CHAPTER-03

MCB MAIN BRANCH MARDAN

3.1 Background of MCB Mardan

The MCB main branch bank road Mardan is considered as most active and
productive branch of the city. It was established on 7th March 1959. The bank
is currently operating with an excellent deposit base and the efficient staff
category which are the back bone in Improving the branch performance and
upgrading of its foreign exchange department to increase bank’s contact with
customers with in the region while the branch is headed by a Chief Manager
guiding to different functions operating within the branch and a sub manager
taking the responsibility of staff’s efficiency working in foreign exchange
department.
Where as the branch is completely equipped and decorated with modern
furniture and a pleasant internal atmosphere, which really attracts the
customers, that to get feel easy during their dealing with bank specially in rush
hours.

3.2 DEPARTMENTS OF BRANCH

The departments functioning at, MCB main branch bank Mardan briefed by its
concerned officers during the internship are:
 Accounts department.
 Remittance department.
 Foreign Exchange Department.
 Advance department.

3.2.1 ACCOUNTS DEPARTMENT

The function of Accounts department is to post daily activities of each and
every section. Every department is sending the detailed report of daily
progress to the Account Department for posting the same in the cash book,
also allowed the clean cash register. The transaction then will be shifted to
their appropriate heads. Accounts department deals in two types of registers.
In the income ledger the transactions relating to the income of the bank are to
be posted, like commission from parties, maintenance etc. all the development
expenses of the bank including salaries expenses of the staff, rent expenses
etc are to be posted in the expense ledger. Accounts department also maintains
the deposits, and also prepares the weekly and daily statements of the affairs
of the branch. It is just like a balance sheet.

3.2.2 THE DEPOSITS SECTION

The deposits are one of the most fundamental sections of any bank. This
section had been set up with a view to accept deposits from general public and
which was also a central idea to create a bank. It will not wrong to say that the
banking starts from this section.

3.2.2.1 FUNCTIONS OF THE SECTION

The deposits section carries out many significant functions, besides providing
other required facilities and information to its customers. Some of key
functions are given under:

3.2.2.1.1 OPENING NEW ACCOUNT

Opening of new account is like a contract between the banker and customer,
which is at MCB main branch Mardan is guided by the people under deposits.
It is the preliminary function of the deposits section to open various types of
account, by allotting them numbers.

3.2.2.1.1.1 Types of Accounts

Keeping in view the purpose and duration for which deposits are to be kept
with the deposits section in the bank, the deposits can be classified into two
categories, Demand deposits and Time or Fixed Deposits. The demand
deposits are ones which are payable by the bank whenever demanded y the
depositors. This category includes current and savings deposits accounts.
While on the other hand the deposits which are accepted by the bank under the
condition that they will not be payable on demand but will be payable on a
fixed or predetermined future time or date are called Time or Fixed Deposits.
Following are the types of accounts the deposits department opens.

3.2.2.1.1.1.1 Current Accounts

These are running accounts and are opened by the individuals/businessmen,
public institutions and groups, that make deposits and withdrawals frequently.
The deposits and withdrawals can be made through cheques, demands drafts,
pay orders, etc, drawn on the branch.
As these accounts are payable whenever the depositors demand and the Bank
by accepting these deposits incurs the obligation of paying all types of orders
to the extent of the credit balance in the depositor’s accounts. These deposits
represent current liabilities of the bank. So, the bank has to keep sufficient
funds in its hand to meet the requirements of the depositors of these deposits.
Furthermore the businessmen, who require money frequently, open current
accounts. The bank can not apply the proceeds of such expenses, fees,
commission, markup etc arising out of any dealing or services with the branch.
i. The account holder is expected to maintain a minimum balance of
Rs.500/- in his account or whatever the minimum amount is prescribed
for the purpose.
j. These accounts are completely exempted from withholding tax and
zakat deduction.

3.2.2.1.1.1.2 PLS Saving Accounts

These are also one kind of demand deposits and are kept to develop the saving
sense in the citizens of the country. These accounts are opened mainly by
those customers whose banking transactions are not frequent and numerous.
Lower and middle income groups, small traders, professionals, farmers and
other salaried classes usually make such deposits, so as to save small amounts
for the small or big needs, like purchase of television, refrigerator, car or
house. Funds can be deposited frequently through cash, cheques, demand
drafts, pay orders, telegraphic transfers, and other such instruments. But the
withdrawals are restricted to twice a week.
From the bank’s point of view a considerably percentage of such deposits can
safely be invested and the Bank need not keep larger reserves to satisfy the
daily demand upon such deposits. At the same time the bank pays the profit at
competitive rates on such deposits in long period investments. The bank can,
on the request of its depositors, pay their utility and other bills out of their
accounts. The profit is not paid on these deposits. As a result the bank earns
maximum profit from these kinds of accounts. Providing banking investment
with the proceeds of these deposits and providing, under an agreement,
overdraft facilities to the depositors are the main proposes of the bank by
keeping such deposits.

3.2.2.1.1.1.2.1 SALIENT FEATURE

a. To maintain requirement for opening account is rs.500/-
b. There is no limit for maximum deposit.
c. No limit of deposits and withdrawals is defined.
d. The deposits can be lodged in both local as well as foreign
currencies.
e. The bank collects cheques, demand drafts, etc and pay all the bills,
cheques, pay orders, etc, on the behalf of its depositors.
f. The current accounts can be made by:
 Individuals (single or jointly)
 Proprietorship, Proprietorship, and companies in their names.
 Such other groups and organization.
g. All cheques and other instruments should be crossed, before they are
deposited for credit into account.
h. The bank would not require any prior permission from the account
holder for debiting his/her account for charging deposits, which varies
from time to time usually after every six months.
 The objectives of the bank to keep deposits are to earn maximum profit by
investing the proceeds of the deposits, to help small savers, to fulfill their
banking needs and to provide assistance in uplifting the economy.

3.2.2.1.1.1.3 (PLS) TERMS DEPOSITS

The deposit which is acceptable by the bank under the condition that it will not
be payable on demand, but will be payable on a fixed or predetermined future
time or date, is called fixed deposit. But after the islamization of banking
system in 1985, its name has been changed from fixed to PLS Terms Deposit.
These deposits represent such surplus funds of the depositors, which are not
required by them for sufficiently long periods. The bank needs not to keep
greater reserves in respect of such deposits. The bank can make long-term
investments from the credit balances of such deposits. The deposits are
accepted for the range from 3 months to above. Of course, the longer the
period, the higher is the rate of profit offered.
People generally deposit larger amounts of money in these accounts. The bank
can advance loan to businessmen out of these deposits because they are fixed
for a particular period. But for the premature withdrawal of amount a prior
notice to the bank is necessary.
For the amount placed on the term deposit, the bank issues a deposit certificate
(receipt), which states the amount received, the name of the depositor and the
period for which the deposit is placed. Being a deposit receipt it cannot be
negotiated or transferred.
The bank accepts these deposits with the purposes, to make minimum profit
by using the proceeds of such deposits, to appeal customers by offering them a
high rate of return, to meet their entire banking needs, and to help economy to
grow.

3.2.2.1.1.1.3.1 SALIENT FEATURE

a. The minimum deposits is accepted by the bank with the sum of Rs.1000/-
b. The maximum deposit has got no limit.
c. The deposits are accepted for the period form three months maximum to
above.
d. The PLS term depositors would be eligible for sharing profit/loses
with the bank at true rate determined by the bank.
e. Where profits and losses would be distributed on half yearly basis.
f. On the maturity, the depositors shall have an option either to draw
the deposit and the amount of his profit share if any or renew the
deposit.
g. Incase of premature withdrawal a prior notice must be given by the
depositor to the bank on which bank is eligible to maximize the profit
ratio of depositor or to deduct some charges of its services.

3.2.3 REMITTANCE DEPARTMENT

According to concerned officer of this department, the bank promoted the
facility of remitting the funds within certain limits. Remittance department
here consists of two major section.
a. Inland remittance.
b. Foreign remittance.

3.2.3.1 INLAND REMITTANCE

The term inland remittance means transfer of funds from one branch too
another within the country through following banking instruments.
 Demand draft.
 Telegraph transfer.
 Mail transfer.
 Pay order.

3.2.3.1.1 Demand draft (DD)

It is written drawn by one branch of a bank upon another branch of the same
bank or upon branch of any other bank working with in the country under
special arrangement to pay certain sum of money to or to the order of specified
person.
MCB deals with two types of dd.

Open DD1
Open DD is one which is payable directly at the counter and there is no need
of crediting to the account.
Cross DD2
Cross DD is one whose payment is done through account, the amount of the
DD is credited to the favoring accounts and then he can transact in ordinary
way through cheque.

3.2.3.1.2 Telegraph Transfer (TT)

Transfer of funds form one branch to another of the same bank or upon other
banks under special arrangements for the payment to beneficiary, through
telegram, telex, fax is allied telegraph transfer.

3.2.3.1.3 Mail Transfer

Transfer of funds from one branch of the same bank inside or outside the
country through mail/courier service is called. Mail transfer are same as for
telegraph transfer, but if a person’s account is not existed in the said branch, in
this case the sending branch will shift the amount to the concerned branch and
advice will be sent to the other bank in which his account exists. In suspense
account the party will have to prove identity.

3.2.3.1.4 Pay Order

A pay order is a written authorization for payment made in a receipt from
issued and payable by the bank to the person named and addressed there, on
this giving a proper discharge there on. Pay order can be made for the branch
of same bank with in the same city. There is option to change bank (name) But
that bank’s branch should be in the same city. The Bank’s commission is fixed
as 5% for any amount.
1
Siddiqi, Asrar H. (1993). Practice and law of Banking in Pakistan. 5th Edition. Karachi :
Royal Book Company.p.133.
2
Siddiqi, Asrar H. (1993). Practice and law of Banking in Pakistan. 5th Edition. Karachi :
Royal Book Company.p.133.
3.2.3.2 FOREIGN REMITTANCE
The bank provides the facilities of foreign remittance to the domestic
residential and foreigners to send money from one country to another. The
bank also provides foreign exchange in the shape of traveler’s cheques to
intending visitors. Travelers cheque is an order drawn by the bank in favor of
travelers upon specific bank to pay him specific amount on demand after
proper identification abroad. The travelers first pay the amount of money to
the issuing bank, which is responsible to pay the amount to the foreign bank
upon which it is drawn.
Figure 3.1 ORGANIZATIONAL CHART OF MCB MAIN
BRANCH MARDAN

Teller

Source: Personal Observation

3.2.4 FOREIGN EXCHANGE DEPARTMENT

Foreign exchange department plays a vital role in the international trade of any
country. By realizing so, MCB has also concentrated and improved, well its
foreign exchange operation as for the efficiency of its employees and
customers satisfaction is concerned.
Under foreign trade operations normal transaction starts with the sales contract
where by the buyer tenders value and the seller goods. There is a degree of
risk involved in the exchange of goods against payment, if geographic distance
increase. The problem is furthered by the fact that buyer and seller belong to
two different countries. Thus in the first place they don’t know each other and
in second place they cannot ascertain the risk involved and finally the
problems is worsened by the fact that laws of the land differ in each country.
Thus in the ordinary course of business, following four forms of transactions
can take place in international trade:
 Advance payment.
 Open account.
 Documentary collection.
 Documentary crudity.

3.2.4.1 ADVANCE PAYMENT

The importer makes the payments in advance payment, first and goods are
received later on.

3.2.4.2 OPEN ACCOUNT

In the open account exporter sends the goods first and payment is made later
on.

3.2.4.3 DOCUMENTARY COLLECTION

In the documentary collection, the remitting back sends the documents and the
importer bank delivers documents against payment. It may be dawn under
sight or acceptance basis.
3.2.4.4 DOCUMENTARY CREDIT
Documentary Credit reduces the risk attached to either importer or exporter
hence an L/C (Letter of credit) is established by the issuing back on the
request of importer and the L/C is sent to the advising bank in the exporter
country which then collects the documents and sends them to the issuing bank
provided they confirm to the terms and conditions of the credit which are then
tendered by issuing bank of payment acceptance as per terms of the L/C.
The Muslim Commercial Bank Road Mardan foreign exchange Department is
divided into the following sections:
 Licensing section.
 Import section.
 Foreign Exchange Remittance Section.
 Foreign currency account section.
3.2.4.4.1 Licensing Section
Licensing section it working under chief controller of imports. The main
function of this section is to grant the registration to importers.

3.2.4.4.2 Imports
Imports can be defined as bringing any commodity good into a country from
out side the country through any way or channel. In Pakistan imports are
regulated by Ministry of Commerce, under the export and import act 1950 and
the notification issue there under:
All the imports are done through letter of Credit L/C which is an
understanding or a letter of guarantee issued to the exporter by the bank on
behalf of importer says defaulter the bank will pay and in case the exporter do
not follow the terms and conditions of the L/C the bank will be liable to the
importer.

3.2.4.4.2.1 Types Of Letter Of Credit3

An “irrevocable letter of Credit” cannot be altered or canceled without the
consent of all the parties, i.e. the opener, the opening bank, the confirming
bank and the beneficiary. This credit becomes confirmed as soon as the
advising bank at the request of opening bank confirms the credit to the
beneficiary. In this way the exports gets the double satisfaction of receiving
the payment for goods from the confirming bank, provided he submits the
shipping documents strictly in terms of credit.
3
Siddiqi, Asrar H. (1993). Practice and law of Banking in Pakistan. 5th Edition. Karachi :
Royal Book Company.p.156.
3.2.4.4.2.1.1 Revocable Letter of Credit
This letter can be modified or canceled by the issuing bank at any time without
any obligation or its part. This letter is usually not acceptable to the
businessmen.

3.2.4.4.2.1.2 Confirmed
The exporter’s bank, which confirms the letter of credit, takes the liability of
paying exporters in case the issuing bank fails to make payment to the
exporter.

3.2.4.4.2.1.3 Unconfirmed L/C

Unconfirmed letter of credit, the bank through which the credit is negotiated
does not give any guarantee to the exporter that the issuing bank will honor the
bills drawn. From exporter’s point of view the confirmed irrevocable L/C is
the best form of receiving payment.

3.2.4.4.2.1.4 Clean L/C

There these are no conditions attached to bill and the issuing banks makes
payment up to the limit credit, the letter is called a Clean L/C.

3.2.4.4.2.2 OPENING OF LETTER OF CREDIT

The mechanism of financing international through LC is quite simple. The
importer needing some foreign goods, will first of all contact the exporter
outside the country or their agents working here in Pakistan. They both will
sign a contact, which will contain all the necessary information about the
goods to be imported. The importer then will apply for the issuance of letter of
credit through a form, this form contains all the necessary information like the
description of merchandise, port of shipment, port of unloading and quality
and quantity of the commodity. Following documents are required for the
issuance of LC.
a. Application for L.C through a form.
b. Proforma invoice of sending of foreign company.
c. Membership certificate of chamber of commerce or association.
d. Issuance certificate.
e. IBS charge form.

3.2.4.4.3 REMITTANCES IN FOREIGN EXCHANGE

MCB provides the opportunity to his customers to transfer his money from
one country to another; the customer must have an account in foreign currency
in the bank. MCB provides all modes of foreign remittance similar to local
remittances i.e. FDD, FTT, FMT.

3.2.4.4.4 FOREIGN CURRENCY ACCOUNT SECTION

The section deals in foreign currency accounts. Foreign currency account
scheme was started from April 1991 in Muslim Commercial Bank under the
name of “Prime Currency Account”. The account can be opened in personal
name or joint names by Pakistan residents or non-residents or non-residents
foreign Nationals. Foreign currency account can be opened in four global
currencies i.e. US Dollar, Pound Sterling, Japanese Yen, and Deutsche Mark.
Traveler’s cheques and foreign currency notes can also be issued to the
holders of the personal and joint account. Remittances from abroad.
Travelers cheques foreign currency notes and foreign exchange generated by
enchasing (F.E.B.Cs). Foreign Bearer Certificate may be deposited in these
accounts. Rupee loan facility is also available against this account.
The foreign currency account holder can draw any amount of foreign
exchange from foreign currency account and transfer or remit the amount
freely to any part of the World without any restrictions.
The restrictions imposed by State Bank of Pakistan for the opening of Foreign
Currency Account in absence of passports, work permit and resident visa have
been withdrawn. The account will be restriction free.
The prime currency scheme is exempted from all form of taxes including
income tax, wealth tax and zakat dedications. The return on the scheme is up
to 10% per annum, payable in foreign currency only.

3.2.4.4.4.1 MCB FOREIGN CURRENCY ACCOUNTS DETAILS

(PRIME CURRENCY ACCOUNTS)
3.2.4.4.4.1.1 Types
 Saving.
 Current.

3.2.4.4.4.1.2 Currencies
 US DOLLAR.
 POUND STERLING.
 DEUTSCHE MARK.
 JAPANESE YEN.

3.2.4.4.4.1.3 who can open these accounts?

 All resident Pakistanis.
 All non-resident Pakistanis.
 Foreign companies.
 Charitable trusts.
 Resident Companies locally incorporated.

3.2.4.4.4.1.4 Minimum Amount of Deposit

 US DOLLAR 1000.
 POUNDS STERLING. 500.
 JAPANESE YEN. 150,000.
 DEUTSCHE MARK. 2000.

3.2.4.4.4.1.5 Other Opportunities

 Free from taxation.
  Free from deduction of Zakat.
 Free from any sort of questioning regarding the source of funds.
 Free from restriction of remittance.

3.2.4.4.4.2 DOLLAR KHUSHALI ACCOUNT

Long-term investment in foreign exchange was not so attractive, so MCB
introduced this scheme in Nov. 1993, to attract customer to deposit foreign
currency even for short time.
The minimum amount for opening of this account is USS 100/- or equivalent
in other acceptable currencies4. The profit on this account is given on daily
basis.
Who can open this account?
i. All resident Pakistanis.
ii. Free from deduction of Zakat.

3.2.4.4.4.3 PRIME CURRENCY FIXED DEPOSIT RECEIPTS

This scheme was introduced in 16th Oct 1991. The minimum amount of
investment is USS 200 or equivalent in other acceptable currencies. The time
period for this scheme is from 3 to 36 months.

3.2.4.4.4.3.1 Who can open this account scheme

i. All resident Pakistanis.
ii. All Non resident Pakistanis.
iii. Charitable trusts.
iv. Firms and companies.

3.2.4.4.4.3.2 Opportunities
i. Free from taxation.
ii. Free from Zakat.

3.2.5 ADVANCES DEPARTMENT

4
Muslim Commercial Bank. (1999). Banking Products and Services of MCB. Karachi:
Yaqeen Art Press.p.6.
As told by the concerned officers of this department. Advances department is
lending loans to individuals, Companies, Corporations etc for different
purposes. It provides loans for agricultural and industrial development. It
provides the following finances.

3.2.5.1 RUNNING FINANCE

It is provided only to the current account holder, zonal office can sanction the
loan up to 3 lakes. General Manager of the circle has the power to sanction the
loan up to 1 million; beyond this limit the head office will be sanctioning
authority. The loan can be granted on personal guarantee or any thing tangible
that is acceptable to the bank like stock property must be ensured by the party.
The mark up will be charged as 51 paisa per thousand on daily product basis.
The yearly interest rate is 18.2% the repayment of the loan will be made from
time to time. In running finance the loan up to 3 lakes is called commercial
loan beyond this, the loan is called general loan.

3.2.5.2 DEMAND FINANCE.

The rules in demand finance are same as for running finance. PLS Account
holder can also take the loan after meeting with all the requirements and
standard set by the bank for financing. The repayment of the loan will be made
in monthly equal installments.
The mark up will be charged on the expiry of the scheduled date of loan.

3.2.5.3 STAFF FINANCE.

Where MCB also permits to its staff members for getting loans when needed
for the following purpose.

3.2.5.3.1 House Building

The employee having served for 5 years in the bank, either clerk or an officer
will be granted 80 basic pays as a loan for building house. If the granted loan
exceed Rs. 160,000 the 10% interest rate will be charged.
3.2.5.3.2 Motor Cycle Car, and Personal Vehicle
The car loan may be granted to those employees whose minimum basic pay is
at least Rs. 10,000 and have served for at least 3 years. The employee will be
granted 18 basic pays as loan. If the amount is exceeding Rs. 160,000 the 10%
interest rate will be charged. The maximum Motor Cycle Loan is 56,000. In
this case the officers of above Grade will pay 5% interest.
3.2.5.3.3 Over Drafting (OD)
MCB gives the facility of drawing more than the balance to the reliable and
established customer, by over drafting we mean that drawing more than the
balance held with MCB. After over drafting the bank will show debit balance
of the customer, and will charge interest on the amount over drawn.
This type of facility is provided occasionally and for short term.
There are three types of over drafts.

3.2.5.3.3.1 Temporary Overdrafts

This type of facility is totally under direction of the branch and requires no
security, but the State Bank of Pakistan fixes the limit, MCB can arrange over
draft upto 25,000 rupees.

3.2.5.3.3.2 Secured over draft

It is a continues facility and the branch can not provide it under his own
discretion. Credit Management Division of Head Office sanction is the
sanctioning authority.

3.2.5.3.3.3 Clean over Draft

It is a continuous facility and its limit is fixed by the State Bank of Pakistan.
No security is required in this case.

3.2.5.3.3.4 Finance Against Imported Merchandise (FIM)

It is a short-term facility provided to such importers who are not in a position
of paying and clearing documents due to un availability to funds for the time
being or lack of finance against L.C.
In such cases the importer makes arrangements with MCB, the bank pledges
the imported goods and pays the obligations against L.C. When the importer
pays the amount to the bank he will get goods.