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Evolution of Banking
It has not so far been decided as to how the word ‘Bank’
originated. The explanation of this origin is attributed to
the fact that the jews in Lombardy transacted the business
of money exchange on banches in the market place and
when the business failed, the people destroyed the Bank.
Incidentally, the word ‘bankrupt’ is said to have been
evolved from this practice. The opponents of this opinion
argue that it was so, then how is that the Italian
moneychangers were never called ‘Banchierei’ in the
Middle Ages?

Other authorities hold the opinion that the word ‘Bank’ is

derived from the German word back which means joined
stock fund. Then ‘Back’ was Italianize into ‘Bank’.

Early Growth
Banking in fact is as primitive as human society for
eversince man came to realise the importance of money
as a medium of exchange. Perhaps it was the Babylonians
who developed banking system as early as 2000 B.C. It is
evident that the Temples of Babylon were used as ‘Banks’
because of the prevalent respect and confidence in the

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King Hamurabi ( 1728 – 1686 B.C ), the founder of the

Babylonian empire, drew up accede where in he laid down
standard rules of procedure for banking operations by
temples and great landlords. He got his code inscribed on
the block of diorite about 8 feet tall, containing about 150
paragraphs which deals with nearly all aspects of loans,
interest, pledges, guarantees, natural accidents, loss, theft
etc. Later on Sumerians, Babylonians, Hitties and
Assyrians standardised the values of the goods in silver,
copper and bronze.

It is not certain as to whom invented money but history

recess that king of Lydia castled electrum ingots of
identical shapes and of uniform weights with a triple
emblem engraved on it as an official guarantee of value in
687 B.C. In 1401 a German public bank was framed
comprising the operations of discounting and transferring
of money. By the 16th century, some more public banks
were formed in Venice, Milan, Amsterdam, Hamburg and
Nuremburg. In order to streamline Banking organisations
and techniques, conferences were held in Nuremburg from
1548 to 1551 and it was agreed that the commercial
interest of the time needed a bank with facilities of growth
and transfer but it should not be a bank run by private
individuals. Ultimately in 1587, a State Bank under the
name of banco DI rialto was formed in Genoa. Later the
bank of Amsterdam was also formed in 1609. This Bank
had a guarantee by the State and rendered valuable
services to the Netherlands traders upto the year 1795.

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Similarly in 1690, the Bank of Hamburg came into

existence in Hamburg with the business of accepting
deposits of fine silver or of foreign money and to run
accounts on these deposits. This Bank rendered great
service to the merchants as well as countries it dealt with
until 1873, when it was merged with the Reich bank. By
the year 1700, the bank of England was not only issuing
notes but also conducting accounts for customers. Its
directors were conducting the business like that of limited
companies. The bank had the monopoly of issuing banking
notes. Upto 1813 or there about in England, the main profit
of bank was derived from the circulation of notes.

Development of Modern Banking

In 1918 came into being eleven clearing banks of today.
The effect of this historical development of banking in
England has been fairly wide. First, emergence of a small
number of large banks with wide network of branches.
Second, increase in the popularity of bank accounts and a
large-scale use of cheques.

In 1946, the labour government nationalised the bank of

England and transferred the existing stock to the nominee
of British treasury. In 1955, the British Banks made a
departure from traditional banking by undertaking hire-
purchase finance for companies buying industrial plants
and machinery and took interest on hire-purchase finance.

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Banking In Pakistan
At the time of independence, there were 631 offices of
scheduled banks in Pakistan, of which 487 were located in
West Pakistan alone. As a new country without resources
it was very difficult for Pakistan to run its own banking
system immediately. Therefore, the expert committee
recommended that the Reserve Bank of India should
continue to function in Pakistan until 30th September 1948,
so that problems of time and demand liability, coinage
currencies, exchange etc. be settled between India and
Pakistan. The non-Muslims started transferring their funds
and accounts to India. By the end of June 1948 the
number of officers of scheduled banks in Pakistan declined
from 631 to 225. There were 19 foreign banks with the
status of small branch offices that were engaged solely in
export of crop from Pakistan, while there were only two
Pakistani institutions, Habib Bank of Pakistan and the
Australasia Bank. The customers of the bank are not
satisfied with the uncertain condition of banking. Similarly
the Reserve Bank of India was not in the favour of Govt. of
Pakistan. The Govt. of Pakistan decided to establish a full-
fledge central bank. Consequently the Governor-general of
Pakistan Quaid-I-Azam inaugurated the State Bank of
Pakistan on July 1, 1948. Thus a landmark was made in the
history of banking when the state bank of Pakistan
assumed full control of banking and currency in Pakistan.

The banking structure in Pakistan comprises of the

following types.

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1) State Bank of Pakistan.

2) Commercial Bank of Pakistan.

3) Saving banks.

4) Co-operative banks

5) Specialised credit institutions.

Up to December 31, 1973, there were 14 Pakistan

commercial banks that functioned all over the country and
in some foreign countries through a network of branches.
All these commercial banks were nationalised in January 1,
1974, and were recognised and merged into the following
five banks:

1) National Bank of Pakistan

2) Muslim commercial bank limited

3) Habib Bank Limited

4) United Bank Limited

5) Allied Bank of Pakistan

The state bank of Pakistan is the Central bank of the

country and was established on July 1, 1948.The
separation of East Pakistan and its repercussion in the
form of economic depression has caused a lot of difficulties
to the banking system in Pakistan. The network of bank
branches now covers a very large segment of national
economy. The numbers of branches have increased
appreciably and there is now on branch of bank for every
3000 heads of population approximately. There is done
reasonable growth in deposits from the establishment of

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Pakistan. Besides this growth, specialised credit and

financial institutions have also developed over the years.

The Government of Pakistan in the late 90’s introducing

the need for the privatisation of state owned banks and
companies. The private sector has accepted the challenge
and most of the banks are privatised today. The State Bank
of Pakistan issues the shares of these periodically. Bank
employees and other common peoples can also purchase
these shares and earn profit.

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History of Muslim Commercial Bank

Muslim Commercial Bank (MCB) unfolds 52 years of
growth. MCB is not an overnight success story. The bank
started corporate life in Calcutta on July 9, 1947. After the
partition of the Indo-Pak Subcontinent, the bank moved to
Dhaka from where it commenced business in August 1948.
In 1956, the Bank transferred its Registered office to
Karachi, where the Head Office is presently located. Thus,
the bank inherits a 52-year legacy of trust in its customers
and the citizens of Pakistan.

In January 1974, the Government of Pakistan nationalized
MCB following the banks (Nationalization) Act 1947,
Premier Bank Limited merged with MCB.

A wave of economic reforms swept Pakistan in the late
1990, introducing the need for privatization of state owned
banks companies. In April 1991, MCB became Pakistan’s
first privatized bank. The government of Pakistan
transferred the management of the Bank to National
Group, a group of leading industrialists of the country by
selling 26% shares of the bank.

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In terms of agreement between the Government of

Pakistan and the National Group, the group, making their
holding 50% has purchased additional 24% shares. Now,
25% is purchased by the Government, which shall be sold
in the near future.

Board of Directors
The board of directors has the authority in guiding Bank
affairs and in making general policies. Some directors are
the personnel of the MCB Bank and others are successful
businessperson and executives of other major
organization. Ten members are included in board of
directors, see in a list.

♦ Mian Muhammad Mansha Chairman and chief


♦ Mr. Tariq Rafi Vice Chairman

Ten directors are:

1) Mr. S. M. Muneer.

2) Sh. Mukhtar Ahmed

3) Mr. Muhammad Arshad

4) Mr. Shahzad Saleem

5) Mr. Raza Mansha

6) Mr. Sarmad Amin

7) Mr. Umar Mansha

8) Dr. Aleem Mehmood

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9) Mr. Tanveer Ali Agha

10) Dr. Najeeb Samie

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Structure of MCB








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Structure of MCB – General Bus Stand Branch


B ra n c h M a n a g e r

A s s is t a n t
M anager

A c c o u n ta n t

O ffic e r s

C a s h ie r

M essenger

G u a rd

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Overall performance Of MCB in 1998

Net Profit
Profit after taxation in 1998 was Rs. 399.2 million, an
increase of 67% from Rs. 238.8 million in 1997. Since a
complete provision for non-performing assets has been
made, the balance of the bank now reflects its true
strength. For the first time after MCB’s privatization in
1991, a dividend of 15% was declared last year. It gives
me great pleasure to state that for the year 1998 it has
been decided to announce an increased dividend of 17.5%.

Reserve Fund/Equity
A sum of Rs. 79.8 million has been transferred to Statutory
Reserve this year, raising the total Reserves to Rs. 1,796.6
million at the end of 1998, from Rs. 1,716.8 million as last

Deposits with the Bank at the end of year 1998 stood at
Rs. 123.8 billion as compared to Rs. 124.4 billion in 1997.
The reason for this slight decrease of 0.4% was the
withdrawal of Foreign Currency Accounts as a result of



124391 123822


115000 113005

1996 1997 1998

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Government’s decision to freeze Foreign Currency

Accounts in May 1998. Let me assure you with confidence
that the depositors have complete faith in MCB, which is
evident from the fact that in the very first month of
launching the MCB Maal-a-Maal Rupee Deposit Certificates
Scheme attracted Rs. 7.6 billion.

Total Advances at the end of 1998 were Rs. 62.9 billion as
compared to Rs. 64.4 billion in 1997 showing a fall of 2.3%.
This is mainly due to the slowing down of economy
following the events described above, as well as, in
keeping with our policy of prudent lending.



65000 62920



1996 1997 1998

Investments slightly declined by 0.2%. The current policy
of the management is to dispose off Investment in shares
of listed and unlisted companies at the best possible

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58095 57981



1996 1997 1998

The recovery position in the year 1998 was most
encouraging. Bank recovered Rs. 1.04 billion in cash. The
bank also disposed off properties which were acquired in
settlement of accounts. The recovery of loans shall remain
a priority in 1999.

Foreign Trade
The bank conducted Import business during the year
amounting to Rs. 54.0 billion as compared to Rs. 56.4
billion in 1997. The export business slightly improved to
Rs. 36.9 billion from Rs. 35.1 billion in 1997. Home
remittances declined to Rs. 16.7 billion from 30.6 billion.
The decline in home remittances business was due to
Exports Imports
40000 65000 63523

35000 60000


30000 55000 54037


25000 50000
1996 1997 1998
1996 1997 1998

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freezing of Foreign Currency Accounts, which has effected

the confidence of the Pakistanis working overseas.

Rupee Travellers Cheques

Muslim Commercial Bank who are pioneers of Rupee
Travellers Cheque in Pakistan maintained their leadership
position and sales recovered during the year 1998 were
Rs. 67 billion an increase of 57% over the previous year.

Human Resources
To induct fresh blood in the bank and cater for future
needs, a new batch of management trainees was selected
strictly on merit. After thorough training these offices have
been inducted in various divisions and branches. Attention
was paid to upgrade operational and managerial skills of
staff and a number of professional courses were conducted
at MCB Staff and Training Institutes during the year. We
have continued our programme of hiring of some senior
level Banking Executives from the market, wherever

Year 2000 Compliance

The management and the staff of relevant divisions are
fully aware about the Millenium issues. All the core
computer systems operating in MCB are in full compliance.
All the necessary steps had been taken and MCB was very
much aware about the Y2K bug.

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The progress is as per plan. At the end of 1998, 75
branches were online and 241 branches have been
computerized with multi terminal systems. 66 ATMs were
in operation and over 50,000 ATM Cards had been issued.
The commercial cities of Faisalabad and Multan were
added on the MCB ATM Network. Plans are in hand for
expanding the online network to major cities and covering
all the four provinces thereby providing the ATM network
true national coverage and maintaining our in this service.

Social Sector
The bank had been actively participating in ex-Prime
Minister’s Self Employment Scheme (SES). The
applications received from various applicants were being
processed on merit and disposed off as quickly as possible.
Nowadays, no new loans are being granted as per the
order of Chief Executive of Pakistan.

Foreign Operations
Our bank’s foreign operations in Bangladesh and Sri Lanka
continue to remain profitable. In April 1999, the bank
opened its third branch in Sri Lanka at Maradana a suburb
of Colombo.

Our country is passing through a critical phase of its

history. Pakistan’s economy continues to remain under
pressure as it adjusts to new economic challenges and
realities. The performance of the economy directly

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influences the performance of the financial sector. MCB is

cognizance of its role in the national economy, and will
continue to play its role as a lead bank.

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Chairman’s Review
1998 was an eventful year for our country. Pakistan joined
the polity of nuclear powers and strategic imbalance
created in the region due to a nuclear test by a
neighboring country was restored.

The May 1998 Nuclear Test led to the imposition of

sanctions and suspension of multilateral assistance by the
leading Western Aid giving countries, putting the
Pakistan’s economy and balance of payment position
under severe pressure.

The Government of Pakistan took a number of far reaching

decisions in the wake of the Nuclear Test which included
freezing of Foreign Currency Accounts, introduction of
three Foreign Exchange rates and increase in Petrol prices
and Sales Tax.

Overall 1998 was difficult and challenging year for the

nation especially for trade and commerce and industrial

However, as a result of various corrective measures taken

by the Government, the economy is now slowly coming
back to normal. According to a recent statement of the
Federal Finance Minister, the inflation rate has been
brought down to around 6% and the Foreign Exchange
Reserves which had touched US$ 440 Million in 1998, were
at US$ 1.8 Billion by the end of April 1999.

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In keeping with the W.T.O. requirement, the Government

also had to reduce the custom duty on Imports. There has
been a small drop in electricity tariff for industrial and
commercial consumers. The State Bank of Pakistan
reduced the Repo rates from 16.5% to 15.5% and then to
14%. This resulted in reduction in mark up rates by the
large commercial banks in April 1999, which is bound to
encourage higher credit growth.

The economy still faces major challenges. The growth rate

of economy has gone down to around 4% from 6%. The
Export target of US$10 billion for the current financial year
ending June 30, 1999, has been reduced to US$8 billion
(this figure is static for the last few years now). However,
there is likely to be significant reduction in the Trade
Deficit during 1998-99.

A very significant achievement of 1998 was holding of

population census after 17 years, which was necessary to
formulate various socio-economic policies by the

Keeping with the above economic scenario in view, the

over-all performance of Muslim Commercial Bank, during
1998 can be termed as very satisfactory

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MCB provides the facility to the people who need advance
money to meet their requirements. For getting the
advance the following steps are there:

1) Information required by the bank

2) Preparation of credit proposals

3) Sanction advice

1. Initial Information
Following information is required to be submitted to bank.

♦ Nature & structure of borrower business.

♦ Names of proprietors, partners or directors.

♦ Detail of all firms or companies associated with


♦ Financial condition of borrower business.

♦ An assessment of his business abilities.

♦ Accurate and upto date financial statements of last two

years for comparison purposes.

♦ Market report on the borrower where borrower has

maintained an account with another bank, a report
from his bank should also be obtained.

♦ A report from credit standing bureau of State Bank of


2. Preparation of Credit Proposal

At first a formal application for credit approval is obtained
from the party along with complete group position. The

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party’s credibility report is obtained from the bank with

which the bank is doing its business. The party’s credibility
report is also taken from the Head office of Trade
Information Division.

For obtaining credit, party has to submit the last two years
Balance Sheet and Profit & Loss statement duly attested
by authorised auditors. If the party is also involved in
export or import business then the bank also considers the
data of three years about import & export. Current debt
and equity ratio is also calculated by the bank. The type of
data required to prepare the credit proposal is to be
gathered from the different departments. Some data is
obtained from the foreign Exchange department. Some
data is available in Advance Department. The purpose of
obtaining Credit should be explained clearly. The securities
offered by the party to the bank are also evaluated. In
case of pledging of property in shape of land or building
the complete evaluation of the property should also be

After all the necessary documents for applying for advance

is fulfilled by the party then the case is sent to Manager for
approval. If the credit limit is in his range then he can
decide over it otherwise the case is forwarded to seniors. If
there is any discrepancy then the party is informed of it.

3. Sanction Advice
When the documents required are complete and there is
no ambiguity then the party is advised that their credit or

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loan is approved and will be available to you soon. There is

a separate form for every annual approval or in case of a
new facility (See Annex - ).

The form contains following information:

♦ Nature and amount of limit.

♦ Purpose

♦ Security/ Collateral

♦ Margin (%).

♦ Mark up/ Charges

♦ Validity

Other Terms and Conditions

1) The bank reserves the rights to revise / amend / modify
the rates of mark-up commission or any other
conditions of the liabilities within the period so decided
by the Bank.

2) The bank shall have full authority to cancel the facilities

allowed without assigning any reason and to call for
adjustment of the liabilities within the period decided
by the bank.

3) The facilities granted are subject to SBP’s Prudential


4) The hypothecationed goods, building and machinery

must be insured at all times against the risk of fire,
riots, strike, burglary, malicious damage risks withthe
bank as the mortgage and yourself as a mortgager, and
the relevent policy held by us.

5) Assets hypothecated to the bank will have to be insured

at all times for full market value. The insurance policy
will be made in the joint name of the company and the

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bank. The relevent insurance policy will be held by the

bank along with the premium payment receipt.

6) Stock statements together with a list of book debts are

to be submitted at the end of each month to reach us
by the first week of the following month.

7) The bank would undertake the inspection of stocks from

time to time and in any case atleast once in the
calendar year.

8) SBP has imposed Prudential regulations on all the

banks. These facilities are being offered withthe
understanding that your company’s financial condition
will comply with these regulations.

9) Audited accounts should be submitted to the bank

within six months of date from the date of your financial
year end.

10)All levies and taxes now or at any time hereafter levied

and payable in respect of the financial accommodation
and banking facilities set out in this letter will be
exclusively borne by you.

11)All requisites charge forms to be submitted duly filled in

and signed by the authorised persons.

12)For any change in any ownership, prior permission of

bank shall be obtained otherwise existing owners shall
also continue to be liable.

13)In normal banking practice the facility is repayable on

demand and we reserve to ourselves the right to vary
the terms and condition or ask for repayment if
circumstances arrive which in our opinion justify our
doing so.

Types of Advances
MCB provides advances, which are of two types. These are
as following:

♦ Fund Based Advances

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♦ Non Fund Based Advances

1. Fund Based Advances

Funds are given to customer according to their
requirement against securities.

These loan are given specially to traders, business, small

industrial units, including cottage industries, agriculturists,
thus ensuring an equitable distribution of bank credit
among various sectors of the country’s economy.

There are following types of advances, which are given to

customer on fund basis.

1) Industrial loan

2) Commercial loan

3) Agricultural loan

Industrial Loan
Loans are given to industrial units including cottage
industries up to or less than RS. 20 million. Loans and
advances shall not exceed amount specified by marginal
restriction on the type of securities offered. Industrial
loans are granted to the manufacturing section of the
economy including finance for fixed investments and
working capital requirements of small industries.

Loan Period
Loans are allowed for a maximum period of 5 years
including a maximum grace period of 1 year. In special

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case up to 10 years also, depending upon the merit of the


Commercial Loan
Total principal amount of loans to a single
enterprise/borrower shall not exceed RS. 0.5 million.
Maximum maturity is 3 years, depending upon the nature
and type of advances, decided upon case to case basis.

Both for commercial and industrial loan, mark-up will be
charges as per existing rate, subject to changes from time
to time. Presently it is 0.51 RS per day per RS. 1000/-.

Mode of Repayment
Equal monthly, quarterly or half-yearly, repayment of
principal and interest or as per term of approval.

Securities and Margin

Loans can be made against any or more of the following
securities mortgages of immovable property (land and
building), pledge of stocks, raw materials, and finished
goods, hypothecation of stocks, raw material, and finished
goods, State bank of Pakistan guarantee.

Types Of Advances by MCB

1. Fund based Advances
Following are the Fund based Advances:

♦ Running Finance(RF)

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♦ Cash Finance(CF)

♦ Finance against imported goods(FIM)

♦ Export Refinance part-I (Pre-shipment)

♦ Export Refinance Part-II

♦ Finance against purchase collection(FAPC)

♦ Finance against foreign bills(FAFB)

♦ Foreign bill purchases(FBP)

♦ Local Manufacturing Machinery(LMM)

♦ Payment Against Document(PAD)

♦ Demand Finance(DF)

♦ Khud Rozgar Scheme

The detail of above-mentioned items are given below:

a. Running Finance (RF)

The max time of repayment is one year. It is according to
will of customer. This type of advances are given to Trade,
Commerce and manufacturing general purposes. These
finances as evident by the name are given to meet their
daily needs. The mark up is charged on daily balances.
Normally 0.54 paisa per thousand is charged on daily
basis. It is drawn through cheque.

b. Demand Finance (DF)

The duration of DF is more than running or Cash Finance.
These are made in Lump sum and are there is a
permission to repay the amount in periodic instalment.
Upon receipt of documents negotiated by the seller bank,

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the opening bank makes sure that documents are

according to terms and conditions of the credit. Bank
makes the payment to the party against document and
upon expire date, bank receives back money with mark up

c. Payment Against Document (PAD)

LMM funds are provided by the SBP. The bank provides the
facility to the businessman who wants to buy the local
manufactured machinery.

d. Local Manufacturing Machinery (LMM)

It is a long term financing. MCB also gives loan under the
head of demand finance to individuals, industrial units and
commercial business etc. This is a type of secured loan
and demand loan is never allowed without security.

e. Foreign Bills Purchases (FBP)

The exporters, which are under L/C are also provided with
the facility of loan. Amount is given to the exporter after
the approval of L/C by the issuing bank.

f. Cash Finance (CF)

MCB gives the facility of cash credit to the business. The
borrower gives a specific reason for the need of cash. The
amount is passed through voucher and credited to party’s
account. Normally 0.52 paisa per thousand is charged on
daily basis to customers.

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g. Finance against Imported Goods (FIM)

These types of advances are granted against the pledge of
imported goods. These goods are pledged by the bank.
Bank pays all the charges to customs and keeps the goods
in its control. The bank releases the good on payment from
the client to bank.

h. Export Refinance Part-1 (Pre-Shipment)

The government pursues the banks to provide the loanto
the exporters to promote the export. The bank provides
this type of advance facility to only those exporters who
have not enough money to make shipment. Bank provides
the loans to the customer at the rate of specific % for
period of 150 days.

i. Export Refinance Part-1 (Post Shipment)

This means that the customer has enough amount to
make first shipment but not more. So the bank issues a
loan to the exporter. This financing is for period of 150
days. Finance is provided by the SBP to the exporters for
purchase of raw material, its processing, Packing and
shipment. In case, if the party is unable to make the
shipment within 150 days of financing. The party has to
pay certain amount of finance as asked by the SBP and
after 150 days the rate of mark up also goes up @ 51
paisa per thousand per day. So usually exporters try to
make the shipment within the fixed period set by the SBP
which is usually 150 days.

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j. Export Refinance Part-11

In this case the bank after receiving the performance of
years in export business of party sets the limit for the
period of one year. Here the limit cannot be set by the
terms pledged of the permission of the bank.

k. Finance Against Purchase Collection (FAPC)

A bill may be purchased by the bank. If a client is in urgent
need of money and he has a bill whose clearance may take
a few days then he sells it to bank. Bank pays the amount
to the client after deducting its commission.

l. Finance Against Foreign Bills (FAFB)

Bank also provides finance against the foreign bills. This
facility is given to the exporter, if he needs an urgent
money. He gives bill of exchange to the bank as security
and bank sends these bills for collection and gives money
to exporter.

m.Khud Rozgar Scheme

Limit for loan
The limit of this loan is from Rs 10,000 to Rs 500,000

♦ A personal security is required to obtain loan otherwise
anyother security will be required.

♦ Total business assets will have to be hypothecated.

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Mark up & return of loan

♦ Mark up will be at the rate of 15 % for timely return of
loan otherwise rate of mark up will be 16 % per annum.

♦ The payment of mark up on loan will start after 12

months of payment of principal amount.

Eligibility of Applicant
1) The age of applicant should not be less than 19 years
and he has not applied for any type of loan from any

2) Applicant has been living in the residence shown as

address for atleast one year.

3) Applicant is not the student nor the employee of any

govt organisation.

Eligibility of Guarantor
1) He has been living at the given address atleast for one

2) He is not the employee nor the family member of MCB.

3) He is not the officer of any Govt organisation.

Fees for Loan

A fee of Rs 100 will have to be submitted which will be

Important documents required

♦ Two copies of application form (one original & one

♦ Original Identity card will have to be shown. Similarly

two photo copies of ID card will also be required.

♦ Two passport size snaps of both applicant & guarantor.

♦ Original & attested documents of asset of guarantor.

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The application of loan can be rejected in case of
incomplete or wrong information. Approved loan can be
cancelled. It should be informed that the rejection and
acceptance of loan are sole right of bank. If the rent of loan
is not paid for more than 3 months then the remaining
amount will be required to refund immediately with 16 %
mark up.

Agricultural Loan
Bank provides the agriculture advances in order to
enhance and support the agriculture sector of the country.
Bank’s Agriculture division deals with the agriculture
advances. These advances are of following types:

1) Farm Credit

2) Non Farm Credit

Farm Credit
These are the credits provided by the MCB or purchases of
inputs for development of agriculture sector. Following are
two main Sub classes of Farm credit:

Production Finance
These are short term loans. These laons are provided to
farmers for purchases of different types of input, for
example seeds, fertiliser, and pesticides.

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Development Finance
These are medium or long term loans. These loans are
provided for the development of agricultural sector. Main
Purposes of these loans are as under:

♦ To purchase tractors

♦ To purchase implements (Trolley, Threshers, Drill etc).

♦ For installation of tube wells

♦ For planting of gardens

Non Farm Credit

The second major form of agriculture advance is Non Farm
credit. These loans are provided to boost up agriculture
sector to provide the sources of earning of foreign
exchange as well as to provide employment opportunities
to people. These loans are provide against mortgage of
land as security or pledge of equipment as collateral
security. These are long term or medium term investment
depending upon the project.

Following are the different types of small industries for

which loans are provided to improve the economy of the

♦ Fish Farm

♦ Cattle Farm

♦ Poultry Farm

♦ Dairy Farm

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2. Non Fund Based Advances

When an applicant for an advance cannot offer any
tangible security the banker may rely on personal
guarantees, letters of credit to protect himself against loss
on advance or loan.

There are two type of advances which come under Non

Fund Advances.

♦ Guarantees.

♦ Letter Of Credit.

Letter Of Credit is explained in Foreign Exchange

Department while Guarantees are elaborated below.

Bank examines customer’s relation with the bank 7 the
nature of the business. Bank also sees his past business
with the bank. Sometimes bank issues Guarantee on the
behalf of the customer by getting some margin from him.
This margin may vary from customer to customer.

Requirements for Guarantee

Banks issue guarantee on the behalf of customers. Limit
proposals covering transactions should be submitted
with full detailsfor the approval of appropriate sanctioning

Generally Guarantees are issued in favouring of Shipping

companies, Govt Departments guaranteeing specific

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payments at future dates by customer on whose behalf the

guarantees are issued. While executing a guarantee, the
terms and conditions of the guarantee are closely
examined in order to determine the extent of bank
obligations and financial liability under the guarantee and
the type of guarantee, all condition are contained in the

Bank charges a commission on the amount for which
guarantee is issued. Normally the validity period of
guarantee does not exceed one year. After the guarantee
has been issued, a copy of same is issued to the counter
guarantee issued to the customer.

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Account Opening
The general banking performs various functions among
them the first and most important function is A/C opening.
The process of opening an account is very simple and any
body who would like to open his account could do it easily
without any difficulty.

Types of Accounts
There are three types of accounts




Procedure for Account Opening

1) Application Form
The customer would like to open his account is required to
meet with the manager or second officer, who will give him
an “APPLICATION FORM” specifically used for account
opening. Separate colour-coded Application Form is
available for each type of account. So that a particular
coloured form is given to the customer to fill in for opening
a related account.

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2) Specimen Card
As I have already mentioned about “SIGNATURE SPECIMEN
CARD”. This card contains three signatures of an
applicant, applicant A/c no, A/c type, branch code, title of
A/c, it will be attached with an application form. Banker
uses this card at the time when he receives the cheque; he
compares customer’s signature with the signature on the
cheque for avoiding fraud.

Manager has every right not to accept this contract if he is

not satisfied by the details provided by the customer.

3) Account Opening Register

The manager records the necessary details into this
register and allots an a/c number from this a/c opening
register. This register is maintained for each type of
account and the a/c numbers are allotted serially. After
opening a saving and current account every applicant’s
data is entered into the computer to maintain a safe
record and application form is properly filled so that it can
be available when necessary. For fixed deposit only that
application form is needed which is prepared manually,
because most of the procedure of fixed deposit is done

4) Cheque Book
Cheque book is issued to the customer when the bank
accepts the A/C opening application form.

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Types Of Customers
1) Individual
Only one person can operate this a/c. We can call it a
personnel or individual a/c.

2) Joint
In case of joint A/c, applicant mentions that how much
person will operate the A/c. Instruction are given for joint
A/c such that the account shall be operated by

a) Any one of us or survivor.

In first case if one of the a/c holders died then the other
can operate the a/c individually.

b) Any two/All of us jointly.

In second case if one of the a/c holders died then the other
partner can’t operate this a/c individually without having
permission from the court.

3) Partnership A/C
For partnership a/c, along with the application form
signature card. Other documents are also needed such as

♦ Registration Certificate

♦ Agreement among partners

♦ Commencement of business

In case of addition or withdrawal of any partner a new
agreement will be required.

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4) Company Account
For company accounts following documents are required: -

♦ Private registration

♦ Resolution of board of directors

♦ Commencement of business

♦ Memorandum and Articles of Association

♦ Balance sheet

Letter of Thanks
Bank prepares two ‘LETTER OF THANKS’ one for the new
customer and the other for his introducer. This act
promotes good will among the customer and the

Closing of an Account
There are no. of reasons of closing an account. Some are
listed below:

1) If customer desires to close his account

2) In case of death of one account holder.

3) Bankruptcy of the account holder.

4) If an account contain nil balance or not up to the

requirement of rules.

Before closing any account, bank send letter to the

account hold for informing him that his account is going to
be closed. There is need an approval form higher authority
to close any account.

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Importance of Deposits for Bank

The primary economic function of the commercial bank is
to receive surplus income of individuals, firms, public
houses, institutions, companies and to honour cheque
drawn upon it. Deposits are to bank as a backbone is to
the body of a man. It is the lifeblood of a bank. The
deposits of a bank are useful in many ways.

The bank borrows money from the general public by

accepting deposits by offering suitable rates of interest to
them or simply promise to repay on demand.

Types Of Accounts in MCB

The fund deposited in the MCB bank can be classified
under the main heads:





1) Current Deposits (Or) Demand Deposits

♦ Current deposits are those which are payable to bank
whenever demanded by the customer.

♦ Bank does not pay any profit on current deposits.

♦ There are of different scheme of saving deposits, which

are classified under different duration purpose and rate
of interest.

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Rules for Current Account

Current a/c holder opens Current Accounts on proper
introduction only. However, introduction of a PLS Saving
Account holder of repute may be accepted at the
discretion of the manager.

A) Minimum Balance
A sum not less then RS. 1,000/- in cash as initial deposit is
required for opening a current account and the same may
be maintained as minimum average running credit

B) Profit
♦ No profit will be paid on credit balances held in current

♦ The bank reserves the right to allow opening of current

a/c at its description.

♦ All deposits and withdrawal from a current a/c will take

place only at the branch where the account is being

♦ Current a/c cannot be overdrawn, except by prior

agreed agreements with the bank.

♦ The correspondence relating to current A/Cs should be

addressed to manager of the branch where the account
is being maintained.A

♦ A distinctive number will be allotted to each current

account and shall be quoted on all correspondence
relating to the respective account and at the time of
making deposits and withdraws

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C) Issuance of Cheque Book

The Cheque book is issued against the valid requisition slip
signed by the account holder as per signature provided by
the bank. The account holder can draw sums from his
account by means of cheque supplied to him by the bank
for that particular account. In drawing cheques the
amount in words and figures should be written distinctively
and the cheque should be drawn in such a way as to
prevent the insertion of any other word or figure. Account
holder should take well care of the cheque books issued to
them. The account holder will pay excise duty of Rs.4 per
leaf to the government.

2) Saving Account
Saving accounts are opened on proper introduction with
sums of credit balance within certain limit for individual
(single, joint) institutions, companies, educational
institutions etc.

MCB has introduced various schemes under saving a/c,








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1. Profit and Loss Sharing Account

PLS saving account having a running minimum credit
balance of RS. 1,000/- would be eligible for sharing
profit/loss of the bank. The bank would be within its rights
to make investment of credit balances in the PLS saving
accounts in any manner at its sole discretion and to make
use of the fund to the best of its judgement in the banking
business under the PLS system.

Withdrawals from PLS saving account are allowed not more
than 8 times in a calendar month and for a total amount
not exceeding RS. 15000/- without the approval of bank
manager. For withdrawal of larger amount, 7 days notice
in writing is required to be given.

The profit/loss will be credited/debited on the basis of its
net working results at the end of each half-year.
Calculation of products on PLS saving A/c will be made for
each calendar month on the lowest credit balance of an
account between the close of business on the 6th day and
the last day of the month. If the balance is less than
Rs.100/- the product will be nil.

Rules for PLS

♦ Account holder can only withdraw sums from his
account by means of cheques supplied to him by the
bank for that particular account.

♦ Post dated and stale cheques shall not be paid.

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♦ The bank reserve to itself the rights to close any

account without previous notice any account which has
not satisfactory account credit balance.

♦ If the account holder withdrawals the money under 7

days notice, the profit loss earning products will be
computed on the monthly minimum balance. Zakat is
deducted every year on non-exempted accounts.

2. Khanam Bachat Scheme

Target Market
♦ Individuals planning to save funds for education &
marriages of their young sons /daughters.

♦ Individuals interested in long term deposits.

♦ Individuals in low class middle group.

♦ Individuals showing confidence in Bank’s long term

schemes than schemes of similar maturities offered by

♦ The loving parents that want best for their children.

Deposit Amount
We will have to deposit Rs 1000 on monthly basis t the
time birth of your baby or at later stage. It will continue for
upto 10 years without making any withdrawal.

♦ The account can be opened singly or jointly.

♦ Account in the name of miner can be operated by

mother, father or jointly as guardian.

♦ No advance can be extended against a minor account.

♦ If anybody withdraws prematurely then profit will be

calculated on prevailing PLS account.

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♦ The bank reserves the right to refuse any depositor in

the scheme without giving any reason.

♦ This account can be opened in any MCB branch.

♦ The interest is given on yearly basis.

♦ Tax & Zakat will be deducted according to rule at the

time of maturity and payment.

3. Mahana Khush-hali Scheme

Target Market
♦ Individual interested investing for five years saving

♦ Individuals who want monthly return on investment.

♦ Middle class income group.

♦ For the persons residing abroad and family in Pakistan.

♦ For retired persons who want regular monthly return on


♦ Minimum amount required is Rs 25000 and Maximum is
Rs 1 million.

♦ This scheme can be adopted by individuals ( Single or

Joint) in their names.

♦ This certificate will mature after 5 years.

♦ The bank will give profit on monthly basis.

♦ Zakat is deducted on payments and profit according to

government rules.

♦ Services

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♦ We 7 our nominee can collect cross pay order.

♦ Profit amount can be send to you by postal money order

& demand draft.

♦ Profit will be paid from that branch where you have

opened Khush-hali Account.

♦ If a customer has a saving or current account in this

bank then profit can be deposited in that account.

The following table gives the monthly returns on various

amounts, based method of calculation.

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1,000,000 10,830
500,000 5,416
100,000 1,083
50,000 541
25,000 270

In Case of Premature Encashment

The following rates of profit will apply:

♦ If the certificate is held for less then 90 days

No profit

♦ If the Certificate is held for 3 months but less than 6 months

PLS rate

♦ If the Certificate is held for 6 months but less than 1 year

PLS rate

♦ If the Certificate is held for 1 year but less than 2 year

PLS rate

♦ If the Certificate is held for 2 year but less than 3 year

PLS rate

♦ If the Certificate is held for 3 year but less than 4 year

PLS rate

♦ If the Certificate is held for 4 year but less than 5 year

PLS rate

4. Khush-hali Bachat Account

Target Market
♦ Individuals who want to pay dues of insurance, HBFC&

♦ Individuals living abroad but their families are in


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♦ Busy individuals who don’t have time to pay their dues


Special Incentives
♦ Return is calculated on daily average balance.

♦ Profit is paid half yearly.

♦ It can be operated at mostly all the branches of MCB.

5. Capital Growth Certificate

MCB has a risk-free return scheme by which your capital
can grow to nearly double the amount in just a few year
time. All that is required is a minimum amount of deposit.
At the end of the stipulated period, the bank returns close
to twice as much.

Target Market
♦ Individuals interested in medium term saving schemes.

♦ Individuals of middle income class group.

♦ Individuals keeping excessive balance in current


♦ Individuals interested to save fund for lump sum,

education & marriages.

♦ Individuals seeking protection against increasing

inflation rate.

♦ Minimum deposit will be Rs 10,000 with no limit for

♦ Time span is minimum five years can be expanded to 5


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Initial Deposit Payment upto maturity
(Rupees) (approx.)
10,000/- 20,000/-
50,000/- 100,000/-
100,000/- 200,000/-
1,000,000/- 2,000,000/-

♦ In case of premature encashment of certificates, the

depositor will be given “PLS Saving Accounts “ profit
rates declared by the bank for that particular period.

♦ Depositors will be required to fill in Account Opening


6. Fixed deposits
Fixed deposits are those deposits which are by the bank
under the conditions that they will not be payable on
demand but will be payable under fixed or determinable
future time date.

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This department provides the facility to their customers to
import machinery or products from other countries. It is
necessary for the importers to have the licenses, which is
issued by the chief controller of imports and exports.
Before obtaining an import license the license must be
registered with the chief controller of import and export.
For having the license, an individual or firm submits the
application through his bank.

Documents Required
♦ Filled application form for Register

♦ The National Identity Card of the applicant

♦ National Tax Certificate issued by the Income Tax


♦ In case of firm or company, the Memorandum and the

Article of Association.

Banker issues the letter of credit normally in the response

of the Performa Invoice. The seller sends this invoice to
the buyer and it contains seller name, product quality.
Rate, mode of shipment, and other terms and conditions.

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Letter of Credit
Definition of letter of credit
A letter of credit is a written instrument issued by a bank
authorising the seller to draw in accordance with certain
terms and stipulating legal forms, that all such bills will be

Explanatory Definition
A letter of credit consist of an undertaking by an issuing
bank that bills drawn by the exporter will be duly owner
provided the comply with the terms of credit.

Reasons For L/C

1) The exporters are uncertain of the importer capacity to

2) The importers are unwilling to pay the amount unless

the goods are actually shipped and the documents
received by the bank.

3) In case of non-payment the seller should be assured to

legal rights in foreign country.

4) There should be an agency, which should meet the

seller’s need of finance when the goods are shipped.

5) The commercial banks come to the help of exporters

and importers.

6) The importers can undertake the obligation to pay to

the exporter for the purchase made by the importer
and this is usually done through a letter of credit.

A letter of credit is a:

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1) Written undertaking by importers bank to a third party

i.e. the exporter.

2) That it will be pay or accept draft (letter of credit)

drawn upon it up to a started sum of money within a
specified time.

3) That the payment will only be made to the exporter if

he complies with the specified terms of credit.

Parties Involved in a Letter of Credit

There are four parties involved in a letter of credit

♦ Account party

♦ Issuing party

♦ Exporter

♦ Paying or negotiating bank

Account party or Importer

The buyer or the importer on whose account and request
the letter of credit is opened is known as account party.

Issuing party
The bank, which issues or opens a letter of credit at the
request of importer, it is called the issuing bank.

The seller or the party in whose favour the letter of credit
is draw is the third party and it is also known as

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Paying or negotiating bank

The paying bank in the exporter’s country on which the
draft is drawn is called the paying bank.

Operation of a letter of credit

1) The importer of buyer contacts the seller in foreign
country for the purchase of a particular good or goods.

2) He settles with the seller the quantity and quality of the

goods to be importer.

3) The sale contract also includes the method of payment.

4) The importer then submits an application to his bank

for the issuing of an individual letter of credit.

5) The form on which the importer employees for a letter

of credit is supplied by the bank.

6) This form contains all the necessary details discussed

between the importer and exporter for the shipment of
goods which include the description of merchandise,
port of shipment, port of unloading, the documents
against which the bank is the honour the draft, the total
value of the goods etc.

7) If the documents supplied by the seller conform to the

terms of contract the exporter will be paid.

8) The issuing bank will not be responsible if there is any

fraud or the merchandise does not conform to the sales

9) The obligation of the buyers bank is,

To issue letter of credit on agreed terms and condition

with the buyer.

To have a proper examination of the documents.

To honour draft when presented with proper


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Types of Letter of Credit

1) Irrevocable letter of credit

2) Revocable letter of credit

3) Confirmed letter of credit

4) Unconfirmed letter of credit

5) Documentary letter of credit

1. Irrevocable letter of credit

It is the one in which the issuing bank gives a lasting
undertaking to accept and in due course to pay bills drawn
upon it provided the exporter fulfils the terms and
conditions. It gives a complete protection to the exporter.

2. Revocable letter of credit

It is the one in which can be modified or cancelled by the
issuing bank at any time without any obligation on its part.
They are not acceptable to the businessman.

3. Confirmed letter of credit

It is that which has the protection of the credit standing of
the importers as well as the exporter’s bank. The exporter
bank, which confirms the letter of credit, takes the liability
of paying in case the issuing bank fails to make payment
to the exporter.

4. Unconfirmed letter of credit

It is one under which the exporter’s bank does not give
any guarantee to the exporter that the bills drawn will be
honoured by the issuing bank. It is the commitment of the

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issuing bank to honour the draft. From the exporter’s point

of view, the confirm irrevocable letter of credit is the best
form of receiving payment.

5. Documentary letter of credit

It is the one of which provides for bills to be accompanied
by documents of title to goods such as the bills of landing,
invoice, the policy of insurance etc.

How a letter of credit is opened?

1) Application for a letter of credit

2) Line of credit

3) Opening of the letter of credit

4) Handling of the documents

5) Payment by the importer to the bank

6) Liability of the issuing bank

1. Application for a letter of credit

An importer prepares an application on the prescribed
form available from the bank. The information which are
supplied in the application are based on the contract of
sale and include only the importer feature of contract such
as the value of the merchandise, port of shipment, port of
unloading, expiry date of the papers and brief description
of the goods. If the bank is satisfied with the applications,
it will signed and acceptance agreement with the importer.

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2. Line of credit
Before issuing a letter of credit, bank takes all necessary
precautions for securing its credit. The bank first
examines the customers credit standing, the type of goods
to be imported, the market demand for the goods, the
collateral offered to cover the credit. Then it establishes
the amount i.e. the line of credit.

3. Opening of letter of credit

The letter of credit can be opened by mail or by cable.
When it is opened by mail, the issuing bank sends letter of
credit and to carbon copies to the importer. The importer
then dispatches the letter of credit to the exporter in
foreign country by mail. One carbon copy is kept for the
record. The second carbon copy after signing is sent to the
bank by the importer. If an importer directs the bank to
open letter of credit by cable, the importer’s bank sends a
cable to the corresponding bank in the foreign country with
a request to notify the exporter.

4. Handling of the documents

When the exporter receives a letter of credit, he presents
the required documents and the draft to the bank in his
own country after shipping of documents. If the bank is
satisfied with the documents in the importing country and
pays the exporter at official rate in the currency of his own

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5. Payment by importer to the bank

When a bank approves the application of a customer for
opening letter of credit, it does not lend money to the
importer. The bank only lends the importer to use the
credit standing of the bank to the exporter in the foreign
country. The bank makes a contract with the importer that
when the draft if send by the negotiating bank for
payment the importer will make the payment to the bank
not later then the day only the bank is to honour the
obligation. In case of a sight letter of credit the payment
to the corresponding bank is to be made on the day the
draft and documents are received. When the time of letter
of credit is used the importer is to arrange the payment
not later than the day on which the draft is to mature.

6. Liability of the issuing bank

The liability of the issuing bank is to examine the
documents in order to confirm their validity. If the
documents on the face appear to be in order the payment
should be released. If any defect is found in the
documents and the issuing bank honours the draft, the
importer can claim damages. The banker is not
responsible to see whether the merchandise conform the
sale of contract or they physically exist. The issuing bank
is only responsible for the completeness and regularity of
the documents relating to the letter of credit.

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Importance of Letter of Credit

The bank charges nominal commission on financing the
import and export shipment.

Benefits to the Banks

♦ Increased balances

♦ Commission

♦ New business opportunities

Increased balances
♦ The balances are the lifeblood of every commercial

♦ The banks get mark up on the credit and this mark up

increases the money of the bank

The commission charged by the banks varies with the
kinds of letters issued by them. Though the commissions
are small, yet when counted on the whole, they form an
important part of earning of the banks.

New Business Opportunity

The letter of credit provides new business opportunity to
the bank. The firms, which are engaged in the export and
import of merchandise, are introduced to the banks, which
by serving them develop profitable relationship.

Opening of Letter Of Credit In MCB

Before opening of L/C certain requirements are necessary
that are

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♦ The applicant must has import registration #

♦ He must has account in that bank

♦ He must pledges his security against the L/C amount

♦ He must have IB-8 form, indent or agent form, and

performance invoice.

Bank Charges
♦ The bank takes commission @ 0.40 % of amount of L/C
for one quarter and 0.25% for two or more quarters.

♦ If L/C amount is low then minimum bank commission is

RS 500/-

♦ Postal charges are RS. 1200/-.

♦ Stamp duty is calculated @ 0.50% of L/C amount.

♦ Mark up is calculated at RS 0.50 per day per 1000.

For Collection
♦ In case of sight payment service charges are calculated
@ 0.10 % of bill amount and minimum charges are RS.
500/-and handling commission is RS. 500

♦ In case of D/A L/C, commission is calculated @ 0.10 %

per month

Advantages of Letter of Credit

Advantages Of letter of credit to the importer and exporter

♦ Provision of finance

♦ Credit standing

♦ Legal right

♦ Risk covered

♦ Business expansion

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♦ Bridges credit gulf

♦ Payment in domestic currency

Shipping Terms
The following shipping terms are used in international

♦ EX-works

♦ FCA ( free carrier)

♦ FAS(free along side)

♦ FOB( free on board)

♦ CFR(cost & freight)

♦ CIF(cost insurance freight)

♦ DAF(delivered at frontier)

♦ DES(delivered EX-ship)

♦ DEQ(delivered EX-quay)

♦ DDU(delivered duty unpaid)

♦ DDP(delivered duty paid)

Documents are the most important part of international
trade. Without them trade cannot be completed.
Documents are of five types.

1) Commercial documents

2) Transport documents

3) Insurance documents

4) Financial documents

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5) Official documents

1. Commercial Documents
Commercial documents consist of following forms.

♦ Invoice form

♦ Certificate of origin

♦ Weight note

♦ Packing list

♦ Quality or insurance certificate

2. Transport Documents
These documents are related with transfer of goods.
These documents consist of following forms,

♦ Airway bill

♦ Bill of lading

♦ Rail consignment note

♦ Roadway bill

♦ Combined transport bill of lading

3. Insurance Documents
Insurance documents consist of following forms.

♦ Letter of insurance

♦ Insurance policy

4. Financial Documents
These documents are concerned with the payments of
goods. These documents consist of following forms.

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♦ Bill of exchange

♦ Clean bill

♦ Short bill

♦ Documentary bill

♦ Bank bill

♦ Delivery against acceptance

♦ Delivery against payment

♦ Promissory note

5. Official Documents
These documents consist of following forms.

♦ Black listed certificate

♦ Consular invoice

♦ Health, Vetenary, Sanitation certificate

Usually the exporter does not rely on the credit of a banker
in the country of importer, and insist on a confirmation
from a banker carrying on business in his own country.
Thus this department of a bank helps the exporters to
settle down their financial affairs. For exporting it is
necessary for exporter to get export license from the chief
controller of import and export after registration.

Documents are required for the registration such as N. I. C.

Card, income tax certificate, bank certificate which shows
that the exporter is his account holder and have a good
dealing with them. In response to the letter of credit

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exporter submit the following documents to the

negotiating bank.

♦ Bill of exchange

♦ Invoice

♦ Bill of lading or Airway bill/railway receipt/truck receipt

♦ Insurance documents

♦ Packing list

♦ Any other documents, if so required.

The negotiating bank will send the same documents to the

issuing bank. In accordance with the terms and condition
laid down in letter of credit.

Security of Documents
Whether documents received are meant for the opening
bank and specifically for the branch which established the
letter of credit. The documents would be negotiated within
the validity of L/C. The goods have been shipped within
the time allowed under L/C. The goods are mentioned in
invoice and other documents (e.g. bill of lading, packing
list etc) are in accordance with merchandise clause L/C.

Whether the documents received pertains to L/C ,

established by the opening bank and the documents
negotiated are within or equal to L/C amount. In case
where the value of documents exceeds the L/C amount,
the foreign bank may negotiate the documents for amount
being marginally excess or sends them on collection,

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remittance may be allowed in excess subject to the

following conditions

♦ The amount does not exceed 5% of the amount of L/C

subject to the maximum of US$ 500/-

♦ The importers holds a valid import license against

which the excess amount is adjusted-provided
remittance is effected within 1.5 year from the date of
issue of import license.

The name of the importer on the Bill of Exchange does not

differ from that on the import license. The tenor of the bill
should be valid. See that the goods are not shipped prior
to the date of opening of L/C or the documents are not

The goods are consigned or endorsed in the favor of the

bank only opening the letter of credit, and in no case it
should be consigned to the importer directly.

Retirement of Documents
When the opening bank against a letter of credit receives
documents. The customer retires the documents under
different arrangements e.g.

♦ Retirement against payment by the importer

♦ Retirement of documents in case of None-payment by

the importer

♦ Retirement of documents under trust receipt

Retirement Against Payment by the Importer

The importer approaches the bank for retirement of the
shipping documents. Mark is calculated and recovered on

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the bill amount for 230 days @ 12.55% for each RS. 100/-
or part thereof on payment against documents (PAD) for
intimation purpose only.

Entries Passed by the Bank

♦ Debit importer a/c

♦ Credit PLS-payment against documents A/C

♦ Credit: PLS-income a/c mark-up recovered on


♦ Credit: telegram/telex/postage charges a/c.

Retirement of Documents under Trust Receipt

Shipping documents are released to the importer on trust,
that he may get the goods cleared from the custom
authority by himself, sell the good, and later pay back the
bank. Trust receipt financing is limited to first class
customers only as the bank reposed fullest confidence on
the importer. Documents are obtained from the customer.
The finance is provided for the period of 45 days only.

Calculation of Amount of Finance

Rupee value of bill plus foreign bank charges plus taxes,
less SBP margin restriction = Amount of finance

Mark up is calculated @ 0.43 RS. Per 1000 per day on the

amount of finance utilized.

After the retirement of documents the opening bank then

transmit the funds to the negotiating bank. The exporter
will receive the payment from the negotiating bank.

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Export Re–Financing
It is most important features of export. Export refinancing
is used to enhance the export of the country. It was firstly
started in 1977 and re-established in 1994. Here the
exporting companies can get advances at a very low mark
up i.e. lower then inflation rate. Banks get advances from
State bank at 6% and provide advances to the exporting
companies at 8% and 2% is spread of the bank i.e. is the
income of the bank. This export-refinancing advance can
only be used for export and not for other purposes, state
bank gets information about export through E – form.
There are two parts of export refinancing.

♦ P-1

♦ P-II

Two forms of P-1 are pre-shipment and port shipment

P-1 Pre-shipment
In P-1 pre-shipment companies make an agreement with
foreign companies and get loan from the bank to make
products and shipping them to foreign countries i.e. they
get advance before shipping the products.

P-1 Post-shipment
In P-1 the post-shipment companies make an agreement
with foreign countries and produce some of the products
and ship them and get advance from the bank to complete
the shipment.

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In P-II pre-shipment companies get lumpsum for the whole
next year and the entire amount can be used to export the
products. The companies have to export double than the
advance gets through P-II shipment. In P-II pre-shipment
the lumpsum amount can be calculated on the basis of
performance of the last year. If a company is unable to
make double export than the advance, then bank makes
some penalty in the forms of amount against the company.

Special Products
Export refinancing cannot be applied for exporting all
types of products. Some products are

♦ Cotton cloth

♦ Cotton products

♦ Finished leather

♦ Refined sugar

♦ High quality yarn i.e. more than thirty count

Each company has different limit at a time and bank has to

make a report at the end of each month and one copy of
that report is sent to state bank and one copy to head
office at Karachi. Different limits are,

♦ Cash finance

♦ Running finance

♦ Demand finance

♦ Export refinancing I

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♦ Export refinancing II



Forms of Export Re Financing

Different forms are required for export refinancing. These
forms are

♦ Undertaking as per Annexe UT-DE-1

♦ Form DE-1

♦ Form DE-2

♦ Original contract

♦ Undertaking as per Annexe A

♦ Certificate of non-availment of loan.

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When we talk of cheques then there are two types of

1) Open Cheque
Open cheque has following properties:

♦ The word Bearer is not crossed.

♦ Cross stamp is not there

♦ Cheque is not of limited companies.

♦ Self or name should be written on the cheque.

A token is given on open cheques when presented to bank
for payment. In this case payment is made at the spot to
the cheque holder. First of all cheque is presented to bank
for payment. The name of holder, no of cheque and
amount is written on the register by the bank employee &
token is given to cheque holder. Then Cheque reaches the
computer department. There it is again feeded in
computer & it is stamped after checking the holder has
enough amount in his account or not. After feeding in
computer ( debiting holder’s A/C ) , the cheque reaches
the cash department where the holder can receives his
cash by giving token to the cashier provided that he has
enough amount in his A/C.

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2) Crossed cheque
When the cheque does not fulfil the requirement of open
cheque then it is known as crossed cheque.

A) Transfer Delivery
When cheque has following properties then it is proceeded
as Transfer Delivery.

♦ Cheque is crossed.

♦ Cheque is of MCB.

♦ Cheque is from local branch.

In this situation cheques are collected separately as

transfer Delivery.

In Transfer Delivery following process is done.

First of all cheques are noted in Transfer Delivery Ledger

with the date in advance because it takes one day to reach
cheque issuing branch in the same city. In T.D Ledger
Name of account holder, Number & amount of Cheque are
written and two copies , one original and one carbon copy
of voucher SF-73 B are prepared. Original copy of voucher
along with cheque is send to issuing branch while carbon
copy and Pay-In-Slip is with the bank.

The cheque with voucher goes to Main branch then to

issuing branch and then reverse from issuing branch to
main branch and then to our branch.

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B) Clearing
In clearing the cheques which are

♦ crossed

♦ limited company

♦ different bank in the same city

Such cheques are collected as clearing cheques and are
noted in Clearing Ledger. Two copies of voucher SF-37 are
prepared (See Annexe ) . Original voucher with the
cheques are send to Main branch which then send to S.B.P
in advance date. The payment is not given at hand but it is
transferred to account of account holder. In case if cheque
is returned due to number of reasons then the objection is
finished and again send to main branch but this time a
credit voucher along with original cheque is send to main
branch instead of any Pay-In-Slip.

Advance Clearing
When cheque is sorted for clearing because of different
branch in the same city then we note these cheques in two
days advance date because it takes more time to reach
that faraway branch . For example HBL of Baha-ud-Din
Zakariya University Multan.

Procedure of Payment of Cheque of Foreign Currency

When cheques are denominated in foreign currency then

procedure is not like that of ordinary cheques of Rs. First of

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all cheques are issued and the person give cheque to

another person. When any party receives cheque in
foreign currency to deposit in his account then it gives it to
the ban where he has his bank account. The Bank sends
this cheque to its Head Office. Head Office send it to the
country where transaction is done over that currency. Then
cheque goes to New York. From there it is send to that
issuing bank (domestic) from where party has received
cheque whose bank whose cheque it is. N.Y is credited and
that bank is debited by that amount. N.Y send it to head
office of our Bank. Then H.O is credited and N.Y is debited.
Amount of Foreign currency is then send to main or local
branch where the party has its account. Now the account
of that person is credited and the H.O is debited

Now there may be two cases:

1) Either account is in Pak Rs.

2) Or account is in that country

3) Or account is in Foreign Currency other than the

currency in cheque.

C) Cheque Collection
When cheque is from another city then it is grouped as

SF-37 form is used in Cheque collection (See Annexe )
Original voucher with cheque is send to main branch.

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Carbon copy with Pay-In-Slip is taken by bank for record


Here it is very necessary to have knowledge about Pay-In-

It is used for two purposes

♦ Whenever we want to deposit cash in our account then

pay-in-slip is used by writing amount on it and
depositing it to cashier along with money.

♦ Whenever we have cheque from any party to be

collected in our account we fill pay-in-slip . One part is
attached with cheque and another is given to cheque
holder as a receipt.

It is of two types depending upon the type of account.

♦ Green Pay-In-Slip is used for Saving Account (See

Annexe )

♦ Blue Pay-In-Slip is used for Current Account (See

Annexe )

Stamps Used In Bank (MCB)

Following stamps are used in for different purposes.
(1)Cross Stamp
This stamp is used to cross the cheque. Crossing can be
done by 3 ways.

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a) General Crossing
Sometimes the cheque is crossed by the drawing two lines
on the upper left corner of the cheque without writing any
sentence on the cheque.

b) Written Crossing
Cheque can also be crossed by stamping it with sentence
“Pays Account Only”

c) Special Crossing
Crossing can also be done by stamping a cheque with the
words “MCB GBS Branch”. This means that now cheque is
in use of bank only. If it is lost or dropped then it is of no
use to anybody because now it is a cheque of bank. This
cheque will not be cashed any where else.

(2) “Payees Account Will be Credited on Realisation”

This is used to stamp on the back of following instruments.

Cheque (simple). 2) Travellers Cheque. 3) Pay Order. 4)

Speed Cash.

This means that the account of the payee will be credited

provided that cheque is accepted by Drawer’s bank
otherwise not.

(3) Disbursement Guaranteed; Payees Account will

be credited on Realisation
It is used to stamp on the back of following instruments

1) Demand Draft . 2) Foreign Remittance

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(4) Payees Account Credited

This stamp is used on back of those cheques which are of
the same branch. It is of guarantee that if there is no
problem with the cheque or A/C then Payees account will
be credited.

(5) Clearing Stamp

This stamp is placed in front of clearing voucher on the
same day in which clearing was made (one day advance
date). Or the date in which it is presented by Main branch
in State Bank Of Pakistan.

(6) Round Stamp MCB

It is used in two places.

♦ When we are dealing with C.C then we write the

number of C.C which is written inside the stamp. One
stamp is on cheque and other on Pays-In-Slip.

♦ When we fill Pay-In-Slip and give it to the bank officer

along with cheque then he places this round stamp on
the face of one part of Pay-In-Slip and marks his
signature on it and give it to the customer as a

(7) Pay Cash

This stamp is used when cheque is not crossed, it is open
cheque. The officer places this stamp on the front of
cheque and writes token number on it. This means that
payment in cash will be made of this cheque on
presentation of token to cashier. This is like indication for
cashier to pay cash.

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Reasons for Cheque returned unpaid in Cross

Following are the reasons for the cheque return.

♦ Cheque incomplete

♦ Clearing stamp Required.

♦ Drawer’s sign incomplete

♦ Drawer’s sign different from specimen

♦ Post Dated

♦ Payment stopped by drawer.

♦ Amount in words and figures differ.

Report of Lost or Stolen cheque

In case of lost or stolen incidents following procedure is

♦ Cheque no of lost cheque

♦ Whether it was single or double signed.

♦ Whether it was crossed or related to someone

♦ Phone / Fax of reporter.

♦ NIC no of reporter.

♦ Signature of reporter.

♦ How cheque was lost.

♦ FIR Lodged or not.

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Green Sheet
At the end of banking time ( 1:30 o’ clock), three Green
sheets are prepared for clearing , cash and account side.
One Green Sheet is also prepared by clearing department.

Heads in Green Sheet

Green Sheet has following Heads:

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1) Current A/C(2) Saving or PLS A/C (3) Other A/C(4)

General A/C

M.T Payable H.O A/C

T.T Payable Other than 3,2 &1
Pay order
D.D Payable

Sides of Green sheet

There are two sides of green sheet: Debit Side &
Credit side.

Both sides should tally in figure amount. If Debit total =

Credit total then sheet is balanced and there is no
mistake. It should be taken care that cheques are always
debit and pay-in-slip is always credit. If voucher is of Pink
colour then it will be on credit side and if it is of blue colour
then it is debit side.

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This department deals in RTC. It stands for Rupees
Travellers Cheques. MCB RTC has the largest share of the
total RTC Market. Over 1.5 Million satisfied customers have
made MCB RTCs. These are printed in the UK and carry a
thread watermark- a feature that prevent counterfeiting.

Important Features
As good as cash
The most convenient substitute for cash for all kinds of
transactions(property, trade, personal etc).

Cheques are available in the denomination of Rs 1,000 Rs
10,000 Rs 50,000.

Easily Encashed
They can be encashed at any MCB branch.

Easily refundable
In case of Loss Or Theft we can get the full amount back.

Exclusive Security Features

MCB RTCs can’t be duplicated. Various security features
both in design and materials make counterfeiting or
fraudulent alteration extremely difficult.

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Valid Until Used

Validity of Cheque is indefinite. We can use them for a
week, a year or more after the date of purchase.

Televerification System
It enables us to check the validity of cheque 24 hours a
day . Televerification UAN (021) 111-000-456.

First of all RTC-10 is given to customer. It is filled and then
cash is deposited to cash department . One copy is for
office and one copy is given to the customer and RTC are
issued at that time. When RTCs are sold then H.O A/C is
credited by using form no RTC-20.

It has five copies:


A= H.O copy, B= RTC Dept, C& D= Branch.

When RTCs are returned or purchased by the MCB then

H.O is debited by that amount by using form RTC-30.
Summary of al RTC purchased by branch is made on form

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Transfer of money or equivalent to money from one branch
to another branch of the same bank is called remittance.

Important Terms
Originating branch
It is the branch from which money is send to another
branch or the point of origin of remittance.

Responding branch
The branch which receives the instrument or money for
remittance is known as Responding Branch.

Types of Remittance
Remittance is classified into following four types:





a) Inward Remittance
The branch which receives the instrument(T.T, D.D etc)
directly from the customer or from the originating branch
and is responsible to pay to party is called inward

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remittance. For example if some D.D is drawn on our bank

and we have to pay the party( to whom it was send).

b) Outward Remittance
The branch which issues or sold the instrument to the
responding branch is called outward remittance. In this
case we are sending remittance to another branch of the
same bank in any location.

c) Inland Remittance
Transfer of money from one branch to another branch of
the same bank within the same country is called inland
remittance. In this case both originating branch and
responding branch will be situated in the same country.

d) Foreign Remittance
Transfer of money from one country to another country is
called foreign remittance.

Modes of payment
MCB uses following four types of modes of payment





1. Demand Draft
♦ Demand Draft is used for the transfer of money outside

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♦ A draft is an instrument drawn by a bank in favour of

any person on a branch of its own bank or any other
bank to pay a certain amount of money which is
demanded to the person named on it.

♦ It is not necessary for the demand draft that applicant

or recipient account should be open in originating and
responding branches.

♦ It is one of the cheapest methods of transference of

money within the country or outside the country.

♦ Applicant has to fill in the application form for availing

the facility of demand draft. After depositing the
amount of draft, remittance officer prepares the cheque
of demand draft.

♦ When banker issue draft to the customer, he also

records customer particulars in a demand draft register
where record is maintained branch wise.

♦ Responding branch and originating branch debit/credit

the head office account and send the daily statement of
transaction to head office.

2. Pay Order
♦ Pay Order is used as instrument for transfer of money
within station or city.

♦ Pay order is written order, which is issued and received

by the same bank or drawn and payable on same

♦ For pay order it is not necessary that applicant should

be account holder.

♦ It is used for local transference of money from one

person to another.

♦ The bank charges excise duty and flat rate from the

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3. Mail Transfer
♦ The transfer of money from one branch to another
branch of the same bank through mail or courier
service is called mail transfer.

♦ The applicant should be the regular customer or the

account holder of the responding as well as originating

4. Telegraphic Transfer
♦ Originating branch send funds to responding branch
instantly and immediately through telegram and fax.

♦ Bank charges commission, telegram/fax charges on

telegraphic transfer.

Documents Prepared
a. Application Form (SF-100)
Firstly, the application(see annexure ) is filled by the
applicant in which he writes the name of payee, his a/c #
& the name of branch to which TT is sent as well as the
depositor’s name, his a/c # & address. Then in the office,
they collect the charges, commission & excise duty.

Same prescribed application form will be used for MT, TT,

DD, and PO.

It is understood that in case of T.T or M.T the remittance is

being sent at our entire risk .In case of T.T Or M.T, there
are two options:

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1: Advise & Pay

Here the bank informs the beneficiary (to whom the
money is sent ) through telephone or personal contact
about the incoming cash.

2: Credit Account No
In this case, if the beneficiary has Account with the
Responding Bank then his account is credited by the
incoming amount without informing him.

When the applicant completely fills the application form

then he is asked to sign at the bottom of the page. After
signing, the applicant deposits the cash (cash to be sent
+ Charges) at the cash counter and receives the
application back by having stamped and signed by the
cashier. This application is then submitted to officer.

b. Memorandum (SF-237)
The officer gives Memorandum to the applicant as a
evidence of Remittance (see annexe ). Bank charges
along with some information about Remittance is written
on it. Officer signs at the end of the form.

c. Fax/ Telegraphic Message

In case if the Remittance is being sent through
FAX/Telegraph then a special form known as “
Fax/Telegraphic Message” (see annexe )

I t contains following information:

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T.T No, R.No, Control, Total Rs Amount, Favour, A/C No Of

Beneficiary, Test & Date.

T.T No & R.No:

These numbers are noted from T.T register which contains
every information of every T.T sent to different cities( T.T
register will be explained more in coming pages).

It is the number written on the form “Confirmation Of
Cable Sent”

( SF-89A).(See annexe )

Favour & A/C No

It shows the name of person & his account to whom the
cash is being sent.

d. Confirmation Of Cable Sent (SF-89-A)

These are two vouchers A & B. Special features of this form
are Originating branch, Responding branch, Date Total
amount & Branch code of both branches. For Example
Branch code of MCB GBS Multan is (1412). These vouchers
are used to credit & debit purposes (see annexe ).

e. T.T Register

T.T.No R.No Control Favour Amount Date

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Head Office Account

All transaction relating to remittance will be routed
through head officer account. All the branches of MCB
have an account of “Head Office”. Through this Head
Office account it become easier for branches to do the
transaction with other branches and update their books.

Whole Procedure
1) First of all application is filled by the applicant. Cash is
deposited in the cash department. Applicant is provided
with Memorandum as an evidence.

2) Now starts the work of Bank officer. The officer enters

the information on the Register. In case of T.T, the T.T
No, R.No, Name of Beneficiary, Branch, Code Of branch,
Date, Account of beneficiary is written on the register.

3) Then “Fax / Telegraphic message” is filled which also

contains the same information as that of register.

4) Two Vouchers are prepared (SF-89-A & SF-89-B) which

are in Green & Pink colour. Amount of T.T is written on
them. They also contain the heads of Originating
Branch and Responding branch.

5) Then Test Is written on the extreme left column( T.T,

M.T, P.O No). The procedure of it’s calculation is written

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For Year 1997-98

Ratios 1998 1997

Interest earned / Advances 27.33 % 26.32 %
Interest paid / Deposits 8.94 % 8.17 %
Admin Expenses / Deposits 4.85 % 4.85 %
Investment / Deposits 46.75 % 46.70 %
Advances / Deposits 50.81 % 51.74 %
EBT / Deposits 0.76 % 0.99 %
ROA 0.27 % 0.21 %
ROE 11 % 9%
EPS Rs 2.19 Rs 1.31
Cash Dividend / Share Rs 1.75 Rs 1.50

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♦ Interest earned to advances increased in 1998, which is
a positive sign and shows increased income of the
bank, and its improving financial position.

♦ Interest paid to deposits, investment to deposits and

administration expenses to deposits, the firm has been
able to sustained its position and expenses. There is an
increase in the income of the bank, but there is no
major increase in expenses. This shows a satisfactory
position of the bank.

♦ The ratios of advances to deposits and EBT to deposits

are not showing a healthy sign due to:
The bank has paid a big amount as a cost/return on

The bank has given less advances in 1998 as

compared to 1997

♦ The return on assets and return on equity are showing a

good position, which refers to an improved financial

♦ The EPS and cost dividend ratios are showing an

increasing trend, which means the firm is enjoying a
good financial position.

♦ Overall MCB has a good and healthy position. The

profitability and income is increasing, which is
attracting new depositors and investors.

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Prerequisite of MBA study is to undergo internship. I got
the opportunity to join the MCB General Bus Stand Branch,
Multan for the said purpose for a period of 6 weeks.

Practical involvement was a great experience as

interactions both with the experienced executives and
clients cemented the base of knowledge I have been
acquiring in the classroom.

This internship report includes the material about MCB and

different departments along with their working procedure.

For the completion of this project I met the various persons

of these organizations. As far as my knowledge and hard
work is concerned this report will provide a good in sight of

I have special thanks for following persons who have

encouraged & guide me lot. I learned very much under
their guidance.

♦ Mr. Muhammad Saleem Khan Branch


♦ Mr. Liaqat Raza Jaffery Accountant.

♦ Mr. Masroor Mehmood Officer.

Riaz Hussain

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All praise to Allah, the Beneficent, the merciful, and
respect for His Prophet “Peace Be Upon Him” who made us
recognize our creator.

First of all I am highly obliged to my honorable teachers Mr.

Muhammad Shoukat Malik and Mr. Muhammad
Rizwan because of them I could be able to do an
internship in the MCB.

I am also thankful to the Employees of MCB who provided

me a friendly and knowledgeable environment through
which I learned a lot.

Riaz Hussain

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EVOLUTION OF BANKING.................................................................................................................1
EARLY GROWTH............................................................................................................................1
DEVELOPMENT OF MODERN BANKING...............................................................................................3
BANKING IN PAKISTAN...................................................................................................................4
HISTORY OF MUSLIM COMMERCIAL BANK........................................................................................7
BOARD OF DIRECTORS....................................................................................................................8
STRUCTURE OF MCB...................................................................................................................10
STRUCTURE OF MCB – GENERAL BUS STAND BRANCH (1412).........................................................12
OVERALL PERFORMANCE OF MCB IN 1998...................................................................................13
CHAIRMAN’S REVIEW...................................................................................................................19
1.INITIAL INFORMATION ...............................................................................................................21
2.PREPARATION OF CREDIT PROPOSAL............................................................................................21
3.SANCTION ADVICE.....................................................................................................................22
OTHER TERMS AND CONDITIONS....................................................................................................23
TYPES OF ADVANCES....................................................................................................................24
TYPES OF ADVANCES BY MCB.....................................................................................................26
ACCOUNT OPENING......................................................................................................................36
TYPES OF ACCOUNTS....................................................................................................................36
PROCEDURE FOR ACCOUNT OPENING..............................................................................................36
TYPES OF CUSTOMERS.................................................................................................................38
CLOSING OF AN ACCOUNT.............................................................................................................39
IMPORTANCE OF DEPOSITS FOR BANK.............................................................................................40
TYPES OF ACCOUNTS IN MCB.....................................................................................................40
DOCUMENTS REQUIRED.................................................................................................................50
LETTER OF CREDIT......................................................................................................................51
EXPORT RE–FINANCING...............................................................................................................66
SPECIAL PRODUCTS......................................................................................................................67
FORMS OF EXPORT RE FINANCING ................................................................................................68
IMPORTANT FEATURES...................................................................................................................79
PROCEDURE ................................................................................................................................80
IMPORTANT TERMS.......................................................................................................................81
TYPES OF REMITTANCE.................................................................................................................81

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MODES OF PAYMENT.....................................................................................................................82
DOCUMENTS PREPARED.................................................................................................................84
HEAD OFFICE ACCOUNT...............................................................................................................87