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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

ALFALAH INSTITUTE OF BANKING AND FINANCE

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

ALFALAH INSTITUTE OF BANKING AND FINANCE

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 banks 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.

ALFALAH INSTITUTE OF BANKING AND FINANCE

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


SBPs 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
Bankers Bank
Banker to the Government
Conduct of Monetary and Credit Policy
Issue of notes etc.

ALFALAH INSTITUTE OF BANKING AND FINANCE

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 Banks 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.

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2. Units in SBP BSC (MULTAN)


Sr. No.
1
2
3
4
5
6

Units
Deposit Account Unit (DAU)
Public Account Unit (PAU)
Management of Prize Bonds and Govt. Saving Schemes (PBU)
Refinance Scheme Unit (RSU)
Foreign Exchange Operation Department (FEOD)
Currency Management Unit (CMU)

2.1 Deposit account unit (DAU)


2.1.1 Introduction:
SBP is the Bankers 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 Banks 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
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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 Banks 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 beneficiarys 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.

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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 banks role Bankers 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.

ALFALAH INSTITUTE OF BANKING AND FINANCE

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:

Banking
Department

PAU

Payment

Cash

Clearing

DAU

Reciept

Cash

Transfer

Clearing

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

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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 Banks balance in account
etc.
In case of NBP as the nominated Bank work as the SBPs 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.

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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.

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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

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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.
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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
Provincial
District

Green
Pink
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

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2.2.3 Clearing before NIFT:


Before NIFT every banks 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.

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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 centrals 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.

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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

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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.

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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.

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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 thats 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.

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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:

Exporter

producer who want to export their goods

Application to Commercial Banks

exporter submit application to commercial bank with


legal documents, details of input, packing certificate
etc.

Finance to Exporter

After verification of documents commercial bank give


finance to exporter

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

Application Scruitny

Grant time Accept/Reject

Loan Granted

SBP scruitinize the application and documents attach


with it like bonafide certificate, EE,EF form,availment
certificate form DE-3

SBP has 2 days to secrutinize the application if


application fulfills all criteria it will Accept the
Application otherwise rejected
if Application accepted than loan is granted.

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

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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

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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.

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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.

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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

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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.

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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

ALFALAH INSTITUTE OF BANKING AND FINANCE

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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
TOTAL
STOCK(BUNDLES
DEMAND
IN
BUNDLES
Recommended
bundles
after
assessment

RS 10
15000

RS 20
25460`

RS 50
33480

Rs 100
13565

1600

1600

1600

1600

1250

1250

1250

1250

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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.

ALFALAH INSTITUTE OF BANKING AND FINANCE

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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.

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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.

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4. Financial Analysis:

Vertical Analysis
2013

2012

Horizontal Analysis
2011

2013

% Age

ASSETS

2012

2011

%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 2.105


Monetary Fund

2.338

2.733

(16.58)

(10.62)

100.00

37.025

46.476

(43.70)

(16.74)

100.00

Reserve tranche with the IMF under quote 0.00044


arrangements

0.0004

0.00044

8.32

4.34

100.00

Securities purchased under agreement to 4.909


resale

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 8.294


commercial papers

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 0.181


and Bangladesh (former East Pakistan)

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

24.159

ALFALAH INSTITUTE OF BANKING AND FINANCE

32

LIABILITIES
Horizontal analysis

Vertical Analysis

2013

2013

2012

2011

% Age

2012

2011

% 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

0.313

Payable under bilateral currency swap 2.015


agreement

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 0.592


benefits

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 3.646


investments

3.208

3.222

22.56

4.07

100.00

Surplus on revaluation of property and 0.642


equipment

0.665

0.695

0.00

0.00

100.00

Total liabilities and equity

100

100

8.31

4.51

100

Securities sold
repurchase

under

agreement

to

100

ALFALAH INSTITUTE OF BANKING AND FINANCE

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Income Statement

Discount, interest / mark-up and /


or return earned
Less: Interest / mark-up expense
Commission income
Exchange gain - net
Dividend income
Other operating (loss) / income - net
Other income / (charges) - net
Less
Direct operating expenses
Bank notes printing charges
Agency commission
General administrative and other
expenses
Provision for / (reversal of
provision against):
loans and advances
claims
diminution in value of investmentsnet
other doubtful assets
Profit for the year

Vertical analysis Horizontal analysis


2013
2012
2011 2013
2012
2011
%Age
%Age
100.00 100.00
100.00
16.23
9.52 100.00
(3.03) (4.80)
96.97 95.20
0.70
0.83
2.67 18.13
6.57
6.64
(0.41)
3.82
0.02 (0.05)
106.54 124.57

(6.21)
93.79
0.91
0.89
5.53
(5.38)
(0.17)
95.57

(43.31)
20.17
(10.20)
247.81
38.22
(91.20)
(116.37)
29.56

23.14
50.68
42.38

(15.35)
11.16
(0.28)
2122.12
31.65
22.11
(66.38)
42.75

100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00

2.25
2.53
8.90

2.41
2.52
8.53

2.12
1.95
7.26

(0.42)
(0.22)
0.27

0.00
0.80
(0.03)

(0.24)
0.51
0.04

107.38
0.00 100.00
(149.79)
70.40 100.00
705.46 (170.35) 100.00

0.00

(0.04)

0.04

(87.25) (226.72) 100.00

93.23 110.38

83.89

ALFALAH INSTITUTE OF BANKING AND FINANCE

29.18

24.35 100.00
41.40 100.00
28.67 100.00

44.11 100.00

34

5. Economic Analysis:
5.1 Growth and investment
After a period of slack growth during last few years, Pakistans 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 countrys 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.

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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.

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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
Policy rate

Apr / 13
9.5

Jul / 13
9

ALFALAH INSTITUTE OF BANKING AND FINANCE

Oct / 13
9.5

Jan / 14
10

Apr / 14
10

Jul / 14
10

37

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 products prices. This project covers brief overview
about Pakistan banking sector, conventional banks, Islamic banks, microfinance banks and products
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 products pricing comparison and their analysis
are:
Habib bank limited
United bank limited
Allied bank limited
Bank Alfalah limited
Faysal bank limited
MCB limited

(HBL)
(UBL)
(ABL)
(BAL)
(FBL)
(MCB)

The Islamic banks which have been chosen for the products pricing comparison and their analysis are:
Al Baraka bank limited
Meezan bank limited
Bank Islami limited
Burj bank limited

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The Micro finance banks which have been chosen for the products 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 banks pricing formula.
Limitation of our study was that banks are unable to provide the data about the pricing mechanism
because banks in Multan dont know about the exact pricing portion of these factors and each bank head
offices make pricing policies. So, Personnel working in banks of Multan dont know about the pricing
mechanism they only know about the spread which they have to charge according to the banks policy.
Thats 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 banks 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
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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 Banks prices

39 39

39

36

38

36

36

33
28

17

19

17

17.5

15.75

17
12

0
HBL

0
MCB

ABL

HOME FINANCE0

5
UBL

AUTO FINAINCE

5
ALFALAH

PERSONAL

FAYSAL

CREDIT CARDS

6.4 Comparison of Microfinance banks prices

40
36
33

32
28

29

29

29

28

26

WASEELA

FIRST MICROFINANCE

PERSONAL LOANS

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GOLD LOANS

28

23

21.5

FINCA

31

29

TAMEER

KHUSHHALI

AGRI LOANS

40

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 countrys 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 Bankers 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.

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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.

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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-on19th/
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

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Appendix
STATE BANK OF PAKISTAN
CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 2013
Note

ASSETS
Gold reserves held by the Bank
Local currency - coins
Foreign currency reserves
Earmarked foreign currency balances
Special Drawing Rights of the International Monetary Fund
Reserve tranche with the International Monetary Fund under
quota arrangements
Securities purchased under agreement to resale
Current accounts of Governments
Investments
Loans, advances, bills of exchange and commercial papers
Assets held with the Reserve Bank of India
Balances due from the Governments of India and Bangladesh
(former East Pakistan)
Property and equipment
Intangible assets
Other assets
Total assets
LIABILITIES
Bank notes in circulation
Bills payable
Current accounts of Governments
Securities sold under agreement to repurchase
Payable under bilateral currency swap agreement
Deposits of banks and financial institutions
Other deposits and accounts
Payable to the International Monetary Fund
Other liabilities
Deferred liability - unfunded staff retirement benefits
Capital grant rural finance resource centre
Endowment fund
Total liabilities

2012
2011
(Restated)
(Restated)
--------------------(Rupees in '000)-------------------2013

5
6
7
8
9

246,096,839
924,997
642,181,554
3,849,637
85,246,487
978,299,514

313,077,419
1,814,196
1,035,459,135
4,994,808
91,334,177
1,446,679,735

267,969,374
2,225,301
1,289,700,794
75,464,270
102,188,403
1,737,548,142

10
11
20.2
12
13
14

17,755
198,787,435
5,932,762
2,490,745,139
335,857,529
5,236,648

17,104
112,898,648
12,744,407
1,952,690,329
340,046,025
6,311,529

16,392
63,660,336
586,181
1,507,790,777
385,191,976
5,652,991

15
16
17
18

7,318,538
22,341,050
16,241
4,865,957
4,049,418,568

6,797,433
23,450,893
30,882
5,612,820
3,907,279,805

6,312,679
24,722,358
21,495
7,085,133
3,738,588,460

19

2,041,361,303
603,922
133,392,486
81,614,727
475,647,801
156,193,349
431,229,449
113,107,984
3,433,151,021
23,972,702
74,490
3,457,198,213

1,776,962,388
587,542
148,815,907
12,240,388
396,172,467
153,534,625
656,185,305
104,307,724
3,248,806,346
21,457,079
67,281
3,270,330,706

1,599,833,487
780,155
217,968,067
349,426,939
189,162,447
732,764,340
36,670,597
3,126,606,032
19,393,880
59,430
3,146,059,342

592,220,355

636,949,099

592,529,118

100,000
175,944,238
176,044,238
242,568,983
147,628,730
25,978,404
592,220,355

100,000
175,944,238
176,044,238
309,565,438
125,361,019
25,978,404
636,949,099

100,000
177,044,238
177,144,238
268,947,619
120,458,857
25,978,404
592,529,118

20.1
21
22.1
23
24
25
26
27

Net assets
REPRESENTED BY
Share capital
Reserves
Unrealised appreciation on gold reserves
Unrealised appreciation on remeasurement of investments
Surplus on revaluation of property and equipment
Total equity

28
29
30

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

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STATE BANK OF PAKISTAN


CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED JUNE 30, 2013
Note
2012
2013
Discount, interest / mark- 32
236,276,844
250,755,679
up and / or return earned
Less: Interest / mark-up
33
(11,338,230)
(7,592,737)
expense
224,938,614
243,162,942
Commission income
34
1,952,783
1,758,625
Exchange gain - net
35
42,827,638
6,703,415
Dividend income
15,697,821
16,480,789
Other operating (loss) /
36
9,033,651
(1,020,311)
income - net
Other income / (charges) 37
(123,761)
60,250
- net
294,326,746
267,145,710
Less:
Direct operating expenses
Bank notes printing 38
5,689,829
5,634,372
charges
Agency
39
5,953,743
6,344,354
commission
General
40
20,159,546
22,307,027
administrative and
other expenses
Provision for / (reversal of provision against):
loans and advances
(1,059,387)
claims
26.2.2
1,885,143
(550,880)
diminution in value 12.3
(59,212)
677,892
of investments-net
other doubtful
26.2.1.1
(102,415)
10,303
assets
1,723,516
(922,072)
33,526,634
33,363,681
260,800,112
PROFIT FOR THE YEAR
233,782,029
The annexed notes from 1 to 49 form an integral part of these consolidated financial statements.

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