Internship report

ACKNOWLEDGMENT
All the praise and admiration is for Allah Almighty the most merciful, gracious, and beneficent
who is entire source of all the knowledge and wisdom endowed to mankind. All thanks to Allah
Almighty who helped me in setting goals and objectives and blessed me to reach the destination.
Without His assistance none is capable of accomplishment.
My heartiest gratitude and compliments to My Parents, without their love and trust on me I
would not be capable of doing this task. My heartiest gratitude to Mr. Javed Iqbal Marath
Chief Manager SBP-BSC Multan for giving me excellent opportunity of doing internship and
let me open new facets of practical life.
My humble regard is for Mr. Abdullah Khan Asst. Director of SBP-BSC Multan who has
assigned such projects which have never been explored by any internee until now. A remarkable
appreciation is for cooperative staff of SBP-BSC Multan who have paid so much attention
towards my project work and helped me during this course of time. I would like to thank my
internship fellows who ensured me a friendly working environment in SBP-BSC Multan.
Regards
Ahmad saleem
AIBF, BZU Multan

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EXECUTIVE SUMMARY
In order to be capable of coping up with the dynamic environment, it is necessary to have some practical
experience of working. Being a student of Business Administration, it is vital to see the world from
workers point of view and gain practical knowledge. There are series of management techniques which, a
student of Business Administration, have to pass during this practical course. It is a great opportunity to
learn how theoretical knowledge can be implemented in practical grounds.
Reason of choosing State Bank of Pakistan as my internship port is that there are lot of learning
opportunities in SBP and here, in true sense, practical knowledge is incorporated to the students by giving
the complete knowledge of operations of the bank and then, afterwards, doing a project of worth
importance and knowledge.
This report is divided into two parts.First part contains introduction of SBP, importance of central bank is
highlighted, evolution of SBP in Pakistan and its functions, evolution of subsidiaries of SBP that are SBPBSC and NIBAF, organizational structure of SBP-BSC Multan, units of SBP-BSC Multan and their
operations, SWOT analysis of SBP-BSC Multan and finally some suggestions and recommendations
along with list of acronyms is given.
After compiling this report, we can say that doing internship at SBP-BSC Multan brings new and
challenging tasks in front of students through which they are able to look upon the facts which were
hidden for them until now. So, the learning opportunity which we were seeking for at start of internship
program seems to be fulfilled now. But there is no end of learning and we are still striving to learn new
things and experiences by our surroundings, by sharing ideas and by observing the ground realities of
world.

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INTRODUCTION OF SBP
State Bank of Pakistan is central bank of Pakistan. State bank is an entity responsible for the
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. State Bank aims to manage inflation as well as deflation with the
monetary policy of the country. It also holds foreign exchange reserves such as Dollar, Yen, Euro
etc. and official gold reserves.
Central bank is necessary for any state because it provides medium of exchange in form of
currency. It is responsible for protecting countrys economy from collapsing and it
retains/safeguards public trust and protects the sovereignty of country. Central bank is important
for promoting growth and development in the country. It is named as central bank because it acts
as a bridge for commercial banks as well as governments bank.

HISTORY OF GLOBAL CENTRAL BANKING

The origin of central banking was Swedish Riksbank and it was founded in 1668. It was

responsible for lending government funds and to act as clearing house.

Secondly, Bank of England was founded in 1694. And it worked as a joint stock company

to purchase government debt.

In 1800, Banque De France was established by Napoleon to stabilize the currency during

the French Revolution and to aid in government finance.

The crisis of 1907 led to the creation of Federal Reserve in 1913.
Crisis of 1907 is similar to the crisis of 2008 in Pakistan in which there was a state of
dissatisfaction of general public that banks are going to be bankrupted and public
investment is going to be doomed. But in 2008, State Bank has provided the investment
of public back to them by facilitating banks.

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EVOLUTION OF SBP

Before independence, Reserve Bank of India was the central bank of continent.
After independence, in May, 1948, Mr. Jinnah took steps to establish the SBP

immediately.
SBP started its operations on July 1, 1948.
There were only four departments in the Central Directorate and three small branch
offices located at Karachi, Lahore and Decca.

Vision
To

transform

Off-Site

Supervision

&

Enforcement

Department into a highly professional and dynamic

department fully equipped to proactively supervise banks
and other financial institutions under purview of the SBP and
initiate prompt enforcement actions.

Mission
To promote soundness and stability of the Banking System
through

proactive

enforcement actions.

off-site

supervision

and

prompt

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Functions of SBP
functions of
SBP

Traditional
functions

primary
functions

Nontraditio
nal
functions

secondary
functions

Primary Functions:

Issue of notes
Conduct of Monetary and Credit Policy
Bankers Bank
Governments Bank, etc

Secondary Functions:

Public Debt Management

Management of Foreign Exchange
Advisor to Government, etc.

Non-Traditional Functions:
Non-traditional Functions can be called as developmental functions or promotional functions to
achieve the macroeconomic goals. These are as follows,

Development of Financial Institutions

Training Facilities to Bankers
Islamization of Banking System

APPOINTMENT OF GOVERNOR

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Governor is on the top of hierarchy of SBP and he is appointed by central board and controls
whole affairs of bank. Following are some important points regarding appointment of governor
in SBP,

Governor is appointed for a term of 3 years.

Governor is eligible for reappointment on expiry of its terms.

BOARD OF DIRECTORS

Board of directors is included in stakeholders of SBP along with Government and general

public.
Governor is chairman of SBP.
Secretary Finance Division, Government of Pakistan.
Seven Directors, including one director from each province to be nominated by the
Federal Government ensuring representation to agriculture, banking and industrial

sectors.
Board of Directors includes Governor of State Bank of Pakistan, Managing Director of
BSC, members of central board of State Bank.

EVOLUTION OF SUBSIDIARIES
There are two subsidiaries of SBP,
1) Banking Services Corporation (BSC)
16 Field Offices
2) National Institute of Banking And Finance (NIBAF)
Banking Services Corporation
BSC is a fully owned subsidiary of the State Bank of Pakistan. BSC was set up in January 2002
through an Ordinance of SBP Banking Services Corporation.

Functions of SBP-BSC
SBP-BSC is mainly responsible for

Currency Management

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Disbursement of Loans and Advances to the government, banks, financial institutions.

Facilitating inter-bank settlement system

UNITS OF SBP-BSC MULTAN

Sr. No.
1
2
3
4
5
6

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

CURRENCY MANAGEMENT UNIT (CMU)

Introduction:
Currency management unit, as name suggests, deals in management of currency in all over
Pakistan. Purpose of CMU is to make sure that currency is available in each corner of
Pakistan.
There are four Core function of CMU:

Core function of CMU is dealing with currency.

Maintain the currency supply to the banks.

Deal with all type of notes (fresh, reissue and spoiled).

Issue the new notes to banks and also to the bank's employees.

Currency is a unit of integrity for any country thats why it should be treated in a similar

way.
Currency is issued from Karachi
There are 4 currency circles in each province i.e. Quetta, Peshawar, Karachi and Lahore.
Currency circles distribute currency all over the country.

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Multan office coordinates with Lahore circle office for distribution of currency.
NBP acts as chest branch where SBP has no field office.
There is defined quota of currency for each chest branch.
Currency is provided by SBP to other banks.
Chest slip is forwarded from NBP and CM checks that where currency is in surplus and

where it is in deficit.
When specific requirements are met by NBP then it is considered as chest branch of SBP.
For example, safe environment, sufficient educated workers, enough wide space and

demand of cash where business environment is more feasible.

SBP pays charges to NBP for working as chest branch.
There is more administrative work and as such no software is used in CMU.
There is no dealing with commercial banks but only to chest branch.
Slip of cash withdrawal, cash deposit and current balance of cash is prepared on daily

basis.
Now a days government securities are being used as back up reserve.
Purpose of daily slip is to measure withdrawals and deposits and to observe that how
much currency is circulating in market at a particular point of time.

Direct Disposing of notes:

Small denomination notes like 5, 10, 20 and 50 are direct disposed if these notes are spoiled.

Indirect disposing of notes:

Large denomination notes like100, 500, 1000 and large amount notes are not directly disposed.
First of all notes are examine on the basis of their quality and quantity, if shortage occur then
CMU report to the related bank and then further process continue in the presence of related
bank representative. Related bank is responsible for all type of risk or default. After that the notes
are verified through SBP -BSC. In this step the verifier make a separate report .Og2 match the
report of examiner and verifier .If any issue occur which may be related to shortage of notes,
then the verifier recount the notes. If the shortage of notes still exist then CMU (verifier) is
responsible not the related bank.

Types of Notes:
1. Issuable Notes
2. Non-Issuable Notes

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Issuable Notes:

Fresh Notes
Re-issuable Notes
Issuable to the general public
Non-rusty, non-oily etc.

Non-Issuable Notes:

Soiled Notes
Claimed Notes

Issuance of Fresh Notes:

Indent is sent to respective circle office.

Amount of notes is also given in indent.
Circle office send indent to HOK.
HOK send this indent to PSPC for printing of fresh notes.
Indent is usually sent to circle office when issuable notes are converted into non-issuable

notes.
Indent will passed accordingly and HOK keep some margin of notes and send indent to

PSPC.
Statement of issue depicts total notes issued and notes in circulation in one week.
Indent is prepared on the basis of following factors,
How much notes are issued
How much notes are destroyed
Denomination wise issuance
How much currency is distributed to different circles
Where the currency is required
Indent is sent by SBP to PSPC along with the locations where fresh currency is required.
Before July of each year, indent is sent to HOK with proper interpretation of notes

denominations and their bundles.

PSPC send fresh currency to different field offices. Field offices distribute it to banks and

from banks it is circulated to general public and after usage from public it is circulated
back to SBP.

Counterfeit Notes:
Counterfeit notes are forged notes i.e. replica of genuine note. But security features of
genuine notes are so much advanced that forged notes can be easily detected by passing
through different procedure for verification of notes. Despite all steps and verifications,

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counterfeit are still present in the country and some printing presses are committing this
crime. The matter is referred to FIA in case of counterfeit notes and then steps are taken by
them to arrest the culprits.

Learning:
CMU is responsible for circulation of money in all over the country. Mechanism of issuance
of notes from PSPC, 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 currency is
in circulation and currency is available to all over the Pakistan. In my opinion, CMU is the
key unit of SBP which deals in manages the currency in such an effective and efficient
manner that no bank is left in deficit in case of currency and currency is floating in the
market to keep the processes at continuum.

Public Account Unit (PAU)

Introduction:
Public account unit is banker to the government. It mainly deals in receipts and payments of
government accounts. Payments and receipts will be discussed separately in detail. There are
three modes of transaction
1. Cash
2. Clearing
3. Transfer
On the basis of these three modes, receipts and payments will be discussed further.

Payment Section:

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For cash payments, salaries, education and health related issues are dealt. For employees
of government institutes salaries are disbursed from SBP and then cash payments are
received by institutes.
DDOs, Drawing Disbursement Officers, are the authorized persons who can take
payments from SBP.
DDOs are registered in SBP and their signatures are taken as Specimen Signature.

Process of Registration of DDOs:

Application to CM is sent by the bank.

For Specimen signature card, in which there is attestation of authorized person on card

whose signatures are already recorded in SBP.

Departmental order or notification copy is prepared.
Transfer Reporting
Charge Assumption Report
Charge Relinquish Report
Mechanism of registration in SBP moves as follows,

ACM
of
PAU

ACM
(IMU)

DCM

CM

Case is
register
ed

Representative is nominated on behalf of DDO.

OG-1 inputs data in the system while OG-2 authorizes it.
District accounts officer handles all things related to accounts e.g. issuance of cheques,

maintaining budget etc.

Schedule is prepared for issued cheques and list is prepared along with the signature of

signatory.
This schedule is called as advice by GPO and NSO, while military called it as Delivery

list.
Government cheques are valid for 3 months after month of issuance.

Head of accounts:
Central (green)
Provisional (Pink)

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District (Mauve)

Clearing:
Scrutiny of cheques
Matching of particulars
Cheques of military, NSO and GPO are passed by two people and process is called
double scheduled marking.
SBP functions as clearing house.
First it was conducted manually but now it is through NIFT.

NIFT:

NIFT is consortium of banks and banks take membership for gaining the services of
NIFT as clearing house. NIFT provides clearing facilitation to the banks and charge some

of amount per instrument.

First it was performed manually but before some years NIFT provides services of

clearing. But record of cheques is prepared manually.

Where there is no branch of NIFT, then NBP performs functions of clearing in that area.

Types of Clearing:
1. Same Day Clearing
2. Normal Day Clearing
3. Inter-City Clearing

Types of accounts:

Drawing account

Assignment account

Drawing accounts:
Authorized person can draw any amount at any time. This account has no limitation regarding

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the amount.
Assignment accounts:
These accounts have a certain limit fixed for certain time period it may be monthly or yearly.
Only authorized person can withdraw money from this account, but not more than limit which is
fixed.

Transfer:
Transfer occurs when one government department wants to deposit money in other government
departments.

Receipt:
Receipt also consists on following transactions:
Cash
clearing
transfer

Receipts in Cash:
In this cash transaction needs three copies of challan form which is issued by the district office.
The counter incharge will ensure that each challan is complete.

Receipts through Clearing:

After ensuring that the challans and cheques are in order in all respects, the counter
officer will issue an acknowledgement paper token to the tendered with instructions to

take back the receipted copies of the challans on the 3rd day of deposit.
The number of the acknowledgement so issued will be indicated by the counter officer
under his initials on all the copies of the challans. The amounts and particulars of the

challans and the cheques will, thereafter, be entered and authorized in the Globus system.
Banks clearing stamp/crossing stamp will be affixed on all cheques drawn on banks.
Thereafter, the challans will be sorted out into Federal and Provincial groups.

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The cheques presented through normal clearing will be entered in Globus system through
Outward Clearing transaction Menu head wise and the list containing details of cheques
as well as the list containing the particulars of challans will also be taken out from the
system and a copy of the list containing the detail of cheques along with cheques will be
passed on to the NIFT through a Delivery Book provided by the NIFT for balancing /
processing at their end and presentation to the different member banks of Clearing House

next day.
It should be noted that entries for cheques presented through Intercity clearing will not be
made in Globus and entries of these cheques will only be made after knowing the fate of
the cheque.

Receipts through Transfer:

In the case of cheques drawn on accounts maintained in the SBP BSC offices concerned,
the cheques will, together with the relative challans, be passed on by the counter officer

to the concerned staff in the Public Accounts Unit or the Deposit Accounts Unit.
The cheques will be subjected to usual scrutiny to ensure that they have been properly
drawn and bear genuine signatures of the drawers and are prima facie payable, there

being enough balance to the credit of the drawer to permit of payment.

If there is no stoppage against the cheques, the passing official will affix Transfer stamp
under his initial and cancel the drawer signature on the cheques. Thereafter they will
return the cheques and challans to the Public Accounts Unit for entry in the Globus

system.
In case any irregularity is noticed in such cheques by the paying Unit, they should be
returned by it with objection memos to the dealing official at Public Accounts Unit who
will return the cheques together with the challans to the Government Department.

Learning:
PAU is responsible for maintaining accounts of government through payments and receipts.
There are three modes of transactions of receipts and payments that are cash, clearing and
transfer. NIFT is important for clearing of instruments. There are three types of clearing that are
same-day, normal and inter-city clearing. All the mechanisms involved in PAU ensure that each
and every process is being performed efficiently and effectively.

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PRIZE BOND UNIT (PBU)
Introduction:
Prize Bond Unit is the unit where prize bonds are sold, encashed, retained, destroyed, and
claimed. It is actually Governments debt and Government collects debt from general public to
minimize the deficit. This process ensures bond circulation in the SBP to the general public
through receipts and then again to the SBP through encashment/payment.

Denominations of Bonds:
There are 8 denominations of prize bonds for which lucky draws are held after 15 days. These
denominations are of rupees

100
200
750
1,500
7,500
15,000
25,000
40,000

Small denominations of prize bonds are given the time period of encashment of 10 working days
while big denominations are given the time period of 15 working days. These specified days are
given for encashment of prize bonds, in case when prize bond is won, because they are sent to
the Public Debt Offices (PDOs) which are situated in Lahore and Karachi for verification and
confirmation.

Printing and Issuance of Prize Bonds:

Bonds are printed in PSPC (Pakistan Security Print Corporation). They are issued by Public Debt
Offices (PDOs) which are situated in Lahore and Karachi. PDOs issue these bonds to different
field offices of SBP as per request and these field offices issue bonds to different commercial
banks. Hence, bonds can be purchased from SBP field offices as well as from commercial banks.

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Open Period and Shut Period of Bonds:
Open period is that time period in which there take place the selling and encashment of bonds.
Selling is the term used for condition when bonds are available for sale. Open period of each
denomination is of one month for which it is available for sale and general public can purchase
them. Encashment is for the purpose that bonds which are encashed will be sold first. After one
month, that particular denomination is not available for sale but its sale is stopped by the banks
as well as by SBP. This time period in which there is no purchase or sale of bonds is called shut
period and it consists of two months time period. But in shut period of bonds if someone claims
for his/her prize money of last draw or the previous one then it can be claimed and processed
according to the criterion of SBP and there is no limitation of open or shut period on claimed
bond.

Retaining Bonds:
If prize money is less than Rs. 18,500/- then bond will be given back to the customer. But if prize
money is above Rs. 18,500/- then bond will be retained 100% and it would not be given back to
the customer. Denominations of 100, 200 and 750 will not be retained for 3 rd prizes and will be
given back to the customer. But for 1 st and 2nd prize these denominations will also be retained by
the bank.

Lapsing to the Government Account:

If fresh bundles of bonds are partially sold and partially unsold then 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.

Claim of Bonds by the Winners:

When a person claims for prize money then first he has to fill a form named as PB-23A.
This form consists of two parts one is the main part and other is receipt which is given to
the claimant and he will bring that receipt at the time of encashment.

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Claimant attaches the original bond, photocopy of the bond and photocopy of Identity

Card duly signed by him/her with the form.

After submission of these documents and filling the form, claimant is given the time

period of 10 or 15 days according to the denominations.

These documents are sent to the PDOs according to the area and then PDOs verify the

genuineness of bonds.
In PDOs, it is checked and verified that I.D card is valid or not.
Through Ultraviolet Rays the genuineness of bonds is verified. And through bulb
different features of bonds are checked e.g. Government of Pakistan is written on the left
side of the bond and it is detected only through magnifying glass. If the written features

are rubbed then bond is not genuine.

If prize money is above one million then bond will be sent to PSPC for verification.
Federal Investigation Authority (FIA) is involved when there is forged bond presented by

the claimant to investigate about the source of that forged bond.

In case of spoiled bond, there is a different treatment of bonds. If bond is full cut,
completely washed, completely oiled and completely colored bond there would be no
prize money if a person claims on that bond. Only the face value will be given otherwise
in case of claim, there would be submitted the indemnity bond for encashment of the

prize bond.
Indemnity bond consists of two stamp papers of Rs. 50/-, photocopy of the I.D card of the
claimant, along with two witnessed peoples I.D card photocopy duly signed by them is
attached and submitted to the SBP nearby branch. After verification, payment order of
prize money would be printed. ACM will verify it and ACM (IMU) will also verify it.
Then DCM will pass the payment order and this PO would be transferred to the cash side

for encashment.
Two officers are responsible for giving receipt to the customer. Till Rs. 9300/- prize OG1
and OG2 will sign the receipts and then issue it to the customer.
At primary level inspection three steps are important.
i.
Particulars of Bond are checked.
ii.
Genuineness of Bond is checked. And
iii.
Tempering is checked that either the bond is tempered or not.

For tempering following things are important to be considered,

Magnifying glass should be used to verify the genuineness.
To check that numbers are letter pressed or not.

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Some people make forged bonds and paste the number of original bond on
forged bond.
Bond having prize money above 1-3 million is sent to PSPC for
verification.
Ultraviolet lamp should be used where the bond starts glowing and

denomination amount also glows in ultraviolet rays.

Above Rs. 9300/- prize, two officers, OG2 and ACM will sign the receipt. After
signatures this bond will send to DCM for confirmation. After confirmation from DCM,
it is again checked for authorization. Authorization is conducted through system where
name, address, CNIC, PO number, Prize Bond number, draw number, date of issue, draw
date, and amount of prize money are checked.

Destruction of Bonds:
Cash department gives report of defective and claim bonds to PBU. Then these bonds are
monitored and audited. Approval of CM is taken for destruction of bonds. Under the
supervision of two officers, DCM, Unit Incharge and audit officer these bonds are sent to the
furnace for burning purpose. Then report of destroyed bonds is sent to the PDOs (Lahore and
Karachi), CMD (Currency Management Department) Karachi and to Directorate of National
Savings in Islamabad. When there is need of fresh bonds, then CM will give the approval of
it. Unit Incharge of PBU and Treasury Officer will go to take fresh bonds from vault.

Learning:
Prize bond unit mainly deals with the sale, encashment, receipts and payments of prize
bonds. Other than that there are many issues for which PBU is responsible e.g., for
maintaining the record of prize bonds, for holding lucky draws, for maintaining different
statements regarding prize bonds, for checking and verifying the bonds genuineness, for
payments of winning numbers of prize bonds etc. So, it can be concluded from above
discussion that there is 100% efficiency of processes in PBU that there are no chances of
mistakes. And if, by chance or by human error, any mistake happens then it is retrieved
quickly in order to maintain the balance in other processes. And hence, the ultimate goal is to
provide efficient service to the general public so that their satisfaction and trust is retained by
SBP.

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REFINANCE SCHEME UNIT (RSU)
Refinance scheme unit is responsible for facilitating the exporters to diversify and enhance their
exports by giving them loans on subsidized rates i.e. lower than market rate. Export finance
scheme was initiated in 1973 to give loan to new exporters as well as to existing exporters for
economic growth and stability. Time period (tenor) to repay the loan to SBP is of 180 days i.e. 6
months.
Mechanism of Refinance Scheme:
Mechanism of this scheme is that commercial banks act as intermediary between State Bank and
potential exporter. Commercial banks deal directly with the exporters and risk and reward
involved in it are of commercial bank. SBP reimburses the funds and there is no direct dealing of
SBP with the customer.

Exporter

Commercial
bank

SBP

Scope of Refinance Scheme:

Scope of this scheme is to diversify the exports of the country and to strengthen the economy of
the Pakistan through exports. SBP offers refinancing on some of the commodities but hinders
refinancing on other commodities. A negative list is prepared for the commodities for which
there is no facilitation of refinancing by SBP. Negative list is the list of commodities which are
not eligible for export refinance under Export Finance Scheme (EFS).
Purpose of Refinance Scheme:
There are two main purposes of EFS,
1. To export value added goods
2. To restrict the export of unnecessary raw material in other countries

Operations of the short term financing scheme:

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There are two types of operations done in STF
Part 1
Part 2

part1:
No limits of export
Exporter approach to commercial bank
After that commercial bank, within two days inform to the SBP
After the approval of the SBP, exporter inform about the 1st shipment to the commercial
bank.
After shipment, within 7 days commercial bank inform to SBP through Annexure-D.
After 30 days exporter submit EPRC (export proceed realization certificate) for
realization of shipment to RFU for I-form and E-form realization.
Rate of financing:
Rate of financing based on short term securities having mark up 8.4% and commercial bank
charge 1% so exporter pay 9.4% mark up. mark up is charge on quarterly bases on following
months.
1-january
1-april
1-july
1-october
Principle amount will return after 180 days. In three ways principle amount may be repay.
Fully payment after 180 days

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Partially payment
Advance payment
Direct Exporter (DE):
Direct exporter means a commercial exporter who manufactures and exports or a trading
company who procures. In part 1 preshipment loan (before the shipment) is required for this.
Indirect Exporter (IDE):
IDE means a manufacturer or suppliers of goods or materials. This is to be used as inputs for
exports by DE.
Part-2
It is totally performance based. Export loan is provided for 180 days and utilization of the loan
should be double its primary requirement. It is limit based and exporter is bounded to make
profit double as compare to original amount for 180 days.
Limits of the banks:
A limit of the banks depends on:
Size of the bank
Utilization of the previous year funds
Credit worthiness
Limits of the exporters:
E-E statement:
It is related to the documents of shipment which may be related to
Date of shipment
Percentage of total shipment

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Realization of import and export
Then through E-E statement export is match with borrowing.
E-F statement
It is related to part 2 in which export is match with performance. And limit is set on the basis of
previous year performance. While the limit fixed under Part-A of the EFS for each exporter shall
be valid for a period of twelve months, financing facilities to each exporter shall be available for
a maximum period of 180 days. Likewise, the refinance facilities shall also be provided to
financing bank by the concerned office of the SBP BSC (Bank) for a period of 180 days.
Fixation of limits for banks:
Branch sends the limit request to its main branch
Main branch send request to the head office
Head office approach to SBP-BSC
SPB-BSC concerned with SPB head office
Then results return back to the commercial bank.

bank and exporter send all related documents to RSU

RSU verify the request about shipment.
Request verified through audit.
forward to CM
approved by CM

After the approval of CM then RSU inform the bank about all export condition.

Long term financing:

Long term financial facility is for the exporters who have export performance of above $5
million. LTFF is about importing the plant and machinery from other countries to expand the
business and growth of economy. This facility is given to those exporters who are assessed as
creditworthy by the bank. LTFF is only for large scale projects. For type I and type II exporter is

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considered as working capital but in LTFF he is importer of plant and machinery to expand his
business.

Scope:
Waving sector:
100% depends on letter of credit. It also limit based.
Spinning sector:
50% depends on letter of credit. It also limit based.
Limit set by the SBP head office. This limit settled on the basis of bank size, number of
branches etc.
Mark up:
Mark up may be on quarterly base or semi-annually basis. It depends on banks, to pay mark up
on quarterly base or semi annually.
Duration of LTF:
Long term financing duration is 3-10 years. Rate linked with PIBs (Pakistan investment bonds).
LTF-service sector (SS)
Two sectors are involved in this financing

Transportation

I.T

Capital goods (land and building) are not included in this financing.
Financing facility for agricultural products
This scheme was introduced in 2009 to increase the storage capacity of perishable goods.
Financing facility for storing agricultural produce is as follows,

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For cold storages

For warehouses
For silos etc.

To meet internal needs of a particular organization there would be no facility of financing for
example for Captive Power Plants, finance facility is not available.

Modernization of SMEs:
Modernization of SMEs suggests that financing is available only for Balancing, Modernization
and Replacement (BMR) of existing units and projects. Only SME borrowers are eligible to avail
financing facility under the scheme.
Financing is available to following SMEs:

Cotton Ginning Factories

Rice Husking Mills/Automatic Sella Plants

Learning:
RSU facilitates the exporters to expand their exports and increase economic growth. SBP gives
finance to the exporters through intermediary which is a commercial bank. Type I and type II are
short-term financing schemes and they are repeated twice in a year. LTFF is long term financing
facility and it has different categories of years and different rates of financing for each category.
Exporters can create a positive image in the world about Pakistan by exporting excellent quality
goods and commodities. And EFS is a mean to achieve that image through which exporters will
be aware and vigilant in exporting good quality goods to foreign countries.

FOREIGN EXCHANGE OPERATION DEPARTMENT (FEOD):

Introduction:
Foreign exchange operation department is responsible for handling foreign currency through
imports and exports. Foreign exchange can be defined as when home countrys currency is
exchanged with foreign countrys currency. This currency is exchanged in the form of services
rendered, goods exported and imported, in the form of transactions.

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There are 5 sections in Multan in which foreign exchange department operates. These sections
are as follows,
1.
2.
3.
4.
5.

Foreign Exchange Return Section

Export Section
Import Section
Overdue Section
Drawback of Local Taxes and Levies (DLTL)

Foreign Exchange Return Section:

Foreign exchange remittances, imports and exports details are received to this section.

This is initial stage of FEOD.

Authorized dealer (AD) is usually a commercial bank which is authorized by SBP. There

are 293 branches of commercial banks under jurisdiction of SBP in Multan.

Monthly Foreign Exchange Return Report is submitted by authorized dealer at 3rd of each
month. AD submits it to SBP and sale and purchase of foreign currency are presented to
SBP through this report. Commercial banks are legally bound to report to FEOD, SBP the

balance of foreign exchange in each month.

If monthly report is not submitted by AD, then margin of 10 th of each month is given and

AD is reminded by SBP. If AD shows irregularity then that bank will be penalized.

Some ADs are newly authorized by SBP and they also have to submit their monthly
foreign exchange report to SBP. If the balance of foreign exchange is zero of that newly

AD then there would be written NIL on report.

For new authorization of a commercial bank, there are some conditions which are
considered for authorization. If there are 7 or 8 clients who are doing business and want
to export goods then they will approach their head offices for foreign exchange operation.
Representative of respective commercial bank head office will visit that bank to identify

the circumstances such as location, need of foreign exchange department etc.

Banks will apply for license from SBP and on that license one code is given to the branch

of bank and letter is issued by head office Karachi.

One copy of letter is sent to nearby field office of SBP and other is sent to head office of
that commercial bank. On the letter, particulars are mentioned e.g. name of commercial
bank, its nearby branch, code number, name of city etc.

Statement-1 (S1):

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On statement -1 detail of exports and imports are given.
E-form, part of statement-1, is known as export form. There are four parts of E-form. 1 st
part is type of undertaking on which exporter gives details of exports and his signatures
are taken. 2nd part is for AD and he authorizes exporter details.
E-form is quadruplicate and there are 4 copies of E-form which are given to different
departments. One copy is given to custom. 2nd copy is given to bank. 3rd copy is given to
SBP and 4th copy is kept by the exporter.
There is Schedule A-1/O-1 against E-form. And it is provided by AD to SBP. It is
provided for refunding purposes.
Schedule A-2/O-2 is presented against advance payment vouchers (APVs).
I-form stands for import form. As treated in E-form, the procedure of I-form is same but
with the point of view of importer it is taken under consideration.
Schedule E-2/P-2 is presented against I-form. List of I-forms is prepared on this schedule
and number of I-forms presented by AD would be same as entered in the schedule.
M-form is called as miscellaneous form in which remittances of foreign currency except
import and export are dealt. Private remittances such as medical, students fee,
advertisement charges, bank charges, agent charges etc. are all included in it.
Schedule E-4/P-4 is presented against M-form.
Inward Remittance (IR) is used for family remittances.
R-form is used other than import, exports and miscellaneous form.

Statement-6 (S6):
Foreign currency record is maintained in statement-6. Sale and purchase of foreign
currencies is reported in S6.
It deals in 6 currencies.
1. UK Pound
2. US Dollar
3. Euro
4. Saudi Rayal
5. Japanese Yen
6. Dirham

Export Section:
Mechanism of exporters authorization and payment process is being explained below,

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First of all, if exporter receives firm order by foreign country, then he would apply for
authorization. Authorization is a form of permission from SBP that either goods can be

exported or not.
Exporter gets authorized by SBP through AD and through E-form he applies for

authorization.
After authorization, shipment is prepared by exporter. It is not necessary that from where
(particular bank) E-form is issued for exporter, same bank will receive payment of

shipment. It is in exporters interest on which bank he will show his creditworthiness.

Shipment is made through 4 ways.
i.
Through Sail
ii.
By Air
iii.
By Rail
iv. By Truck
After shipment, payment of shipment will not directly received by the exporter, but

currency will be transferred to the bank/AD.

AD will send currency to SBP and SBP will convert that currency into Pakistani Rupees.

These rupees will be credited to the account of AD and ultimately exporter will receive
the money in Pakistani Rupees by AD.

Payment from
Importer

Authorized
Dealer

SBP
(Currency
Conversion)

Authorized
Dealer

Exporter

Exporters Call Back If consignment is returning back then it is called as exporters

call back. In case of returning back of the consignment, exporter will report to his

respective AD and AD will report to SBP. Further proceeds will be done by SBP.
It is necessary that there should be realization of shipment or consignment in foreign
country. If there is no realization of shipment then it is similar to smuggling goods to
foreign countries and it is called as Unauthorized Dealing.

Advance Payment of Exports:

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Advance payment of exports is a safer mode of payment at exporters end. If the consignment is
consisting of worthy and valuable items then exporter will approach for advance payment of
exports. Following conditions are important for advance payment of exports:

E-form is shown to custom authority.

Exporters invoice is attached to it.
Bill of lading.
GD-1 (Goods Declaration certificate issued from custom authority).
Export Proceeds Realization Certificates (EPRCs) from AD.
Exporter is legally bound to send consignment within one year either in installments or in

a single row.
If shipment is made in installments then for each installment, individual E-form will be
provided to SBP.
If shipment is made in a single row then only one E-form will be presented to SBP.

Exports for the Purpose of Import:

Sometimes some consignments are consisting of those items which are exported for some
modifications and improvements in them. For that purpose, some type of machinery is sent to
foreign country for modifications. After modifications it is sent back to the home/exporters
country. This is called exports for the purpose of import.

Import Section:
Import section deals in imports related issues in FEOD. Process of importing goods is highly
sensitive and due to this sensitivity, there is need for approval of Ministry of Trade and
Commerce, Ministry of Finance and concerned ministry for which goods are being imported.
Following things are important for importing goods,

International Market is observed.

Competitiveness of foreign market is observed.
I-form along with other particulars.
Concerned department approval.
Approval from Ministry of Trade and Commerce
Approval from Ministry of Finance
Documentation at the end of AD while reporting at the end of SBP

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In case of partial completeness of consignment and partial realization of shipment, due to
several reasons, exporter will send request to bank and bank will forward the request to
SBP that exporter is unable to realize the whole shipment. SBP will point out the reasons
and it will be treated accordingly. For example, importer has received sufficient items and
he has stopped the shipment, or shipment is not delivered, or firm owner has refused to
take goods from exporter, then exporter will send request to bank for partial realization of
consignment.
In case of partial realization, E-form of exporter will be cancelled.

DLTL:
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.

Exchange Companies:
Exchange companies are licensed by SBP but there is no need for ADs in it. ADs are authorized
by SBP and they are mostly commercial banks. Exchange companies also deal in foreign
exchange but they are also monitored by SBP. Daily reporting and proper documentation is not
necessary for exchange companies but they must have to be licensed by SBP otherwise it will be
considered as illegal dealing of foreign exchange.

Disbursement against R&D Claims:

R&D claims are for garments and home textile. FEOD disburses finance against these R&D
claims for potential exporters. Purpose is to promote exports by facilitating them with different
schemes of finance. Each year, certain amount of money is allocated for facilitating these
exporters.

Overdue Cases:

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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.

Verification of EE/EF Statement:

Verification of Export Earning and confirmation of realization is prerequisite for exporter/AD
desirous to avail export refinance scheme. Since all realization are being reported at FEOD head
office Karachi and field offices of FEOD by ADs, therefore role of FEOD is vital for timely
verification so that limits may be fixed by the Refinance Unit.

Learning:
FEOD is responsible for handling foreign currency through foreign exchange which is received
in the form of export payments. There are 5 basic functions performed by FEOD and these
functions are important for ensuring complete efficiency regarding foreign exchange issues. In
my opinion, for export promotion FEOD is operating excellently for economic strength and
development. So, for progress of country, it is necessary to run the processes in effective way to
open new opportunities for growth and development.

DEPOSIT ACCOUNT UNIT (DAU)

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Deposit Account Unit is responsible for performing role of bankers to the bank. In DAU,
accounts of banks are maintained. There is consolidated governments account statement. DAU
submit transactions in the form of vouchers. Report of one complete day is prepared on daily
basis and balance of accounts is maintained in the report.
External dealings of governments accounts are in the form of vouchers/receipts. And these
receipts are submitted by Public Accounts Department (PAD) to DAU. The consolidated
accounts are in the form of receipts, payments, and expenses. Vouchers of all activities are
received by DAU.

Main Functions of DAU:

Main functions of DAU are as follows:

Opening of accounts of banks

Stock maintenance of cheque books
Issuance of cheque books to scheduled banks
Stoppage of cheque and issuance of NPC
Clearing instruments
Cheque presented through clearing
Cheque presented for cash payment
Cheque presented for payment through transfer
Maintenance of signature cards of schedule banks
Miscellaneous vouchers received from other units
Cash receipts of bank accounts

DAU is divided into two categories:

i.
ii.

General banking
Local remittance

General Banking
General banking is responsible for maintaining accounts of banks and there are 31 banks
which are registered in SBP Multan. Scheduled banks are the banks which are registered
in SBP and 31 commercial banks are scheduled banks in Multan. Commercial banks have
to submit their article of association and power of attorney delegated to the representative
of a commercial bank. Power of attorney is actually the authority of president of

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commercial bank which is delegated to the representative of a commercial bank to get

registration of SBP.
BD manual is the banking department manual in which all details of opening of an

account are written.

There are two types of slips involved in general banking type.
I.
Credit Slip
II.
Debit Slip
Credit Slip is of two colors. One is of green color and it is called as cash slip. Other is of

pink color and it is called as transfer slip.

Cash Slip is only presented by an authorized person. When account of some bank has

surplus amount of money, above the maximum limit, then bank submit their credit slip to
SBP. And it is different for each bank that how much amount they are submitting and it is

written on cash slip.

Cash slip can also be represented when there is enough amount of soiled notes and

commercial banks send these soiled notes to SBP for destruction.

Transfer Slip is the slip which is used for transferring cash from one bank to other.
Signature of representative of power of attorney is maintained in SBP and specimen
signature is kept as record to verify the signatures at the time of cash and receipt. This
track of signatures is maintained manually on signature card as well as systematically in

the computer system.

Representative of commercial bank takes statement of affairs at every morning to
maintain and reconcile the balance of SBP with its own balance.

Local Remittance:

There are 5 ways of local remittance

i.
Pay Orders (PO)
ii.
Bank Draft
iii.
Government Draft
iv. Telegraphic Transfer (TT)
v. Demand Draft (DD) Purchase
Payment Order is prepared when there is payment of local suppliers and employees e.g.

if items of stock are purchased then pay orders will be prepared to pay the supplier.
Bank Draft is prepared for payment of outstation suppliers and employees. NBP is
responsible for preparing bank drafts when there are no field offices of SBP. That NBP
branch act as Chest Branch where there is no field office of SBP.

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Government Draft is issued free of cost by SBP. Certain amount is charged for
government draft when it is outside the province. The rate for outside province is 0.03%

for Rs. 5000/- and above Rs. 5000/-, 0.07% would be charged by SBP.
Telegraphic Transfer facilitates employees and banks. If currency is in surplus in one
bank and other bank is in deficit then surplus amount of money can be transferred from
one bank to the other through TT. For TT, Rs. 1000/- commission are charged and extra

miscellaneous charges of Rs. 100/- are also taken.

Demand Draft (DD) Purchase also facilitates employees. If employee has his account in
one city but he is living currently in other city then, through a request called as demand
draft, he will present cheque to SBP of certain amount. DAU will give PO to that
employee and he will get the payment from cash side. That cheque will be sent to NIFT
for clearing. NIFT will send this cheque to the respective bank where actually the account

is present. So, through NIFT there would be clearing of cheque.

Mail Transfer facilitates those employees who want to send money to other city where
his family is living. Facility of MT is provided only to SBP employees. And on the

request of employee, SBP facilitates him.

In case of bonafide remittance MT will be provided to the employee. If loan, benefit, and
salary are in his account then it will be given to the family member of that employee in
other city.

Learning:
DAU is responsible for maintaining accounts of commercial banks. Banking is of two types. One
is general banking and other is local remittance. Credit and debit slips come under the umbrella
of general banking. While POs, TTs, MTs, government/bank drafts, DD purchase come under the
umbrella of local remittance. From above discussion, it can be concluded that DAU handles the
issues related to cash/transfer slip from one bank to the other. And to keep track of daily balance
of commercial banks accounts to ensure that all of the accounts are being maintained effectively.

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Swot Analysis

weaknesses

strengths

swot
threats

opportunity

Strengths

The SBP performs additional services for government by providing loans and

managing the government accounts as well as the other banks.

SBP is privileged to hold the reserves of the whole economy no other banks authorized to
hold the reserves expect they can deal in reserves but the ultimate holder is SBP. It is also
responsible to manage and control the exchange rate in the country.

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The employers at SBP are offered reasonable monetary benefit. Normally bonuses are
given. Employees also enjoy the interest free loans free medical care of family and

insurance of life.
The employees at SBP are strict followers of rule & regulation imposed by bank.
The disciplined environment at SBP bolsters its image and also enhances the

overall output of the organization.

The employees at SBP here have a good hold on their descriptions, as they
are highly skilled Professionals with better training programs in business
administration, banking, economics etc. These professional competencies enable the
employees to understand and perform the function and operation in

better way.
The bank has the strength of being powered by the network of computers, which have
saved time, energy and would have lessened the mental stress, the employees
have. This would add to the strength that is powered by network of computers.

Weaknesses

The strong political hold of some parties and government and their dominance
is affecting the bank in a negative way. They sometime have to provide loan under the
pressure, which leads to uneven and adjusted feeling in the bank employees.

The promotions and bonuses in the bank are often powered by the seniors favoritism or
depend upon their wills and decisions. This adds to the negative factors, which
denominate the employees thus resulting in affecting their performance negatively.

The workload in SBP is not evenly distributed and the workload tends to be more on
some employees while others abscond away from their responsibilities, which server as
a demotivative factor for employees performing above average work.

The bank does not promote its corporate image, services, etc on acompetitive way. Hence
lacks far behind in marketing effort.

Opportunity

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The world today has become a global village because of advancement in the technology,
especially in communication sector. More emphasis is now given to avail the modern
technologies to the better performance. SBP can utilize the electronic banking
opportunity to ensure on line banking 24 hours a day. This would give competitive edge

over others.
Because of the need for micro financing in the market there are a lot of opportunities in
this regard. Now the time has arrived when the SBP must realize it and take on step to
cater an ongoing demand and the Micro finance dept should device policies to strengthen
the micro finance network.

Threats
There exists no regular and specific system of the removal of customer complaints. Now
a days need for total customer satisfaction is emerging and in their demanding
consequences customer's complaints are ignored.
The ongoing shift in power in political arena in the country effects the performance of the
banks has to forward loans to politically powerful persons which create a sense of
insecurity and demoralization in the customer as well as employees.

Project: pricing mechnisim of commercial & microfinance banks

and comperative analysis of their products prices