A detail study on role and importance of

Commercial banks
 POST MID Project of MONEY BANKING FINANCE
PRESENTED BY

TEAM “A”
TEAM MEMBERS:
NAME ROLL
No
1. SHAHRUKH KHAN (L)
8334
2. SHAHRUKH KHAN
8332
3. ABDUL RAUF
8335
4. NOMAN
8354
5.ZEESHAN TARIQ
8306

COURSE
• B.B.A 3RD
SUBMISSION DATE
• 12th May 2009
PRESENTED TO

• Miss Habiba
A DETAIL STUDI ON COMMERCIAL BANKS AND ITS IMPORTANCE
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 Contents

1. executive summary
2. history of bank
3. primary and secondary functions
4. types of loans and their procedure
5. types of account the bank offers
6. references

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 executive summary

The project is mainly about Commercial banks and their

importance in today’s world. In order to work in detail upon this
project the information is obtained and collected by directly
going into field which includes a tour to commercial bank BANK
AL- HABIB . There interviews are conducted from the branch
managers and procedure and requirements for obtaining short
term and long term loans were known about, plus with that the
types of accounts they are offering with respective opening
amounts were obtained also .Types of short term loans and
there tenure in detail are discussed in project and forms
required to obtain all types of loan are attached at the end of
the data.

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History:
The Bank AL Habib Limited run by the Dawood Habib family
group of companies is one of the growing banks in Pakistan. It
was selected as one of the top 200 Best Under A Billion
companies by Forbes Asia in their annual review of 2005. The
bank's head office is located in the city of Multan in Punjab, but
its principal office is located in Karachi. Presently, the Bank has
a network of more than 200 branches in all the major cities of
Pakistan. Habib Group were pioneers in introducing banking to
Pakistan. Their involvement in banking services dates back to
1930s. They successfully launched Habib Bank, which was
nationalized in 1971 and is still one of the largest banks in
Pakistan; since 2002 it has been jointly owned by the
government and with the Aga Khan Fund for Economic
Development. After the privatization scheme announced in 1991
by the Pakistani Government, Habib Group were the first to be
granted permission to start a private bank, the Bank AL Habib
Limited.

• Currently:
Principally engaged in the business of commercial banking with
a network of 175 branches, including a wholesale branch in the
Kingdom of Bahrain and a branch in Karachi Export Processing
Zone. The Company also operates four Islamic Banking
branches. The Company offers Internet banking, consumer
banking and commercial banking.

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 Primary and secondary functions of the bank

• Primary functions:-
There common primary functions which are used by the bank
are as follows:-
1)To accept deposits at lower rates.
2)Use these deposits by lending to people at high rates
3)Earn from this lending

Example:
The primary function can be further explained by an example.
Suppose the deposit is accepted by Mr. X in Bank Al-Habib for Rs
100,000 at 5% profit. The money taken from Mr. X by Bank Al-
Habib is landed to Mr. Y at 15% interest, from this 15%, 5% is
given to Mr. X as a profit and remaining 10% is earned by the
bank.
4)The primary function of a bank is also that it acts as a
subsidiary of central bank. In Pakistan, State bank of
Pakistan act as the central bank.

• Secondary functions:-
The secondary functions which are used by the bank are as
follows:-
1)Bank accepts all utility bills.
2)It issues guarantees on behalf of a customer.
3)Support in foreign trade.
4)Support foreign exchange earnings/transfers.
5)Opening of letter of credit.
6)Issuance and distribution of the currency to general public
on behalf of State bank of Pakistan.
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 Types of loans

 Long term loans:

Long term loans are those type of loans which is for more than 1
year or it is repayable after 1 year. Bank Al-Habib provides Long
term loans in which the time duration is from 1 year to 20 years.
Basically Long term loans are granted for the purchase of
machinery etc it is done on capital expenditure. It is granted to
the limited companies and it is not granted to the individuals.
Mark up rate is linked with the KIBOR system and it is charged
basically at the rate of 6 months. It means that whatever the
KIBOR rate will be after 6 months the customer have to pay it to
the bank and it is done after the confirmation of the customer.
The Long term loans can be further explain by an example.
Suppose there is a company who takes Long term loan of about
10,00,000 Rs at 15% Mark up and agreed to pay all the money
after 5 years. As 15% of 10,00,000 Rs is 150,000 Rs so the total
repayable will be about 17,50,000 Rs. The bank divide this
amount in 60 installments and according to it the customer has
to pay about 29,166 Rs per month. The installments can be
based on monthly, quarterly, bi-annually or annually, it depends
on the customer what he choose.

• Procedure for taking Long term loans:-

The procedure for taking Long term loans includes:-
1)Customer application
2)Bank’s internal Formats which includes BORROWER’S
BASIC FACTS SHEET
3)After going through the above steps the branch forwards
the case to the higher authorities,
4)Higher authorities approves the case and return it to the
branch
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5)Upon receipt of approval branch disburses the Long term
loan to the customer.

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  short term loans:

Types of short term loans :

There are basically two types of Short
term loans:-
I. Fund Based Loans
II. Non-Fund Based Loans

• Fund based loans:

Fund Based Loans are that types of loans which are directly
credited or put into the customer’s account.
• Non fund based loans:
Non-fund Based Loans are that types of loans which are not
credited or put into the customer’s account.

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 Procedure followed in giving away short term loans:
Bank basically provides various types of Short Term Loans in
Fund Based Loans and Non-Fund Based Loans.

In Fund Based Loans Banks provides:-

There are 6 types of Fund Based Loans which is provided by
Banks:-
I. Running Finance\Cash Line Loans
II. Finance against Trust Receipt (FATR)
III. Finance against Imported Merchandise (FIM)
IV. Term Finance
V. Staff Loan
VI. Consumer Loans

Running Finance\Cash Line Loans

This is the most common type of Short Term Loans which is

provided by Bank. In term of giving Running Finance\Cash Line
Loans there is no actual limit. They do not have any minimum or
maximum terms of loans. In term of banking the loans is usually
known as “LIMIT”. Limit is usually based on security values. The
worth of the security counts the most, higher the value of the
security higher the limit is given by the bank and same in the
case of security having lower value.
Types of securities
The types of securities taken against giving the limit by
Banks are as follows:-
I. Hypothecation of Stock
II. Mortgage of Property

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 • Hypothecation of stock:
In this type of security, the customer who is in the
manufacturing\production business and the stock which is used
in the manufacturing\production is under the ownership of the
bank and the custody of the stock is with the customer, the limit
is given to the customer according to the value of the stock. The
customer uses the stock and with the help of the earnings, he
pay back the limit to the Bank.

• Mortgage of property;
In this type of security, the limit is given to the customer against
having the right of Mortgage of the property. The property can
be Commercial, Residential and Industrial. If the customer is
unable to pay back the limit under the time period, the Bank has
the right to sell their property and cover up their loss.
Basically, Bank provides 70% limit against the value of the
security for e.g. the value of the property is 100,000 so the Bank
will give 70,000 limits, but 70% limit is only given to the trusted
customer. If the new customer wants to get limit the Bank give
50% limit against the value of the security.
Finance against Trust Receipt (FATR)

It is the type of limit which is given to the customer on the basis

of the trust of a powerful body it can be any organization,
company, industry etc. They confirm the bank that the limit
taker will pay back the limit in the given time.
Finance against Imported Merchandise (FIM)

It is the type of limit which is given to the customer who is in the

import\export business. The Bank gives the limit to the customer

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on the value of the product which he is importing from the other
country.

Term finance:
it is the type of limit which is given to the customer in the form
of installment. Installments can be paid in 1 year to 5 years. It
can be called Short term Loans and as well as Long Term Loans.

Staff loans:
There are 3 types of limits in Staff Loans:-
I. House Loan
II. Motorcycle Loan
III. Staff Personal Loan
But only Staff Personal Loans is only the Short Term Loans.
Other two types are the Long Term Loans.

• Staff personal loans:

Itis the Loans which are given to the Staff members of the Bank
by Bank and the time duration of the limit is 1 year. So, the
employee has to pay it to the Bank within 1 year time.

Consumer loans
There are 3 types of limits in consumer Loans:-
I. Auto Loans\ Car Loans
II. Personal Loans
III. Credit Cards

• Auto loans:
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It is some kind of a Short Term Loan because some of the
customer takes the limit to buy a Car for the time period of 1
year, but the time period can be exceeded to 5 years.

• Personal laons:
It is also some kind of a Short Term Loan because some of the
customers take it for the time period of 1 year but it can also be
exceeded to 5 years.

• Credit cards:
It is a type of a Short Term Loan by which customer uses the
money and pay back the cash after every monthly basis.

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In non fund based loans BANK AL-HABIB provides:
There are two types Non-Fund Based Loans:-
I. Letter of Credits (L\C’s)
II. Letter of Guarantee (L\G’s)

• Letter of credit (LC’s):-

It is the type of Non-Fund Based Loans in which the customer
pays to the other customer through the Bank. It can be further
explain by the following example. Suppose, there is a buyer who
import products from the seller who live in the other country and
to pay the seller the buyer involve the Bank to pay him and the
seller also involve the Bank of his country. The seller send a
letter which is known as “LETTER OF CREDITS” in which the
seller tells his condition to the buyer that at what rate he is
going to sell his product if the buyer accepts it. He shows it to
the bank and the bank send it to the seller Bank and the money
is transfer to the Seller account. There are two types of Letter of
Credit:-
I. Letter of Credit (sight)
II. Letter of Credit (Usage)

• Letter of guarantee (LG’S):-

It is the type of limit in which some company give
Tenders\Forbids to other agencies to do. If the company does
not have trust on the agencies they ask them to involve the
Bank in the matter. If the Bank gives the guarantee the deal is
done.
DOCUMENTATION FOR FUNDED\NON-FUNDED LOANS:-

I. Customer written request\application

II. Letter of Authority to recover Mark Up
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III. Undertaking of STATE BANK OF PAKISTAN
IV. BBFS “BORROWERS BASIC FACTS SHEETS”

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 Type
s

Non-
Fund
fund
based
based

Funds are
Funds are Fund
Fund not
credited/p money is
money is credited/p
ut into not
directly ut into
customer directly
involved customer
account involved
account

Letter
Letter of
of credit guarant
ee

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 Types of accounts offered by Bank Al-Habib
The types of accounts which are offered by Bank Al-Habib are
as follows:-
1)Young saver account
2)PLS saving account
3)Al-Habib treasures Call
4)Al-Habib Growth certificates
5)Super saving account
6)Mahana munafa account
7)Senior citizen account
8)Salana account

 Young Saver account:-

This is an account for Young Savers of up to 18 years.
Visit the nearest Bank AL Habib branch with your
parent/guardian to open your Young Savers Account. You
can open an account with as little as Rs. 5/=. Rate of return on
Young Savers Account is expected to be well above the return
on normal savings accounts. Currently indicative rate of return
on balances up to Rs. 500,000 is 10% P.A and for balances
over Rs. 500,000 is 5% P.A, payable six monthly. Young
Savers Account will have Internet Banking facility and ATM
Debit Card available to your parent/guardian. Young Savers
of 16 years and more will also be eligible to receive ATM Cards
and can withdraw money through ATMs, if specifically
authorized by their parents/guardians (certain conditions
apply). Until you the Young Savers are a minor, i.e., below
18 years, the account will be operated by your
parent/guardian. When you attain majority, the balance in the
account will be transferred to a new account which you will
open and operate after completing required formalities,
including the concurrence of your parent/guardian. Bank

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 officers will also visit your school to help you open Young
Savers Account and collect your deposit.

 PLS saving account:-

• features of PLS Savings Account:
Profit is paid out to your Account on six-monthly basis.
There is NO Minimum Balance requirement for PLS
Savings Account.
The indicative Return Payable on "PLS Savings Account"
Free Life and Disability Insurance cover for
accountholders.

• Features of Monthly Profit Plan :

This plan adds to the earning ability of your PLS Savings Account
with Bank AL Habib.
Your profit is paid out / credited every month to your Account
instead of six-monthly as in case of PLS Savings Account. NO
Special forms or applications, NO Minimum Balance
requirement.The indicative Return Payable on "Monthly Profit
Plan" deposits with effect from July 01, 2008 is 5.00 % per
annum. Free Life and Disability Insurance cover for account
holders

 Al-Habib treasures Call:-

Corporate societies, trusts and even individuals have large funds
which are generally idle. Such funds can be put to work to earn
handsome profits via the AL Habib Treasurer's Account. This
plan is open to Current Deposited Account. Access to such funds

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requires only a 24 hour notice. Profit is calculated on a daily
product basis and credited to your Account monthly.

 Al-Habib Growth certificates:-

Bank AL Habib has now introduced “5 Years Growth Certificates”
for its customers which are for a longer tenor at very attractive
rates. Receipts may be issued on PLS Term Deposit Receipts
clearly marked “5 Years Growth Certificates”.
Tentative Profit rate: Profit Ra
Term Rate
1st 6 months 6.00%
2nd 6 months 6.50%
3rd 6 months 7.00%
4th 6 months 7.50%
5th 6 months 8.00%
6th 6 months 8.50%
7th 6 months 9.00%
8th 6 months 9.50%
9th 6 months 10.00%
10th 6 months 10.50%

 Super saving account:-

Profit is paid to your account on a quarterly basis. Minimum
Deposit in the Account must be 500,000 or above.
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  Mahana munafa account:-
Mahaha Munafa Account can be opened with an amount of Rs.
25,000/-. Profit will be paid on the 1st working day of each
month. 90% financing allowed against deposit. Free ATM Card
Deposit will be rolled over on maturity for same period at
prevailing rates unless otherwise requested by the customer.
Profit may be drawn through Cheque or ATM at any branch of
Bank AL Habib. Profit is subject to Zakat, Withholding Tax and
other Government Levies unless exempted. Premature
encashment will attract penalty as per rules.Transfer of old to
new deposit will only be allowed with penalty @ 2.00 flat as per
applicable Mahana Munafa Deposit Rules.

 Senior citizen account:-

In case of a joint account the Senior Citizen will be the primary
account holder and other joint account holders must be between
18 and 60 years of age. Profit will be paid on the first working
day of the next month Up to 90% financing allowed against
deposit.. The indicative return payable on "Senior Citizen's
Account" deposit effective November 01, 2008 is 11% per
annum. Free ATM Card. Profit may be drawn through Cheque or
ATM from any branch of Bank AL Habib. Profit is subject to
Zakat, Withholding Tax and other Government Levies unless
exempted.

 Salana account:-
AL Habib Salana Account is a deposit account and can be
opened with Rs, 25,000/-All other rules applicable to PLS Savings
account will also apply to AL Habib Salana Account inculding
Zakat, Withholding Tax and other Government Levies unless
exempted.If the deposit is encashed before maturity, profit will
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be calculated and paid for the period held at the rate applicable
to Savings Account.AL Habib Salana Account profit is paid on
yearly basis.The indicative return payable on “AL Habib Salana
Account” deposit effective March 01, 2009 is 12% per annum.Up
to 90% financing allowed against deposit.

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 Information collected from
BANK AL-HABIB Ltd

Branch: Bilal ganj, Lahore

Branch Manager: Mr. Khalid Javed Syal
Reference: Umer Farooq (officer grade -ii)
Date: 20th February 2009

Contact
Head office

2nd Floor Mackinnons Building I I Chundrigar Road

Karachi,
Pakistan
+92-21-2412986 (Phone)
+92-21-2425423 (Fax)

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