PERFORMANCE OF CLEARING FUNCTION

MEANING OF CLEARING:
The word clearing has been derived from the word “clear” and is defined as:
“A system by which banks exchange cheques and
other negotiable instruments drawn on each other
within a specific area and thereby secure payment for
their clients through the Clearing House at specified
time in an efficient way.”
EXPLANATION:
By clearing means sometimes the account holder of Habib Bank Limited present cheques, which
is not drawn on Habib Bank but the person, has an account in Habib Bank Limited. In this case
bank accepts this cheque in clearing department and later on collects the amount from bank on
which cheques is drawn through clearing house. This function is called clearing.
CLEARING HOUSE:
Initially state bank of Pakistan provides the facility of clearing in its clearing house where
representatives of all banks sit together and interchange their claims against each other. But now
state bank of Pakistan has assigned this responsibility to National Institute of Facilitation
Technologies (NIFT).
It is one of the services provided by NIFT to other commercial banks. NIFT acts as a
clearinghouse. Different banks are the members of the clearinghouse. A representative of each
bank represents his bank in the clearinghouse.
Each bank has collected cheques as behalf of their customer but these cheques are not drawn on
their own bank so in the clearinghouse, they hand over these cheques to respective banks on
which these cheques are drawn. Similarly each bank receives cheques from other banks if any.
INSTRUMENT TO BE PRESENTED:
1. Cheques
2. Demand Drafts
3. Pay Orders
TYPES OF CLEARING:
There are four types of clearing:-
1. Inward Clearing
2. Outward Clearing
3. Intercity Clearing
4. Same Day Clearing
1. INWARD CLEARING:
Those Cheques and other negotiable instruments which are drawn on Habib Bank Limited Mall
branch Lahore, sent by other banks, constitutes the inward clearing of Habib Bank Limited. After
having all the stamps and dates of cheques confirmed, the concerned drawer’s accounts are
debited in Habib Bank Limited Mall Branch Lahore.
2. OUTWARD CLEARING:
When cheques and other negotiable instruments drawn upon other banks like City Bank, MCB,
ABN-AMRO or Askari Bank of the same city (Lahore) are presented in Habib Bank Limited
Mall Branch to deposit them in the respective payee’s accounts, these instruments are lodged in
outward clearing of Habib Bank Limited Mall Branch.
3. INTER CITY CLEARING:
The cheques that are presented in inter city clearing are of another city and received by air. In
this type of clearing the bank confirm at that time that the cheques are clear or not and give to the
rider.
4. SAME DAY CLEARING:
The cheques that are presented in same day clearing are the local cheques and these cheques are
clear in same day. Basically it is the benefit that is provided to customers.
CLEARING PROCESS:
I. STAMPS PUT ON THE CHEQUES:-
When the cheques are presented in Habib Bank Limited to be deposited in their respective
payee’s accounts, different stamps are put on cheques before their lodgment in outward clearing.
II. CROSSING THE CHEQUES:-
Crossing means two parallel lines, drawn across the face of the cheques with or without words
written in between them. Crossing may be general or special. In clearing, cheques are crossed
specially. Cheques are stamped with bank’s name between two parallel lines to constitute special
crossing. After the cheques have been crossed specially, the holder cannot receive payment
except through the banker named on the cheques crossing saves the instrument to go it in illegal
hands. If, crossed cheques is lost or stolen, there is no risk involved. So it is an effective means
of minimizing the risk of loss.
III. CLEARING STAMP:-

After the cheques have been crossed specially, clearing stamp is put on the cheques and other
instruments, with the next date, so these cheques would have to be presented in their concerned
drawee banks on the subsequent day.
IV. ENDORSEMENT STAMP:-
The word endorsement means anything written or printed on the back of an instrument. So
endorsement stamp has to put with words “Payee’s account Credited in Habib Bank Limited,
Lahore.”
V. NATIONAL INSTITUTIONAL FACILITATION AUTHORITY:-
After putting these three stamps on
cheques& other negotiable
instruments, they are sent to NIFT.
NIFT after segregating the cheques of
different banks delivers them to their
concerned banks.

National Institutional Facilitation

Technologies (Pvt.). Ltd. was
incorporated in September 1995 as joint venture between a consortium of six banks and
entrepreneurs from the private sector. All commercial banks and all of their branches in major
cities avail NIFT’s services. As of May 2009, 40 commercial banks and their 5571 branches in
185 major cities, 20 data centers utilize NIFT’s services.

NIFT has setup elaborate data centers geared to provide automated services for document
processing particularly in the payment arena. Modern image based facilities have been
established at Karachi, Lahore, Islamabad, Peshawar, Rawalpindi, Hyderabad, Multan,
Faisalabad, Quetta, D.I.Khan, Sialkot, Gujranwala, Sukkur, Bahawalpur, Muzaffarabad,
Jhelum, Abottabad, Mirpur, Sahiwal and Sargodha. The services include cheques clearing,
reconciliation, ‘return’ (unpaid) cheques processing, same day clearing (express – 2 hrs. clearing
service), intercity clearing and inter branch & inter bank settlement. Services are provided at
individual branch level to over 5571 branches in 184 major cities and smaller cities.

VI. SEND REPORT TO THE BANK:-

After delivering the cheques to different banks NIFT send report to Habib Bank Limited Mall
branch Lahore, then the bank’s staff tally the amount of that report for its own record.
VII. DELIVERED CHEQUES TO RESPECTIVE BANKS:-
Next morning, these cheques are delivered to the respective banks between 9:00 to 9:30AM. In
the same manner, other banks present their clearing drawn on Habib Bank. Total number of
cheques and their amount delivered to other banks and received from them are written on the
Clearing House schedule branch for their payment. After proper scrutiny of cheques, verification
of signatures and confirmation of Habib Bankance in the account, the Officer Clearing
Department Debit the customer Account. If any cheque is not passed due to insufficient Habib
Bankance or any other reason, Officer Cash Department returns the same cheque by attaching a
cheque return memo containing reason for return.
VIII. CREDIT THE CUSTOMER ACCOUNT:-
If the cheques are clear then the Habib Bank Limited Mall branch Lahore credit the customer
Account. If the bank receives the outward return due to any reason then this cheque is entered
into the cheque returned register and bank charges are deducted according to the schedule of
charges.
Then send the outward and return inward as IBDA (Inter Branch Debit Advise) to Main Branch
LDA Plaza. And LDA Plaza sends outward return and inward to Habib Bank Limited Mall
Branch, Lahore.
PROCEDURE OF SETTLEMENT:
Assume that Habib Bank Limited got the cheques which are drawn on NBP, and MCB for
amount Rs.50, 000/-, Rs.30,000/-, Rs.15,000/- respectively, its total being Rs.95,000/-. It means
that this amount is to be credited to Habib Bank Limited account with NIFT. On the other hand
the cheques drawn on Habib Bank Limited are from NBP and MCB of Rs.15,000/- Rs.75,000/-,
and Rs.30,000/- respectively, its total being Rs.120,000/-. It means that this amount is to be
debited from HABIB BANK account . The difference between Rs.95,000/- credit and
Rs.120,000/- debit is Rs.25,000/- debit, which means the house is against Habib Bank Limited
for Rs.25,000/-.
SETTLEMENT SHEET:-
In clearing department this sheet is prepared and contain detail amount of cheques received,
amount of cheques will be paid.
CHEQUE ENCASHMENT PROCEDURE:
Cheque Encashment are made in four steps, these are:-
1. Receiving of Cheques
2. Verification of Signature
3. Computer Terminal Process
4. Payment of Cash
1. RECEIVING OF CHEQUES:-
The cash is paid against the cheque of the client. The following points are important.

 Cheque is drawn on Habib Bank Limited

 Cheque is not post dated.
 Amount in words and figure are same.
 It should be a bearer cheque so the word bearer should not cross.
2. VERIFICATION OF SIGNATURE:-
After receiving the cheque the cheque the officer verify the signature of the account holder and
the signature on the cheque. If the signature is not same it is returned back otherwise forward to
computer terminal.
3. COMPUTER TERMINAL PROCESS:-
The cheque is received in computer terminal, where the computer operator checks the Habib
Bankance of the account holder. The operator also sees the stop payment instructions are
received from account holder or not. After considering these points computer operator post the
cheque in account holder ledger and returned back to the officer.
4. PAYMENT OF CASH:-
After posting the cheque the officer cancelled the cheque and returned back to cashier. The
cashier enters the cheque in cash paid registered and pay against the second signature of receiver
on the back of the cheque.
If the payment is of Rs. 50000 the cashier can make it on its own. If the amount is greater than
Rs. 50000 to Rs. 100,000 the cashier and cash deposit Incharge will verify the check and will
sing it. Then the payment will be made. But, if the amount is greater than Rs. 100000 to Rs.
1000,000 the manager operation will also verify the check and sign it so that the payment can be
made. If the amount is greater than Rs. 1000,000 the Branch Manager will also verify the check
and sign it. Otherwise the payment will not be made.

CONCLUSION:
Habib Bank limited was rated among first 500 banks of the world but now it is in among 1000
banks in the world, HBL. is not progressing due to political influence, in efficient management
& corruption. If these draw backs have removed then bank will not only join its previous
position rather we hope it will be rated among world top ten banks.