officer so that noise did not disturb the employees.

There should be new furniture for the employees as the old one is not in good condition which

feels like they are sitting not in Bank.

There should be informal programs to reduce the communication gap between the higher

authorities and junior officer.

Periodic meetings should conduct to get feedback from employees.

State bank should introduce new product line like they should start to give student loan, widow

loan and house financing to poor people who cannot afford rates of commercial banks.

State bank should increase awareness among the small exporters of the country about the

refinance scheme because if our exports would be higher than our foreign reserves will increase

that will be helpful in increasing the value of our currency.

http://www.temenos.com/


Bibliography

http://www.sbp.org.pk/reports/annual/

http://finance.gov.pk/survey/chapters_14/Highlights_ES_201314.pdf

www.commerce.gov.pk

http://www.pakistantoday.com.pk/2014/07/10/business/sbp-to-announce-monetary-policy-on-

19th/

http://www.multanbankersclub.com/?PageId=11

http://www.scribd.com/doc/3083828/COMMERCIAL-BANKS-IN-PAKISTAN

Fund Transfer Pricing in a Commercial Bankpure.au.dk/portal/files/5207/THESIS-VI.pdf

http://wiki.answers.com/Q/What_is_KIBOR_rate_in_Pakistan

http://en.wikipedia.org/wiki/Statutory_liquidity_ratio

Lending: products

o IBP stage 2

http://www.sbp.org.pk/reports/annual/

http://finance.gov.pk/survey/chapters_14/Highlights_ES_201314.pdf

http://www.commerce.gov.pk/

http://www.pakistantoday.com.pk/2014/07/10/business/sbp-to-announce-monetary-policy-on-19th/

http://www.pakistantoday.com.pk/2014/07/10/business/sbp-to-announce-monetary-policy-on-19th/

http://www.multanbankersclub.com/?PageId=11

http://www.scribd.com/doc/3083828/COMMERCIAL-BANKS-IN-PAKISTAN

http://wiki.answers.com/Q/What_is_KIBOR_rate_in_Pakistan

http://en.wikipedia.org/wiki/Statutory_liquidity_ratio


Appendix

STATE BANK OF PAKISTAN CONSOLIDATED BALANCE SHEET

AS AT JUNE 30, 2013 Note 2013 2012 2011

(Restated) (Restated)

--------------------(Rupees in '000)--------------------

ASSETS

Gold reserves held by the Bank 5 246,096,839 313,077,419 267,969,374

Local currency - coins 6 924,997 1,814,196 2,225,301

Foreign currency reserves 7 642,181,554 1,035,459,135 1,289,700,794

Earmarked foreign currency balances 8 3,849,637 4,994,808 75,464,270

Special Drawing Rights of the International Monetary Fund 9 85,246,487 91,334,177 102,188,403

978,299,514 1,446,679,735 1,737,548,142

Reserve tranche with the International Monetary Fund under

quota arrangements 10 17,755 17,104 16,392

Securities purchased under agreement to resale 11 198,787,435 112,898,648 63,660,336

Current accounts of Governments 20.2 5,932,762 12,744,407 586,181

Investments 12 2,490,745,139 1,952,690,329 1,507,790,777

Loans, advances, bills of exchange and commercial papers 13 335,857,529 340,046,025 385,191,976

Assets held with the Reserve Bank of India 14 5,236,648 6,311,529 5,652,991

Balances due from the Governments of India and Bangladesh

(former East Pakistan) 15 7,318,538 6,797,433 6,312,679

Property and equipment 16 22,341,050 23,450,893 24,722,358

Intangible assets 17 16,241 30,882 21,495

Other assets 18 4,865,957 5,612,820 7,085,133

Total assets 4,049,418,568 3,907,279,805 3,738,588,460

LIABILITIES

Bank notes in circulation 19 2,041,361,303 1,776,962,388 1,599,833,487

Bills payable 603,922 587,542 780,155

Current accounts of Governments 20.1 133,392,486 148,815,907 217,968,067

Securities sold under agreement to repurchase 21 - 12,240,388 -

Payable under bilateral currency swap agreement 22.1 81,614,727 - -

Deposits of banks and financial institutions 23 475,647,801 396,172,467 349,426,939

Other deposits and accounts 24 156,193,349 153,534,625 189,162,447

Payable to the International Monetary Fund 25 431,229,449 656,185,305 732,764,340

Other liabilities 26 113,107,984 104,307,724 36,670,597

3,433,151,021 3,248,806,346 3,126,606,032

Deferred liability - unfunded staff retirement benefits 27 23,972,702 21,457,079 19,393,880

Capital grant rural finance resource centre - - 59,430

Endowment fund 74,490 67,281 -

Total liabilities 3,457,198,213 3,270,330,706 3,146,059,342

Net assets 592,220,355 636,949,099 592,529,118

REPRESENTED BY

Share capital 28 100,000 100,000 100,000

Reserves 29 175,944,238 175,944,238 177,044,238

176,044,238 176,044,238 177,144,238

Unrealised appreciation on gold reserves 30 242,568,983 309,565,438 268,947,619

Unrealised appreciation on remeasurement of investments 147,628,730 125,361,019 120,458,857

Surplus on revaluation of property and equipment 25,978,404 25,978,404 25,978,404

Total equity 592,220,355 636,949,099 592,529,118

The annexed notes from 1 to 49 form an integral part of these consolidated financial statement


STATE BANK OF PAKISTAN CONSOLIDATED PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED JUNE 30, 2013 Note 2013 2012

Discount, interest / mark-

up and / or return earned

32 250,755,679 236,276,844

Less: Interest / mark-up

expense

33 (7,592,737) (11,338,230)

243,162,942 224,938,614

Commission income 34 1,758,625 1,952,783

Exchange gain - net 35 6,703,415 42,827,638

Dividend income 16,480,789 15,697,821

Other operating (loss) /

income - net

36 (1,020,311) 9,033,651

Other income / (charges)

- net

37 60,250 (123,761)

267,145,710 294,326,746

Less: Direct operating expenses

- Bank notes printing

charges

38 5,634,372 5,689,829

- Agency

commission

39 6,344,354 5,953,743

- General

administrative and

other expenses

40 22,307,027 20,159,546

Provision for / (reversal of provision against):

- loans and advances (1,059,387) -

- claims 26.2.2 (550,880) 1,885,143

- diminution in value

of investments-net

12.3 677,892 (59,212)

- other doubtful

assets

26.2.1.1 10,303 (102,415)

(922,072) 1,723,516

33,363,681 33,526,634

PROFIT FOR THE YEAR 233,782,029 260,800,112

The annexed notes from 1 to 49 form an integral part of these consolidated financial statements.

Internship report on State bank BSC Multan

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