Chapter No.

Introduction to Report

1.1 Background of the Study

The study is about the general operations and management of Bank of

AJ&K and focuses. Every student of M.com has to undergo an internship program

in any organization to get exposure to the real time business environment and to

know what sort of changes Information Technology brings in management

activities. The real purpose of this internship program is to provide an opportunity

to the students to see the practical applications of their background professional

studies.

The report is a reflection on my experience when I was internee in Bank of

AJ&K, Khaigala branch. Since its inception 2005, The Bank of AJ&K has

maintained a steady growth over the eight years span of its operations.

1.2 Study Objective

The objective of the study consists on.

1.2.1 General Objective

 To get acquaintance to the banking operations.

 To see the application of our Professional studies especially.

1.2.2 Specific Objective

 Specific purpose of the study includes.

 A partial fulfillment as a requirement for the completion of M.Com degree

in Banking and Finance Sector.

 To objectively observe the operations of Bank in general and the operations

of Bank of AJ&K, Khaigala in specific.

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  To make recommendations or implementation plans for the improvement of

the operations of bank in the light of our professional studies.

1.3 Nature of the Study

The study is critical in nature. It was conducted to investigate critically into

the operations of Bank of AJ&K and it also explains that how it provides facilities

of banking to its customers. The annual reports or the consolidation data of the

Bank has not been focused in specific because it does not reflect on the operational

performance of branches. However, they have been referred to as when and where

required.

1.4 Scope of the Study

The study covers two areas with its variables, which affects the operations

of the branch directly, or indirectly. These two areas of variables are:

 Branch specific variable

 Bank specific variable

The branch specific variables are the variables under the control of the branch

management and directly affect its operations e.g.

 Layout of the branch.

 Customers’ relations.

 Departments in the branch

 Online banking.

The bank specific variables are those variables, which are not in control of the

branch management e.g.

 History of Bank of AJ&K

 Services provided by Bank

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  Role of Bank of AJ&K

 Methodology Of Research

 The research methodology adopted was as follows

1.5 Data Sources

Both primary and secondary have been used in the compilation of this

report. The methodology used is as under: During the compilation of this report, I

relied mainly on the primary data. The tools used for the collection of primary data

are interviews and observation. To get primary data I also performed some

practical work. The secondary data was mainly used for as a background material

and for purpose of references. The major sources of secondary data were the annual

report 2016; other printed material of the Bank and internet played a vital role as a

source of secondary data.

Research Approaches

Keeping in view my limitations during and the nature of the study, two research

approaches were adopted. These research approaches are:

 Survey.

 Observation as.

 Participant observation and

 Non-participant observation.

1.6 Sampling Plan

Details of the sampling plan used during this report are given below.

Sampling unit constitutes of the following.

 Manager of Khaigala branch.

 Staff of Khaigala branch.

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  Customers.

 Personnel from Regional operations department.

Sampling Procedures

The sampling procedure used was non-probability judgmental and

convenience procedure.

1.7 Contact Method

 Personal contact method was used as a contact method, which included:

Structured interviews with managers and personnel from operations

department.

 Unstructured interviews with staff members.

1.8 Limitations

This report could have more accurate, systematic and factual but the Study was

subject to the following limitations.

 Access to data.

 Lake of published financial data.

 The non-cooperative behavior of some staff members.

 My weak financial position.

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 Chapter No. 2

Introduction and Structure

2.1 Establishment:

The Bank came into existence by a resolution passed by the Legislative

Assembly of the State of Azad Jammu & Kashmir in the year 2005. Later on it was

assented to by the President of Azad Kashmir.

2.1.1 Capital

The authorized capital of the Bank is two billion rupees divided into two

hundred million ordinary shares of ten rupees each.

2.1.2 Initial Paid up Capital

The initial paid up capital of the Bank is five hundred million rupees.

Further, the State Government at all times has to maintain equity contribution of

not less than 51%. Bank started functioning as a non-scheduled commercial bank.

Further, the Government intends to get the Bank scheduled with the State Bank of

Pakistan in the shortest possible time.

2.2 Vision

“To emerge as a premier financial Institution fostering socio-economic

development for the people of AJ&K”

2.3 Mission

“To acquire market leadership through quality banking services customized

products, best business practices, merit and performance culture and participation

in development process of the State for the wellbeing of its people”

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2.4 Core Values

 Integrity

 Commitment

 Team Work

 Excellent in Service

 Innovation & Growth

2.5 Branches of Bank of AJ&K

The Bank has network of 65 branches in all over the Azad Jammu &

Kashmir including 2 ladies braches. The Bank is growing as the time passing. Its

Registered Head Office is located at Bank Square Chatter, Muzaffarabad Azad

Kashmir.

2.6 Objectives of Bank

The objectives of the Bank of AJ&K are as follows

1. To Help under-developed areas and create employment opportunities especially

in the rural areas of the State. Further, to guide and assist the people of Azad

Jammu & Kashmir serving overseas to effectively and profitably invest their

foreign savings in the State.

2. To create a diversified and sound port-folio for utilization of the otherwise idle

funds and other investment in the existing as well as new ventures specially in

the pioneering of high tech, agro-based, export oriented and engineering

projects to ensure maximum returns, and

3. To participate and seek the share of the State in the capital market by way of

subscription through the locally pooled resources in the leading stock

exchanges of neighboring Pakistan and eventually paving the way for the

establishment of stock exchange in the State.

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4. To mobilize private savings and public funds for diverting the same to

productive channels and ensure their availability.

5. To promote industrial, agriculture, rural micro financing and other socio-

economic processes through the active participation of private as well as public

sectors and the State.

2.7 Management

Board of Directors is consisted of 9 members who control the operation of

bank. While for managing the organization Board committees are formed which is

comprised on Executive Committee, Audit Committee, a Company Secretary, a

Chief Financial Officer and an Auditor of the Bank.

2.8 Programs of Bank of AJ&K

2.8.1 MOU with UBL Bank

To extend the home remittance the bank of AJ&K signed a MOU with

UBL. To facilitate distribution of home remittances through the Bank of Azad

Jammu and Kashmir’s 35 branches as part of the Pakistan Remittance Initiative

(PRI) sponsored by the State Bank of Pakistan, Ministry of Finance and Ministry of

Overseas Pakistanis.

2.8.2 MOU with AKRSP

For providing financial services to the un-served population of AJ&K

through the platform of community organizations (COs), village organizations

(VOs) and Local support organizations (LSOs) fostered by AJ&KRSP and its

partner RSPs.

2.8.3 MOU with AJK Government

Being a state owned bank a number of initiatives have been taken in

various fields which include MOUs with AJK Government for undertaking
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financing activities in the fields of agriculture, livestock, Small & Medium

Enterprises (SMEs), microfinance. Besides, bank has tailored various financing

schemes for agriculture- both for production and development activities,

commercial activities and consumer finance. Uniqueness in providing banking

services is streamlined processing, lower markup rates and no hidden charges.

2.9 Functions performed by Bank of AJ&K

To fulfill the basic objectives of socio-economic nature the bank perform

following important functions:

2.9.1 Accepting of deposits

This function is performed by the bank by opening of the different type of

accounts, which are as follows:

Special Deposit Account (SDA)

2.9.2 Advancing of loans

Different types of loans are granted to different type of people and

industries these include:

 Running Finance

 Over Draft

 Demand Finance Gold

2.9.3 Payment of cheques

Cheques drawn against various deposits are honored and paid in cash

2.9.4 Payment of pensions

This function is performed by Bank of AJ&K as a govt. treasurer all the

pensions of federal govt. provincial Government and semi Government employees

is paid by Bank of AJ&K.

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2.9.5 Salary management of different governmental institutions

The salary of govt. and semi govt. employees is first credited to the account

of Bank of AJ&K and is then credited to their personal accounts. It

2.9.6 Transfer of funds from one place to another

Money is transferred from one place to another by different means like

Bank Draft, Mail Transfer, Telegraphic or Telephonic Transfer and Travelers

Cheques

Service to Public Service Commission

The Bank of AJ&K collects Application fee of Public Service Commission

from the candidates and issue Application forms.

2.9.7 Collection of Chalans

Various Govt. revenues are collected by Bank of AJ&K in the form of

chalans

 Issue Guarantee and Indemnity

 Collection of Negotiable Instruments

 Act as an Income Tax Advisor

 Act as an Agent or Representative of His Customer

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 2.10 Hierarchy from Top to Bottom

Board of Directors

Board Committee

Zonal Chiefs

Zones

Branch Manager

Banking Department Admin Department Finance Department Cash Department

Officer Officer Officer Officer

2.11 Management and Organization of Bank

2.11.1 Board Committee

In the management of the bank the board of directors is at the top of the

controlling bodies. Since there are no private shareholders, so there is no general

meeting of shareholders and no directors are elected. The board consists of 9

members.

2.11.2 Executive committee

It is also called the management committee. The general direction and

supervision of the affairs of the bank lies in their respective executive boards. The

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president, secretary and 6 other members of the board are appointed by the State’s

govt. The president being the chief executive controls the affairs of the bank.

2.11.3 Chief Executive

The president is the administrative head of the bank. He manages and

controls the affairs of the bank. The president holds the office at the pleasure of the

federal government.

2.11.4 Zonal Chiefs

There are three zones of Bank of AJ&K which are Muzaffarabad Zone,

Mirpur Zone and Poonch Zone. Mirpur Zone has 28 branches, while Muzaffarabad

Zone has 20 branches and Poonch Zone has 17 branches.

2.11.5 Branch managers

Each zone is then sub divided into a no. of branches. The control and

supervision of each branch is mostly entrusted to AVP or officers of grade II.

Branch manager operates the branch by workforce of two second officers, two

assistants, two cashiers, to messengers and two armed guards.

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 2.12 Branch Hierarchy

Manager

Manager

Operation.

General Computer Credit Retail

Banking Department Department Banking

Cash Bills, Remittance Account

Department &Clearing Department

Department.

Cashier Assist-Cashier

Peon Driver

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 Chapter No. 3

Introduction of Branch

I did my internship of eight weeks in Khaigala branch. It is one of the main

branches of Bank of AJ&K, which is just renovated. I selected this branch because

of two reasons. First, I was of the view that one can find more learning

opportunities in a main branch as compare to a small one. Secondly it is situated

near to my residence

In the same branch different departments of Bank of AJ&K are working. So I got

the opportunity to know briefly about every department

Departments in Khaigala Branch

3.1 Current Saving Department

In Khaigala branch current saving department mainly deals with cheques,

vouchers and advices. First of all a cheque holder have to present his/her cheque to

the person responsible for issuing the tokens. . Then cheque is passed on to the

computer operator to entry it in computer. Afterward it will go for signature

verification after which it will be given to cashier for payment.

Computer Operations

In Khaigala branch the computer section performs several duties that are as

under;

Daily Transactions

 To record all the transactions in case of deposits made by the people

 To record all the withdrawals made by the people or customers.

 Each transaction has to be recorded in its appropriate head of account with

the help of prescribed codes.

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Vouchers

To record all the vouchers made by the remittance department. Remittance

department have to prepare debit and credit vouchers for about every transaction

recorded in their department. Then these vouchers are sent to computer operator to

record those in computer.

Advices

To record all advices received from other branches. Most of the-inter branch or

intra branch- remittances are subject to ultimate receipt of advices from the

corresponding branch to materialize the transactions. These advices also have to be

recorded in computer.

Statements

 To close the daily record a number of statements have to be printed out.

Statements like:

 Day’s transactions (sequence)

 Overdrawn facilitated a/c statement

 Markup sheet

 Inter branch transactions

 Detail of PLS and Current a/c

 Day’s transactions (a/c wise)

 Operative, Dormant, Inoperative and Unclaimed a/c

 All ATM transactions

 Detail of GL entries (official & non customer transactions)

 Summary of all a/c (debits, credits & balances)

 Profit due, transferred, disbursed, etc.

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3.2 Account Department

“Deposits the Life Blood of a Bank”. Bank borrowing funds from outside

parties is more important because the entire banking system is based on it.

Receiving of deposits is a basic function of all commercial banks. Commercial

banks do not receive these deposited for safekeeping purpose only. When the bank

receives the amount of deposited as a depositor, it become the owner of it. The

bank may therefore use these deposits, as it deems appropriate. But there is an

implicit agreement that the amount owned by the bank will be paid back to the

depositors on demand or after a specified period of time. The borrowed capital of

the bank is than the bank own capital. Bank’s borrowing is mostly in the form of

deposits. These deposits are lend-out to different parties. Larger the difference

between the rate at which these deposits are borrowed and the rate at which they

lend-out the greater will be the profit margin of the bank. Larger the funds lend-out

the greater will be the return earned on them and greater the amount of return on

these deposits earned greater will be the profit for the bank. It is because of this

interrelated relationship. Deposits are referred to as the “life blood small” for any

banking sector.

3.2.1 Kinds of Account

There are numbers of account that Bank of AJ&K offers to its customer

keeping in mind their needs and dealing

 Saving Bank Account P & Loss Account

In Pakistan the saving Bank accounts are known as profit and profit and

loss sharing accounts (PLS A/C) fowling the illumination of bank. The owners of

such account are not allowed to withdraw money more than once are twice a week.

In case of withdrawal of large sum, the depositor is required to give to prior notices
15
a week or two. Thus the bankers are not required is always available to bank for

giving to loans to their customers. Thus these deposits also serves as source of

credit certain by the commercial banks. The rate or profit on this type of account

varies from time to time. All the commercial banks declare the rate of profit every

year that is paid on these accounts on the basis of their monthly credit balance. The

bank will determine the proportion of profit & its decision will be final. Profit will

be determined on daily product basis while it will be paid on monthly basis & will

be paid on the minimum balance between the first day & last day of the month.

Zakat will be deducted on the exceeding amount as exempted from the Zakat

deduction. Taxes will be imposed according to the rules & regulation. In Pakistan

post offices & national saving centers also maintain this savings bank account to

encourage saving habits among the people. At the time of opening this account, a

minimum amount of Rs.500 is to be deposited. Subsequently the account is opened

& account number is located. The depositor is given a cheque book. The depositors

who are wishing to close his account are required to present his cheques to the bank

in order to draw the credit balance and to close the account.

 Current Account

There is no limit of withdraw of money from these accounts. In practice the

bankers do not allow any profit to such deposits in Pakistan. The customers are

required maintaining the minimum credit balance in their account in case of failing

incidental charges are recovered from defaulters. This is because the depositors

may withdraw current deposits at any time and as such the bank is not entirely free

to employ such deposits. In general, the bank allows the overdraft facilities to

current account holders & the prevailing rate of markup is charged from these

customers.
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 In Bank of AJ&K the minimum amount required to open the current

account is Rs. 500. No profit is paid to account beside this that the account holder

has the facility to taking s much money as he wants. Individual account is opened

in the name of the single personal one person on whose name it is opened only

conduct it. While two opens joint account and partnership account are more person

and the bank fallow their instructions for the conduct of the account. Similarly

limited companies can also open their current account.

 Fixed Deposit Account/Term Deposits

These deposits are also called as time deposits because these deposits are

based on the fixed duration. The period for which these deposits are kept with bank

are ranged from seven days to ten years in light of the agreement between the

customer and the banker. The profit allowed on these account depend on the

duration longer the duration of the deposits the higher will be the rate of profit. The

operation of fixed account is different from saving & current accounts. Every time

money is deposited with the bank an application from filled and the bank issue a

fixed deposit receipt for amount deposited along with specific period. Fixed deposit

receipt is given to the depositor and the bank retains the counterfoil of the same

receipt. Fixed term deposits may be in the joint names of two or more person. The

payment to one of those people will not discharge by the bank without the authority

of others.

 Special Deposit Account (SDA)

The Branch maintains SDA (Special Deposit Account). SDA Account is

Free to Investors. There is no Withdrawal Limit on SDA, Individuals, corporations,

organizations and government departments can open accounts under the scheme.

This is an operating account and the accounts can be opened in individual

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or joint names. The deduction of Zakat and Withholding tax will be applicable as

per law of the land. Profit is paid on daily product basis. Profit payable on half

yearly basis.

 BemisalMahanaBachat Account (BMBA)

BMBA (BemisalMahanaBachat Account) are also entertained by the

branch. The details of the new Scheme are as under. BMBA is Free to Investors,

minimum Deposit Limit for profit is Rs. 25,000/-, however, the account can be

opened with Rs. 1,000/-Customer can conduct maximum of two debit transactions

between 6th and last day of month. However, withdrawal before 6th of month will

not be treated as deviation. Profit @ 3.75 % p.a. payable on monthly basis. Free

lockers facility will be offered to clients having minimum balance of Rs. 1.00 M.

No profit to be paid in case of encashment before completion of 03 months. Short

term financing would be available with 10% margin. The deduction of Zakat and

Withholding tax will be applicable as per law of the land.

3.2.2 Opening and Operation of Bank Account

As discuss earlier there is a prescribed procedure for opening different types

of account. Following steps re followed while opening a new account.

Application from for Opening of Accounting

A person who wishes to open a bank account is required to complete this

from the personal information is to be furnished. The application signs the

declaration to effect that he has understood the rules and regulation of the bank.

Introduction

As required by the banking law the new customer needs to be introduced by

the account holder of the same branch where the account is being opened. The

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manager or any other bank officer may introduce the new customer if they know

them personally.

Signature card

At the time of opening an account a specimen signature card containing two

signature of the customer is required which the manager of the branch attaches with

application form. During the operation of account the signature is verified when the

cheque is presented for payment.

Cheque Book

After completing formalities for opening saving and current a cheque books

issued to the customer for withdrawing cash from his or her account at the time

of need. The cheque contains minimum 25 pages & maximum 100 pages.

The bank also charges excise duty on cheque book.

3.3 Advances Department

3.3.1 Lending Principles

The basis function of the bank is to accept deposit and lend money to the

borrowers against a spread so to be able to give some profit to the depositors as

well as to earn profit for the bank. While lending the money to the borrowers the

bank should observe the following lending principals:

 Safety Principle

It means that the landed money will come back along with interest or

service charges etc. The borrower should not invest the money borrowed in

unproductive or speculative business.

 Liquidity Principle

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 The money which has been lending to the borrower should be returned to

the bank on demand or as per repayment schedule provided by the client. The

sources of repayment should be clear and definite

 Purpose Principle

The purpose of the advances should be legitimate and productive. It should

be ensured that the banks, funds are not being utilized for speculative business. The

credit restrictions by the central bank should not be violated & it should also be

ensured. It is always beneficial for the bank to finance for short-term requirements.

 Profitability Principle

The end result of every business activity should be to earn some profit.

Similarly the bank must get some profit out of the activity of lending so that the

depositors could get their shares as well as the shareholders could earn something

for their investments..

 Security Principle

The proposal should be dealt on its merit not on security. The security

should be considered a safety for the bank only in case of unexpected emergencies.

All the relevant documents of securities must be obtained & got valuation of the

property or any other security should be assessed correctly.

 Spreading of Risk Principle

It is always safe for the bank to spread the risk in large number of

borrowers instead of loaning huge amount to few big shots, it is better to obtain

different types of securities instead of concentrating on one security..

National Interest and Suitability Principle

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It is our moral as well as legal obligation to ensure that no loaning is running

counter to national interest. It is also our duty to ensure that our lending policies are

not against the social conditions or bindings

3.3.2 Function of Credit Department

The main function of the credit department is to lend money to the

customer. Bank Lends money in the form of clean advances against promissory

notes as well as secured advances against tangible and marketable securities.

Lien

Lien is the bank right to with hold property until the claim on the property

is paid. The bank looks at their lien as a protection against loss or overdraft or any

other credit facility. In ordinary lien the borrower remains the owner of the

property, but the actual or constructive possession remains with the creditor or

bank though the borrower has no right to sell it.

By Cash Credit

In this the bank lends money to the borrower against tangible security. The

total amount of the loan is not paid in one installment. The borrower has to pay

markup on the amount borrowed. Cash credit is favorite loan for large commercial

& industrial concern.

By Overdraft

This the most common type of bank lending. When a borrower requires

temporary accommodation. The Bank of AJ&K allows its customer to withdraw an

excess of the balance form their account which the borrowing customers have in

credit and thus called overdraft. This facility is given to regular reliable & well

established customer. When it is against collateral securities, it is called “Secured

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Overdraft” & when borrowing customer cannot offer any collateral security except

his personal security then the accommodation is called “Clean Overdraft”.

3.3.3 Running Finance

Facility by way of Running Finance is extended to meet the working capital

requirements of the customers. It may be of temporary nature or may be available

as a regular credit line. A realistic assessment of the customer’s requirements is

made to determine the extent of the limit. The purpose and consideration for the

facility should be clearly spelled out. The advance should be business-related. The

credit worthiness of the customer should be undoubted. The facility may be secured

by one or more type of securities. It is essential that the security and charge

documentation formalities should be completed prior to disbursement of the

facility. As in the case of all advances, meticulous attention is paid towards

compliance with the State Bank of Pakistan’s Prudential Regulations for banks. In

this respect the bank’s per party lending limit, linkage of the borrower’s equity

with their total facilities, obtaining financial statements, adherence to financial

ratios by the borrower etc, need to be particularly looked into to ensure compliance

with these regulations. e-CIB report must be clear. No any default/Write-off history

should be in this report. As in the case of all advances, meticulous attention is paid

towards compliance with the State Bank of Pakistan’s Prudential Regulations for

banks. In this respect the bank’s per party lending limit, linkage of the borrower’s

equity with their total facilities, obtaining financial statements, adherence to

financial ratios by the borrower etc, need to be particularly looked into to ensure

compliance with these regulations.

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3.3.4 Demand Finance

This facility is allowed for a specific purpose with a pre-determined date of

final adjustment. Repayment may be either through periodical installments or by

way of lump sum adjustment. The branches monitor the end use of funds to ensure

that they are utilized for the purpose for which they have been disbursed. e-CIB

report must be clear. No any default/Write-off history should be in this report. As

in the case of all advances, meticulous attention is paid towards compliance with

the State Bank of Pakistan’s Prudential Regulations for banks. In this respect the

bank’s per party lending limit, linkage of the borrower’s equity with their total

facilities, obtaining financial statements, adherence to financial ratios by the

borrower etc, need to be particularly looked into to ensure compliance with these

regulations.

3.3.5 Micro Agricultural Credit Scheme

Agriculture and livestock is the mainstay of Azad Jammu and Kashmir’s

economy that provide livelihood to majority of rural population. Taking into

account its vital significance, AJ&K Bank has announced to start Micro

Agricultural Credit Scheme for small agriculture, livestock and tourism related

businesses to further expand and increase the volume of productivity and to

significantly cater the need of agriculture produces along with meat and dairy

products at local level. Under this scheme a loan ranging from Rs 25,000 to one

million will be granted to small investors of AJ&K. President/Managing Director

Kashmir Bank Imran samad has setup a special department in the bank to expedite

Micro Agricultural Credit Scheme related work.

 Objectives of Micro Agricultural Credit Scheme

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 To overcome the issue of unemployment, generating local resources to

contribute in state’s economy and to promote the Livestock and tourism industry in

the state is the main objective of this scheme. For the successful implementation of

this program consultations are underway with various organizations working on

participatory development like NRSP and Agriculture and Livestock departments

of the government.

3.4 Consumer Financing Scheme

3.4.1 Advance Salary Program

The Bank of AJ&K offers "Advance Salary Programme” for Permanent

Employee of the Government /Semi Government Departments /Autonomous

Corporations. In Advance salary Programme an employee can take up to fifteen

(15) take home salaries in five years tenure. The average of last three months’

salary or the current/last month salary slip/certificate amount, whichever is lower,

will be taken as a base salary to calculate the advance salary amount. If a person

wants to avail the scheme for less than five years time period, the number of

salaries will be decreased depending upon the time period and debt burden. The

tenure and number of salaries are as under. Hassle-free processing, personalized

service, early settlement Option without charges, no hidden charges, lowest Mark-

up rate, the flexible Financing period can be 12, 24, 6, 48 or 60 months, processing

fee is 1% of finance amount are the main features of this program.

3.4.2 Car Loan Scheme

The Bank of Azad Jammu and Kashmir offers the most convenient and

affordable Car Finance Scheme "The Bank of Azad Jammu and Kashmir Car Loan

Scheme” empowers you to have your dream car in a simple and quick manner.

Hassle-free processing, personalized service, low Down payment, early Settlement

24
option without charges, no hidden charges, lowest Mark-up rate, New Vehicles

of any brand valuing up to Rs. 1,000,000, the Flexible Financing period can be 24,

36, 48 or 60 months with our financing up to 85% of vehicle cost, Competitive

Insurance rates. Insurance will be mandatory where first year's insurance will be

taken up front, processing fee is 1% of finance amount are the main feature of this

scheme.

As in the case of all advances, meticulous attention is paid towards compliance

with the State Bank of Pakistan’s Prudential Regulations for banks. In this respect

the bank’s per party lending limit, linkage of the borrower’s equity with their total

facilities, obtaining financial statements, adherence to financial ratios by the

borrower etc, need to be particularly looked into to ensure compliance with these

regulations.

3.4.3 Motorcycle Loan Scheme

The Bank of Azad Jammu and Kashmir Motorcycle Loan Scheme is lease

facility for purchasing brand new locally manufactured/assembled Motorcycle for

personal use. Personalized service, hassle-free processing, low Down payment,

early settlement option without charges, no hidden charges, lowest Mark-up rate,

the Flexible Financing period can be 12, 24, 36 months with our financing up to

90% of Motorcycle cost.

3.4.4 Aasaish Loan Scheme

The Bank of Azad Jammu and Kashmir Aasaish Loan Scheme is the

Demand Finance facility for employees of Government/Semi Government

departments/

Autonomous corporations of Government of AJ&K.

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3.5 Remittances Department

Another important department in Khaigala branch is Remittances

Department. The remittances department transfers the funds from one bank to other

bank and from one place to another place. In remittances department the collection

take place. The Khaigala made payment of only open cheques on the counter and

prohibits the payment of crossed cheques. Khaigala branch transfers money from

one place to another by the following means:

3.5.1 Mail Transfer

When a customer requests the bank to transfer his money from this bank to

any other bank or the branch of some other bank, the first thing he has to do is to

fill an application form. In which he states that he/she wants to transfer the money

from this bank to that bank by mail. If the customer is the account holder of the

bank, operating personal will proceed further with steps like:

 Writing a debit voucher for a/c holder’s a/c

 Preparing an advice in favor of stated bank/branch

 Writing credit voucher for GL

 Mail the advice

 If the customer is not the account holder of this bank, then firstly, he has to

deposit the money and then above procedure will be adopted to transfer his

money.

3.5.2 Telegraphic Transfer

With the changing requirements of the customer, Khaigala branch has fast

transfer of money. The sender is required to apply through a form in which he will

give all the necessary details about the sender and beneficiary. The sender deposits

the money to be transferred plus bank charges at the bank counter. The remittances
26
officials send a telegram to concerned branch with specified code words and the

receiving branch makes payment to the beneficiary. Vouchers are sent by ordinary

mail to keep the record. On TT, no excise duty is charged only commission and

telegram charges are charged.

3.5.3 Pay Order

Pay order is the most convenient simple and secure way of transfer of

money. It is issued by, drawn upon and payable by the same branch of the bank. It

is neither transferable nor negotiable and as such it is payable to the payee named

there in. The following are the parties to a pay order.

 Purchaser is a person, firm, company or local authority.

 Issuing/paying branch is one which issues/pays on presentation.

3.5.4 Demand Draft

Demand Draft is another way of transfer of money from one bank to

another bank. Unlike pay order, a form is required to be filled for the issuance of

the demand draft in which necessary particulars about the beneficiary and sender

are given. The sender deposits the amount of DD plus commission and other

charges on the bank counter, from where he is given a receipt and in accordance

with this receipt he is issued

 The following are the main essential of draft:

 It is a Negotiable Instrument.

 Filling a form and depositing the amount written on it prepare 2} Draft.

 It is a written order to its branches or to another bank to pay the stated

amount on draft.

27
3.6 Cash Department

This is the most important and critical department in a Bank. There are two

basic functions performed by the cash department. These are

3.6.1 Receipts

An individual who has account in the Bank can deposit money in his

account. For deposit of the money the individual has to fill the deposit slip in which

the account holder writes his name, Account number, amount of the money both in

Figures and In Words. After filling the deposit slip the Cash amount along with the

deposit slip is submitted with the cashier. The cashier collects the cash and counts

it and after verification the cashier stamps the deposit slip. One part of the deposit

slip is given back to the customer and the other part of the deposit slip remains with

the bank for the record purposes. The cashier also record the deposits made by the

customers in credit sheets daily. The deposits of all customers of the bank are

controlled by mean of ledger account. Every customer has its own ledger account

and has separate ledger cards in which his / her total record is kept. Bill collection

is also one of the main functions of bank. Cashier has to prepare a list of bills’

serial number, a copy of which is to be sent to the corresponding organization.

3.6.2 Payments

The procedure of clearance of a cheque or payments is as following. First of

all the customer presents his cheque to the cashier the cashier records the account

number and the amount, which is to be drawn. Then the cashier check the cheque

number in the computer for the verification whether the account holder has such

amount in his account which he is demanding or not. If the computer passes the

cheque, the Passing officer signs the cheque and sent it to the cash counter then

28
cashier pays the written amount to the customer and then in the end cashier records

the amount paid in computer.

3.7 Clearing Department

In clearing process, if the account holder of Khaigala Branch receives the

cheque of other bank like MCB,NBP and HBL etc, and he submits it in Khaigala

branch to be cashed. At the same time the clearing process starts. First the bank

name. Cheque number and the amount are written in the register. After this three

kind of stamps are required first bank name stamp, secondly clearing stamp of next

date and If the cheque is not local then the inter city clearing stamp is required.

Some cheques are local and some are outstation. The institution N.I.F.T. provides

the services in clearing the cheque. They send the different cheque to different

banks. The N.I.F.T service is only in few cities, like Karachi, Lahore, and

Rawalpindi. The cheque of inter city is send through N.I.F.T. And where, the

N.I.F.T service is not available so the cheque is sent through T.C.S. The clearance

of cheque is informed through advice. Some cheque is not passed so they should

return so Rs. 100 is deducted and if the cheque is intercity then the postage charges

is deducted. For this purpose the Debit & Credit voucher is used. When the cheque

is cleared the today stamp is required. Some cheque is drawn on Khaigala Branch.

This is called outward clearing. These cheques will be entered in the outward

clearing register. And the advice is sent for the clearance of cheques. The account

holder account is credited.

29
 Chapter No. 4

Financial Study of Bank of AJ&K

4.1 Consolidated Balance Sheet 2016

2016 2015

Rupees in '000

ASSETS

Cash and balances with treasury banks 306,368 367,469

Balances with other banks 3,628,344 3,434,016

Lending to financial institution - -

Investments 203,549 225,397

Advances 1,678,147 1,101,286

Operating fixed assets 97,983 91,156

Deferred tax assets - -

Other assets 290,032 182,009

6,204,423 5,401,333

LIABILITIES

Bills payable 4,460 6,218

Borrowings - -

Deposits and other accounts 5,367,895 4,599,756

Sub-ordinate loans - -

Liabilities against assets subject to finance lease - -

Deferred tax liabilities 3,280 3,322

30
 Deferred Government grant 18 27

Other liabilities 86,248 98,496

5,461,901 4,707,819

NET ASSETS 742,522 693,514

REPRESENTED BY

Share capital 654,981 525,938

Advance against issue of share - 50,152

Reserves

Un-appropriated profit 75,347 107,810

730,328 683,900

Surplus on revaluation of assets - net 12,194 9,614

742,522 693,514

4.2 Consolidated Profit and Loss Account 2013

2016 2015

Rupees in '000

Mark-up / return / interest earned 561,905 555,254

Mark-up / return / interest expensed 319,836 292,931

Net mark-up / interest income 242,069 262,323

Provision against non-performing loans and advances 26,174 15,192

Provision against lending to financial institution (8,000) (6,000)

Provision for diminution in the value of investment - -

Bad debts written off directly - -

18,174 9,192

Net mark-up / interest income after provisions 223,895 253,131

31
NON MARK-UP / INTEREST INCOME

Fee, commission and brokerage income 15,078 10,150

Dividend income 6,810 3,463

Income from dealing in foreign currencies - -

Gain on sale of securities – net 21,258 29,908

Unrealized gain / (loss) on revaluation of investments

classified as held for trading - -

Other income 2,217 2,714

Total non-markup / interest income 45,363 46,235

269,258 299,366

NON MARK-UP / INTEREST EXPENSES

Administrative expenses 206,658 158,856

Other provisions / write offs - -

Other charges - -

Total non-markup / interest expenses 206,658 158,856

62,600 140,510

Extraordinary / unusual items - -

PROFIT BEFORE TAXATION 62,600 140,510

Taxation – current 16,501 44,077

Taxation – prior years - -

Taxation – deferred (329) 619

16,172 44,696

PROFIT AFTER TAXATION 46,428 95,814

Basic/ diluted earnings per share - Rupees 0.72 1.58

32
 2016 2015

Rupees in '000

CASH FLOW FROM OPERATING ACTIVITIES

Profit before taxation 62,600 140,510

Less: Dividend income 6,810 3,463

55,790 137,047

Adjustments for non-cash charges:

Depreciation 10,770 7,387

Provision against non-performing loans and advances 26,174 15,192

Provision against lending to financial institution (8,000) (6,000)

Provision for diminution in the value of investment - -

Property and equipment written off - (262)

Amortization of deferred government grant (9) (9)

28,935 16,308

84,725 153,355

(Increase) / decrease in operating assets

Advances (603,035) (163,598)

Lending to financial institution 8,000 12,334

Other assets (107,106) (60,856)

(702,141) (212,120)

Increase / (decrease) in operating liabilities

Bills payable (1,758) 2,862

Deposits and other accounts 768,139 716,721

Other liabilities (4,651) 14,157

761,730 733,740

144,314 674,975

Income tax paid (25,015) (24,402)

33
Net cash inflow from operating activities 119,299 650,573

CASH FLOW FROM INVESTING ACTIVITIES

Net investment in available for sale securities (30,000) 45,000

Net investment in held-to-maturity securities 54,715 27,217

Dividend income 6,810 3,463

Investments in operating fixed assets (17,597) (15,596)

Sale proceeds from property and equipment disposed off - 418

Net cash flow (used in) / from investing activities 13,928 60,502

INCREASE IN CASH AND CASH

EQUIVALENTS 133,227 711,075

CASH AND CASH EQUIVALENTS AT THE

BEGINNING OF THE YEAR 3,801,485 3,090,410

CASH AND CASH EQUIVALENTS AT THE

END OF THE YEAR 3,934,712 3,801,485

4.4 Financial Ratio Analysis

In conclusion, financial analysis can be an important tool for small

business owners and managers to measure their progress toward reaching company

goals, as well as toward competing with larger companies within an industry.

When performed regularly over time, financial analysis can also help small

businesses recognize and adapt to trends affecting their operations. It is also

important for small business owners to understand and use financial analysis

because it provides one of the main measures of a company's success from the

perspective of bankers, investors, and outside analysts. Ratio analysis is powerful

tool of financial analysis. A ratio is defined as “the quotient of two mathematical

34
expression” and as “the relationship between two or more things”. In financial

ratio analysis, a ratio is used as benchmark for evaluating the financial position and

performance of a firm.

Performing Analyses with Financial Ratios

4.5 Ratio Analysis of Bank of AJ&K

Return on Equity

ROE= Profit after taxes ÷ Share holder’s Equity

2016 (Amount in ‘000’) 48,730 / 654,981 = 0.0744

2015 (Amount in ‘000’) 95,814/525,938 = 0.1822

Return on Assets

ROA= Profit after Tax ÷ Total Assets

2016 (Amount in ‘000’) 48,730/6,204,423 = 0.0078

2015 (Amount in ‘000’) 95,814/5,401,333 = 0.0177

Return on Deposits

ROD = N.P.A.T * 100 ÷ Total Deposit

2016 (Amount in ‘000’) 48730/5,367,895 = 0.0091%

2015 (Amount in ‘000’) 92484/4,599,756 = 0.0201%

Current Ratio

Current Ratio = current assets ÷ current liabilities

2016 (Amount in ‘000’) 5,816,408 /5,372,355 = 1.0826

2015 (Amount in ‘000’) 5,128,168 /4,605,974 = 1.1133

Current Liabilities to liabilities ratio

Current liabilities ÷ liabilities

2016 (Amount in ‘000’) 5,372,355/5,461,901 = 0.9836

2015 (Amount in ‘000’) 4,605,974 /2927395 = 0.9783

35
Total Assets Turnover Ratio

Total asset turnover ratio. Interest/markup earned*100 ÷ Total asset

2016 (Amount in ‘000’) 242,069/6,204,423 * 100 = 3.9015

2015 (Amount in ‘000’) 262,323/5,401,333 * 100 = 4.856634464

Cash to deposit Ratio

Cash deposit ratio = Cash ÷ Total Deposits

2016 (Amount in ‘000’) 306,368/5,367,895 = 0.0570

2015 (Amount in ‘000’) 367,469/4,599,756 = 0.0799

Advance to deposit Ratio

Advances deposit ratio = Advances ÷ Deposit

2016 (Amount in ‘000’) 1,678,147 / 5,367,895 = 0.3126

2015 (Amount in ‘000’) 1,101,286 / 4,599,756 = 0.2394

Earnings per Share

EPS = N.P.A.T ÷ No. Of outstanding shares

2016 (Amount in ‘000’) 48730/47812 = 1.0191

2015 (Amount in ‘000’) 92484/47812 = 1.9343

Earning Per Branch

Profit Net ÷ No. Of Branches

2016 (Amount in ‘000’) 48730/55 = 886.00

2015 (Amount in ‘000’) 92484/53 = 1744.98

Operating expense Ratio

Operating exp ratio= Non markup expense ÷ Gross income

2016 (Amount in ‘000’) 206,658/62,600 = 3.3012

2015 (Amount in ‘000’) 158,856/2140, 510 = 1.1305

36
 Chapter No. 5

SWOT Analysis

The SWOT analysis is a comprehensive and critical overview of the

operations, procedures, rules and regulations, services and other related activities,

the analysis include the analysis of Khaigala branch in the light of the entire branch

and Bank specific variables which directly or indirectly affect the operations of the

branch. The tool selected for the analysis of organization is SWOT analysis.

5.1 SWOT analysis

SWOT analysis is an acronym that stands for Strengths, Weaknesses,

Opportunity and Threats. This is a careful evaluation of an organization’s strengths

to avail an opportunity by overcoming its weaknesses and phasing out all the

threats to its survival in order to grow and survive.

5.1.1 Strengths

1) This branch is provided with 3 fax machines, more than 7 telephone

connections, which makes communication easier with different branches

2) The branch is linked through a online network of 830 branches, thus

enabling them to serve customer in better way.

3) This branch is provided with latest computer which increases the speed of

computer work.

4) The branch is situated in commercial area were business activities perform

greater as compare to residential area. Thus it increases the number of

customers.

5) The Branch has the most experienced and the least experienced staff, which

is a good combination of experienced heads and exuberance of youth.

37
6) The branch is the main branch in the areas, which is another plus point for

the Branch.

5.1.2 Weaknesses

1) The Branch has a good staff combination on the basis of experience, but

their training capabilities are not up to the requirements of the fast changing

banking environment.

2) The customer’s Long-term contacts are not maintained with customers.

3) The technical training of the staff is negligible e.g. in case of the absence of

computer there is no alternate trained personal who can record the daily

transactions.

4) The organization is very much mechanistic and provides no flexibility to

encourage creativity.

5) The lower staff is non cooperative as compared the lower staff of other

branches.

6) The control of manager is not effective.

7) The discretionary powers of manger are very low to offer more incentives

and value added services to its customers.

8) There is a lack of commitment and professionalism on part of the

employees. The staff is always in a hurry to leave the bank as soon as

possible. They were also observed to starting their operations comparatively

late.

9) The organizational culture is not cooperative

10) Nepotism was observed on part of the manger as well as the top

management towards some staff members.

11) The branch has no industrial accounts.

38
12) The level of technology management in the branch is very low. The

technology available is not maintained well mainly because of the lack of

technically trained staff. For instance the scanner, in spite of its availability

has not been used for scanning the specimen signature cares.

13) In spite of the presence of technology many jobs are done manually such as

the letters, drafts for fax messages and other calculations, which could be

easily, done in MS Word and Ms Excel.

14) The branch lacks some physical facilities such as clean washrooms which

can affect employee’s performance

15) The layout of the branch is such that it is hindering the flow of work on one

hand and the documents are lying exposed which can be easily taken away

by any person entering the branch.

16) The job distribution is not up to the mark. The immediate result of this

immediate result of which is:

17) The filing system is not up-to-date. Much time is wasted while searching

for even a week old document.

18) The staff spent more time in collections than required.

19) Delays were observed because the prescribed procedures are not followed.

20) There is no facility for receiving and satisfying complaints and inviting

suggestions.

21) Foreign currency accounts are not entertained. The main reason for these

negative responses that the staff is not trained in dealing foreign currency

accounts.

22) Customers’ coming to the Bank for TTs TCs etc. are not received with open

hearts and thus deprives the bank of revenues.

39
23) There is a lack of functional and proper research and development, which

could scan the micro and macro environmental data for future planning and

strategy.

24) Financial audits are conducted but operational audits have not received

proper attention as much as it should get.

25) There is no procedure, which could encourage the middle and lower level

management to initiate creativity.

5.1.3 Opportunities

1) A considerable portion of the labor force of the area is serving overseas.

Their families can be encouraged to use Khaigala branch as channel for

remittances.

2) The Internet facility in the area provides an opportunity to Khaigala Branch

to get Online.

3) The Bank has the basic infrastructure, which can facilitate the online

process.

4) The location of the Khaigala Branch branch itself provides an opportunity

to branch to get more and less cost deposits.

5) The group from its survey and analysis of IT companies have found out that

there are many companies which are not satisfied with its current bank, so

Khaigala branch with its superior service quality and long working hours

can capture those customers

5.1.4 Threats

1) The biggest threat to the operational success of the branch is the better

competitor’s services. Many private sector banks are offering higher rates

of return to customers than Bank of AJ&K.

40
2) One of the biggest threats to the Khaigala branch is the increasing rate of

dissatisfies customers. Most of these customers were observed to be

dissatisfied with the delays in their servicing.

3) The greatest threats to the performance of Khaigala branch are the

decreasing morale of employees. They feel that they are not provided with

bonuses. They are not given proper attention to have a say in the annual

meetings. The proxy forms are signed on their behalf without letting them

know.

4) High-pressure interest groups are developing which poses a constant threat

to Bank of AJ&K

41
 Chapter No. 6

Findings and Recommendations

The critical analysis in the previous section is the representation of its past,

mirror of its present, and an insight into its future. The past data of Khaigala branch

enabled me to study the organization in a historical perspective and understand the

nuisances in the banking operations. Study of the present of branch helped me

evaluate the organization in comparison to its future and competitors. The data

obtained from the analysis of its present and future in combination with my

professional studies resulted in some suggestions and implementation plans, which

can help to increase the profitability and operational success of the Khaigala

branch, some of the major findings suggestions are discussed.

6.1 Physical Facilities

The physical facilities or the layout are the most fundamental features in an

organization, which the customers observe in forming an opinion, perception or

idea about the organization. Therefore, every organization tries to make a good first

impression on customers through the presentation of its physical facilities or

layout. The physical facilities in the branch are not up to the mark, which requires

timely changes to provide good environment to customers. The suggested changes

and corrective actions are gives below:

 The lighting system must be improved and all the out of use lights must be

replaced.

 Automatic Generators and AVR (automatic voltage regulator) should be

made available to the branch to minimize the disruptions due to power

failure

42
  Newspaper should be provided to the customers to avoid the pain of waiting

long.

 A cash counting machine can help reduce the time spent in counting cash.

6.2 Availability of Staff

The existing staff in the Bank is overburdened due to the non-availability of

more staff. Staff in the branch must be in proportion to the customer has so as to

expedite the workflow, avoid overloading of staff and remove the customer’s

grievances arising mainly due to delay in workflow. The additional staff required is

in the fallowing categories.

 More technically trained staff should be added to the existing staff strength

 One staff assistant or grade 2 officers properly trained in computer and

sufficiently trained in foreign currency accounts.

 One employee of grade 4 should be hire on daily wages or contract, to

maintain filing.

6.3 Commitment of Employees

The decreasing commitment of employees can be increased by introducing

an effective performance appraisal system, which can reward and recognize the

achievements and services of employees for the Bank.

The appraisal system must have the following features.

6.4 Feed Back:

Periodically provided to employees and recognizing their efforts through

reward (bonuses) and publicly appreciation.

6.5 Objectivity

The appraisal system must be based on facts and figures and objective

evaluation of the facts on grounds.

43
6.6 Marketing Concept

The concept of marketing should be followed in every aspect of the

organization. Generally, the bank’s staff considers that marketing is to go to

customers, beg them for opening an account with the Bank and to abide by his

every just and unjust action They should be taught that marketing is not only to go

to customers only. A customer can also be attracted by provided customer oriented

services, showing empathy to your customers and attending him personally.

6.7 Customer Orientation

Deposits are the main source of funds for commercial banks. Therefore, the

priority of every bank is to increase the number and amount of deposits. The key to

successful business does not lie in simply attracting new customers. The real

success is to maintain in the old customers and attract new customers at the same

time because retaining a customer is more difficult than attracting new customers.

 Every depositor should be given equal importance and there should be no

differentiation between customers so that every customer feels himself as

much important as the other customer.

 The attitude of the staff should be friendly to all the customers. The

customers should be taken to the concerned person or guided friendly if the

concerned person is not available. The attitude of “that’s not my job”

should not exist anymore.

6.8 Mobilization of Less Cost Deposits

The analysis of expenses shows that the payments on fixed deposits, which

is a very high proportion. Apart from this the interest earned on advances is smaller

than the interest paid on different deposits .The bank should launch a campaign to

44
get less cost deposits much as high amount current account as well as low cost PLS

saving accounts.

6.9 Information Access

The Bank should provide information to all the present and potential

customers relating to the new products, services, some service’s fee structure and

other matters, which are likely to affect the customers. It should be made sure that

all the customers have access to this information. Conveying information is of no

use, unless, there is some feedback from the customers. The following measures

are suggested to implement this suggestion. Brochures, hand outs, pamphlets and

other printed reports must be provided to customers, which should provide all the

information necessary to attract and retain customers and to satisfy the customer’s

need for more information.

 Personal contacts with the customers can help in providing information to

customers. All the customers must be provided a chance to get the desired

information by personal contact with the Bank staff.

 Complaint and suggestion box should be maintained at the door of the Bank

where the customers can point out drawbacks in the customer’s services and

put forward their suggestions on his improvement of the services quality of

the Bank.

6.10 Performance Audit

The financial audit of the bank is conducted on regular basis both as a

surprise and routine audit. However, the performance and system audits are

completely ignored which, otherwise, should have been a compulsory part of the

auditing services of the Bank. The immediate outcome of ignoring performance

outcome is shortcoming in the non-financial aspects of this organization such as

45
customer relations, lack of necessary facilities, motivation of employees, and the

control of manager. In the light of the above facts it is suggested that the

performance audit of the bank must be carried out on both regular and surprise

basis to keep the Bank competitive in the run of for more customers, more deposits

and high profitability.

6.11 Campaign for Increasing the Deposits

The numbers of account holders in a bank make a significant contribution

to the deposits of the Bank and determine its business volume, profits and size of a

bank. Therefore, Khaigala branch must a clear plan for increasing the number of

accounts. The details of plan for increasing the number of accounts are given in the

implementation plan.

6.12 Increases in Business Share

Along with concentrating on increasing the customer base, the Bank must

also emphasize on securing the highest market share in other banking services such

as issuance of letter of credit, foreign exchange, remittances, bills identification of

productive secure and easily realizable advances etc. to achieve this strategy the

Bank should have a clear plans with the consent of the higher management. The

plan must be divided into different periods – weekly, monthly, semiannual and

annual. Every stage of the plan must be monitored and controlled on regular basis.

6.13 Manual Vouchers System

As all the ledger system and vouchers are made manually which is a much

time consuming job and it also requires much more efforts most importantly human

error chances are there that’s why if the organization implement “SAP FINANCE

MODULE” in their current saving department that will help them creating

automatic vouchers and ledger if any transaction is made by customer because SAP
46
has the capability to keep all the records of a an individual at just one place and it

has the capacity to store much data.

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49