CHAPTAR 4
BAF F/10 ISLAMABAD
Departmentalization in F/10 Islamabad branch
It seems quite apparent that if the stated goals and objectives of an organization are to be attained, certain activities have to be performed and it would also seem that the organizing function of a manager would involve grouping the functions and activities necessary to attain the goals of an enterprise. The term for that process is “Departmentalization” or Division of Organization.
In Bank Alfalah F10 Islamabad Branch, departments are made on the bases of functions performed by the bank. There are three(3) major divisions in the bank i.e.
v General Banking Division
v Credits Division
v Trade-Finance Division
v Credit Card Division
v Car Finance Division
In each division there are certain departments, which are as follows:
General Banking Division
The general banking division includes:
v Deposits Department
v Accounts Department
v Cash Department
v Remittances Department
v Clearing Department
This department is considered as backbone of the branch. The major activities and operations performed under this department is as follows:
Deposit Department
In line with the “Client First” philosophy, Bank Alfalah offers a wide range of deposits to cater to the specific needs of various business segments classified as follows:
Transacting Accounts
ü Current Account
ü Saving Account
Non-Transacting Accounts
ü Term Deposits
ü Call Deposits
The detail of these is as follows
Current Account
Current accounts are those, which let the client handle the day-to-day expanses efficiently by allowing drawing cheques against the available balance within the business hours. It can be further classified as Individual Account and Joint Account.
Individual Current Account:- Individual Account is opened by a single customer, only he can operate the Account, but he can give the Authority to the other person to operate the Account, if he is not available, for this he will sign an authority letter.
Joint Current Account:- If there are two or more customers who want to open Current Joint Account, so they will open a Joint Account. This Account may be Operated:-
ü Jointly by all partners
ü Either or savoir
ü Any one of the partner
Partnership Current Account:- This account is opened with the Title of the Partnership. This account is only operated by the Partners of the Partnership, who sign the Partnership deed, and who sign the Account Opening Form. They can give the Authority to the other partner.
Documents required:
ü Partnership deed
ü NIC photocopy of all partners
ü Partnership manadate
ü Power of Attorney
Features of Current Account
Main features of the current account are:
Currency options PKR , US
· Rate of Return Not Applicable
· Checking Facility Unlimited
· Tax Application Nil
· A/C Statement Monthly
· Cheque Book 25,50,100 leaves book @ Rs.2/leaf
Saving Account
Saving account gives higher return with the edit benefit of flexibility of drawing money at any time within business hours than the Current Account. Different types of Saving Accounts is:
ü Individual Saving Account
ü Joint or Partnership Saving Account
ü Minor Saving Account
Individual Saving Account:
Features of Saving Account
Main features of Saving Accounts are as follows:
Currency Option PKR , US
· Minimum Balance Requirement Rs. 5000 or US $ 500
· Checking Facility Unlimited
· Tax Application With holding Tax on Profit &
Zakat on total amount
· A/C Statement Monthly
· Cheque Book 25, 50 leave @ Rs.2/leaf
Call Deposit
It is an interest bearing deposit account with a mandatory 7 or 30 days notice period preceding the release of funds. This account can be maintained in PKR. The interest depends upon the tenor of the deposits and is payable on maturity.
The tax is withheld on the profit and Zakat is applicable to the principle amount only.
· Currency Option PKR
· Minimum Balance Required None
· Tenor 7 to 30
· Profit On Maturity
· Checking Facility Nil
· Tax Application With holding tax on profit &
Zakat on Total amount
· A/C Statement Nil
Term Deposit
It is one of the popular account types. The amount is deposited in this account for fixed i.e., from one(1) month to five(5) years. The interest is various with the variation of time limitation. The rate of profit increases as per increase in time period. The customer does not withdraw money before maturity of his/her account. The profit is paid after the maturity but in certain cases money can be withdrawan with the adjustment of rate of profit according to the time limitation.
Different Schemes of Bank Alfalah
To boost up its deposits and to provide more facilities to its clients, Bank Alfalah has launched different peculiar schemes i.e.
· Royal Profit
· Royal Patriot
· Royal Custodial Services
· Royal Group
The detail of the above stated schemes is as follows:
Royal Profit
It is highly flexible interest bearing account which calculates return on daily product basis.
Features of Royal Profit
· Current option PKR , US
· Checking Facility Unlimited
· Cheque Book 25 leave free of Cost
· Account Statement On Request
· Tax Application Zakat
Royal Patriot
This is a rupee term deposit which is designed to give your money at a much higher growth rate than a foreign currency account.
Features of Royal Patriot
· Choice of Term 1,3,6,9,12,24 months
· Profit Rate improves with tenure and amount
· No penalty in case of premature encashment
· No prior notice required before withdrawal
· Low minimum balance requires Rs. 25,000/-
Royal Custodial Service
Dollar Bond Custodial and Return Management Services are:
· Absolutely safe
· No need to maintain account to benefit from service
· Automatic opening of account both in PKR and US $
· Opens a door to an array of our top quality
· The service is available for bearer and registered bonds
Royal Group
This is a joint investment plan which allows the investors to make a group of people and open an account.
Features of Royal Group
· Profit will be calculated on daily product basis
· Profits will be disbursed on monthly basis
· Option of salary disbursement (for employees)
· Arrangement of secured collection of cash/cheque from work place
· High rate of return for even small depositors group
· Required number of people is two or more
Deposit Portfolio Highlight
| Deposits | Rates (P.A)% | |
| For individuals and Corporate | For Financial Institutions, NBFIs and DFI's | |
| PLS Saving Deposits | | |
| on Balances upto Rs.24,999/- | 2.00% | 1.00% |
| on Rs.25,000/- and above | 2.00% | 1.00% |
| PLS 7-29 Days Notice Deposits | 2.00% | 1.00% |
| PLS 30 Days Notice Deposits | 2.00% | 1.00% |
| PLS Term Deposit 1 Month | 3.00% | Varies |
| PLS Term Deposit 3 Months | 3.50% | Varies |
| PLS Term Deposit 6 Months | 4.00% | Varies |
| PLS Term Deposit One Year | 4.50% | Varies |
| PLS Term Deposit Two Year | 6.00% | Varies |
| PLS Term Deposit Three Year | 6.50% | Varies |
Royal Profits
| Amount | Proposed Rates (P.A) % |
| From 50,000 To 999,999 | 2.25% |
| From 1,000,000 To 9,999,999 | 3.00% |
| From 10,000,000 To 49,999,999 | 3.50% |
| From 50,000,000 To 99,999,999 | 4.00% |
| From 100,000,000 & Above | Contact us |
| Royal Patriot | |||
| Tenure | 25,000-999,999 | 1,000,000-4,999,999 | 5,000 & Above |
| 1 Month | 3.00% | 3.10% | 3.50% |
| 3 Month | 3.50% | 3.60% | 3.70% |
| 6 Months | 4.00% | 4.10% | 4.20% |
Accounts Department
This department coordinates all the banking activities there by keeping track of each activity in a sequential manner and provides up-to-date data. The accounts department is also responsible for proper accounting of assets and liabilities of the branch. This department is the backbone of the entire banking system. All the banking activities are placed through this channel. The main functions of this department are:
Ø Maintenance of books of accounts
Ø Preparation and disbursement of salaries of bank’s staff
Ø Maintenance of superannuating funds and investment of the staff
Ø Dealing with the disposal of commercial and external audit reports
Ø Preparation of budget and other financial statements
Cash Department
Unlike other departments in the bank, Cash Department also categorizes itself as one of the important department of the bank. Its significance being obvious by the fact that banking started because of transactions relating to cash — its safe keeping, trading etc. Efficient management of cash is needed to execute payments, collect receivables and maintain liquidity.
One drafts all the cash transactions with the clients by the cash department, specifically by the tellers. The amount of cash available at teller’s area is enough to meet daily requirements and is insured. After closing of the business hours, the teller verifies the amount of cash, physically, which is cross verified by the manager operations and tailed with the general ledger account. Tellers take extreme care to detect counter fag notes and if such notes are detected, the matter is referred to the manager operations. If counter fags are later discovered, they are booked as cash shortages. All the activities of the cash department are divided into two(2) i.e. Cash Collection and Cash Payment.
Cash Collection
Cash collection is accompanied by cash deposit slip. The slip contains the account number, title of account and denomination of cash deposited both in words and in figures followed by the signature of the depositor. The cash received is counted and is verified with the deposit slip. Entries for cash deposits are recorded before handling over receipts to the customer. Customer’s copy of the deposit slip is handed over to the depositor. Before cash deposit slip is released, it is matched and validated with the entries in the register for cash collection.
Cash Payment
Amount of payment of cash in a single transaction is fixed. Payments beyond a certain limits are supported to be approved by an appropriate authority. Before payment, the cheque must be checked for staling, post dated, payee’s name, crossing, amount both in words and in figures and authentication of alterations. Tellers verify signatures on cheque before payment. In case of illiterate account holder the customer is identified through the photograph available in the bank’s record and thumb impression attested under the full signature of the teller who is authorized to approve the transaction.
Remittances Department
One of the most frequently used banking services is the transfer of funds through the banking channels, being local or outstation. Transfer of funds entails high level of efficiency and security on part of the bank. It creates a legal obligation for the bank of debtor/creditors in case of DD and principle agent in case of TT.
The remittances are of two types i.e.
Ø Local Remittances
Ø Foreign Remittances
BAF offers following modes for Local Remittances:
· Pay Order
· Demand Draft
· Tele-Phonic / Tele-Graphic Transfer
· Mail Transfer
· Travellers Cheques
The detail of each is as under:
Pay Order
Payment Order is a negotiable instrument to transfer money to other banks within the station and is payable on demand. It is non-transferable instrument valid for three months, making it an order by one party to make payment in favour of another party. It is also known as Banker’s Cheque.
The customer fills an application form for Pay Order in favour of a party and submits the amount in the cash department. It is competitively less risky. In case of cheques, the bearer might not get the desired amount for non-having sufficient funds available to him but the Pay Order is a secure way of having the desired amount.
Demand Draft
Demand Draft is basically a bill of exchange, which orders to pay money on demand to a certain person specified on the instrument, or to the order, drawn by one bank to the branch of the same bank outside the station or on its corresponding banks. Legally, the instrument is governed by the Negotiable Instrument Act. The following parties are involved:
ü Purchaser: The customer, one who’s request the DD is issued
ü Drawing / Applicant Bank: The bank, which issues the DD
ü Drawer Bank: The bank on which the issued DD is drawn
ü Payee: The person entitled to receive the payment
The DD is valid for three(3) months i.e. 90 days of it being draw.
Tele-Phonic / Tele-Graphic Transfer
It is an encoded message between the bank of the beneficiary and the remitter. It is one of the quickest mode of transfer of money where by the funds are transferred through telex or cable from remitter / customer at one bank / branch to a payee in another city / country through an intermediary bank / branch. It is neither transferable nor negotiable. In this case the customer is responsible for the instructions, being given, and the bank carries everything out. The payment instruments in a TT should be clearly specified and must contain the following information:
ü Payment of specified amount
ü Currency in which the payment is to be made
ü The bank / branch where the payee’s account is being held, including the payee’s name and account number
ü Value date for effecting the payment
The message is reproduced and signed by two(2) officers. It is send for test where coding and decoding figures related to day, month, amount, currency and city takes place. If the test is agreed then action on telex takes place.
Mail Transfer
When money is not required immediately, the remittances can also be made by MT. Here the sending office of the bank sends instructions in writing by mail to the payee bank for the payment of specified amount of money.
Schedule of Charges for Domestic Remittances
| Services | Charges |
| 1.a) Pay Order (A/C Debit) | Rs. 50 (flat) |
| 1.b) Pay Order (Against Cash) | Rs. 100 (flat) |
| 1.c) Cancellation of Pay Order | Rs. 100 (flat) |
| 1.d) Issuance of Duplicate Pay Order | Rs. 100 (flat) |
| 1.e) Issuance of Drafts, MTs & TTs. | |
| (i) Up to Rs.10,000 | 0.25% Minimum Rs. 25 |
| (ii) From Rs.10,001 to Rs.100,000 | 0.20% Minimum Rs. 40 |
| (iii) From Rs. 100,001 to Rs. 1,000,000 | 0.10% Minimum Rs. 200 |
| (iv) From Rs. 1,000,001 to Rs, 2,000,000 | 0.075% Minimum Rs. 1000 |
| (v) Over Rs. 2,000,000 | 0.060% Minimum Rs. 2000 |
| 1.f) Cancellation of DDs /TTs | Rs. 100 (flat) per cancellation |
| 1.g) Issuance of Duplicate DD | Rs. 100 (flat) per item |
Travellers Cheques:
With the Rupee Travellers Cheques market growing rapidly, BAF is the latest entrant into the market. The bank was first to introduce TC’s in 2 Lac and 5 Lac denominations, the highest ever face value for any Travellers Cheques available in the Pakistani market. In fact the TC’s come in eight(8) denominations, which according to the bank will help clients conduct transaction at all levels and with complete security. These cheques have added security features, including the fact that they are printed on scan proof paper and carry the bank’s watermark and security thread with a 24/7 security and Tele-verification line. Bank also launched a reward program aimed at buyers of the TCs and will not be charging any commission on the purchase or encashment of the Cheques.
Features of TCs
· Highest Denomination Available of Rs. 5, 2 and 1Lac along with 50, 20, 10, 5 and 1 thousand(s)
· Receive commission if in cash TC’s in any of BAF branches
· Unlimited validity
· Maximum-security features
· Fully refundable
· Transferable and endorsable
· No account needed
· Round the clock customer services
Foreign Remittances
Foreign remittances include remittances (incoming and outgoing) outside Pakistan
Inward Remittances
The term “Inward Remittances” means purchase of foreign currencies in whatever form and includes not only remittances by MT, TT, Draft etc. but also purchase of TC’s, Drafts under Traveller Letters of Credit, Bills of Exchange and Currency Notes etc.
Outward Remittances
The term “Outward Remittances” means sale of foreign exchange in any form and include not only remittances by MT, TT, Draft etc. but also sale of Travellers Cheques, Traveller Letters of Credit, Foreign Currency Notes etc.
Since Bank Alfalah does not have branches in all countries, it has correspondence with the following banks for remittances:
ª US Dollar ($) Citi Bank, American Express, ABN Amro,
Bankers Trust and Habib Bank New York
ª Pound Sterling (GBP) Habib Bank London
ª Deutch Mark (DEM) National Bank of Pakistan Frankfurt
ª Euro (€) Commerce Bank Frankfurt
Types of Outward Remittances
The foreign outward remittances can be of following types:
· Foreign Tele-Graphic Transfer (FTT)
· Foreign Demand Draft (FDD)
· Foreign Outward Bill for Collection (FOBC)
The details are as follows:
Foreign Tele-Graphic Transfer
The transfer procedure is same as for local TT. The customer either pays cash or gets his account debit. Since all arrangements are through main office, Bank Alfalah sends credit advice to Head Office, which gives credit to the correspondent bank of Bank Alfalah in that particular country, ultimately giving credit to required / designated bank and account. For ITT, Head Office account is debited and credit is given to the beneficiary account. If beneficiary does not have account with BAF, then M-form is required to fill in stating purpose of remittances.
Foreign Demand Draft
FDD is also an instrument to transfer fund from one country to another. The customer can make payments in three modes:
· Debit to Foreign Currency Account
· Foreign Currency (Cash)
· PKR (M-form is to be filled in)
When the customer fills in the M-form, he/she has to state the purpose of remittance. These can be on account of:
· Membership Fee of Institutions
· Examination Fee
· Membership Fee of Social Clubs
· Subscriptions to newspaper/magazine/purchase of books
Once the customer fulfills all the requisites of the prescribed, BAF issues FDD and deducts bank charges, excise duty and withholding tax. Customer being NTN cardholder is exempted to pay tax in this case. FDD is then allotted a number for reference purpose and finally FDD is issued (always typed written). Credit advice to Head Office along with a Telex message to foreign correspondent bank is sent.
Foreign Outward Bills for Collection
When customer deposits a foreign cheque / travellers cheques to Bank Alfalah, it becomes the bank’s liability to collect it. It is then sent to the bank of expected country and payment is made after confirmation. The foreign bill is sent for correction first and then payment to beneficiary is made. It is commonly presented through clearing.
Schedule of Charges for Foreign Remittances
| Services | Charges |
| Outward TT through debit of account. Against surrender of foreign currency notes | US $ 15 or equivalent PKR. US $ 15 plus 0.50% minimum $5 or equivalent PKR. |
| Demand Draft through debit of account Against surrender of foreign currency notes | US $ 5 or equivalent PKR. US $ 5 plus 0.50% minimum $5 or equivalent PKR. |
| Issuance of duplicate FDD Cancellation of FDD/FTT/FMT | Rs. 200 plus actual fax, telex and postal charges. Rs. 200 plus actual telex/postal Charges |
| Inward: If proceeds a credit to an account maintained with us. Others. | Nil. US $5 or equivalent. |
| Received from abroad or local bank branches and where payment is demanded in FCY. | Minimum US $3, Maximum US $6 plus actual postage/telex charges are recoverable from collecting bank. |
| Home Remittances | Nil, if proceeds are credit to an account with us. |
| Others | Rs. 10 plus Money Order/telegram charges. |
Traveller’s Cheques Issuance
The TC’s are issued for the convenience of the person travelling abroad. These are the international cheques or modified form of Traveller’s Letters of Credit, non-drawn on any specified bank but payable at particularly all banks through out the world. They are convenient and safe currency for travellers. If they are lost or stolen, no loss is likely to be incurred because of the fact that no person other than the payee can cash them. In case of loss, however, owner of traveller’s cheque or reimbursed unused traveller’s cheque is redeemable by the issuer. When presented for redemption they must be countersigned exactly as when cashed at any other place. Bank Alfalah issue Traveller’s Cheques in the convenient denomination in US $ i.e. ($500, $100, $50, $20, $10). They contain the name of the purchaser, his/her specimen signature, the name of issuing office and date of issue. On the receipt of an application for issue of travellers cheques along with cash or cheque, they are issued to the purchaser who can encash them from any branch of the bank presenting travellers cheques duly countersigned in the presence of the paying agent indicating the date and place of payment at the space provided for the same on the cheque.
Traveller’s Cheques Quotas
The Traveller’s Cheques quota are issued for following purposes:
Ø For private travel
Ø For business travel
They details are as follows:
Private Travel Exchange Quota
They are also known as exchange. The prerequisites for private TC’s are:
ü Valid Pakistani Passport
ü Valid VISA
ü National ID Card
ü T-1 form. (i.e. application for foreign exchange for travels filling and signed by applicant)
ü Purchase agreement
ü Return air ticket. (confirmed return) It is endorsed by the bank
ü The facility is sanctioned only to Pakistani citizens with maximum limit of issuing TC of $2100 (Once in a year)
Business Travel Exchange Quota
For issuance of travellers cheques to businessman, following documents are required:
· Approval from Chamber of Commerce & Industry
· T-1 form
· T-2 form
· Purchase Agreement
· Ticket Certificate
· Payment through cheque only
· Confirmed return ticket
The maximum limit for business traveller exchange quota is US $6000 (Once a year). Moreover, the endorsement of ticket by ticket issuing authorities is a must.
Schedule of Charges for Traveller’s Cheques
| Services | Charges |
| Purchase (short-term receivables). | 0.5% minimum Rs. 300 flat. |
| Encashment. | 0.4% minimum Rs. 300 flat. |
| Issuance. | 1% |
| FCY cheques/Drafts/TC’s send on collection. | 0.2% plus postage at the rate of Rs. 50 and correspondent bank charges will be extra. (if any) |
Clearing Department
Clearing system is a device that enables bankers to settle cheques and other instruments, drawn on each other. System is of immense value in saving a lot of labor, time and expenditure there by increasing the efficiency of the banking system.
SBP has its branches in all big cities nationwide and clearing in these cities is supervised by SBP. In cities with no SBP coverage, the clearing is supervised by NBP.
Brief Working of Clearing Department
The Cheques received by a bank drawn on other banks are sorted bank wise. A schedule is prepared for cheque drawn on each bank. The cheques along with the schedule are presented in the clearinghouse where they are delivered to the representative of the various banks. Thus each bank receives from other banks cheques drawn upon it and delivers to other bank cheques drawn upon them. The first one is the inward clearing and the other is the outward clearing. The net difference is settled by Dr, Cr. to their account with the supervising bank.
Credit Division
The Credit Division at Bank Alfalah is categorised into three(3) sub-departments according to the functions:
¨ Advances Department
¨ Car Finance Department
¨ Structure Finance Department
Advances Department
Bank is a profit seeking institution which attracts surplus balances from the customers at low rate of interest and makes advances at a higher rate of interest to the individuals and business firms. Advances made by commercial banks are of three(3) types, namely:
¨ Over Drafts
¨ Cash Credit
¨ Loan against movable/immovable property and documents of title to goods
Over Draft
Over draft is the right given by a commercial bank to his customers to draw in excess of his current account up to a fixed limit.
The bank scrutinizes the application for over draft, examine the credit worthiness of each borrower and then approve the upper limit to overdraw the current account with or without security.
The bank often requires that the advances be secured, to reduce the risk of the bank. In case of default the, the amount can be record by selling the collateral. The principal type of securities assigned to the advances is:
¨ Government Securities
¨ Shares and bonds of listed companies
¨ Saving certificates
¨ Fixed deposit receipts
Cash Credit
Cash credit is the advancement of funds against the security of movable goods. Bank takes the physical possession of the goods.
Cash credit is a short term, self-liquidating commercial loan. The bank allows the business firms to borrow up to a certain limit either in lump sum or installments. The business concerns draw money according to their needs.
Loans
A loan is an advance made by BAL to the borrower in lump sum for a period exceeding one year from the date and extended is to meet the long-term capital requirements of the borrower.
Bank loans are classified into:
¨ By Security
¨ By Maturity
¨ By Purpose
Loans by Security
Secured loans are backed by collateral. The main type of securities pledged with the bank for obtaining loans is:
¨ Stocks & Bonds
¨ Real Estate
¨ Live Stock
¨ Ware House Receipt
¨ Equipment
The main purpose of securities is to minimize the bank risk if the borrower refuse or is unable to pay the loan at maturity.
Loans by Maturity
Loans classified according to the maturity of the loans are:
¨ Short term loans — payable to the lender upon demand or a short notice.
¨ Intermediate term loan — run from 1-5 years and repaid on installments.
¨ Long term loans — having longer maturity date and may be repaid before maturity.
By Purpose
Bank Alfalah advances loans to its customers for a variety of purposes.
¨ Commercial and Industrial loans
¨ Personal loans
Documentation Requirement for Loan Advancement
The bank while advancing loans needs written proof of the dealings between the party and the bank.
Documents required for applying for a loan are:
¨ Credit sanction advice
¨ Credit report
¨ Permanent information memo
1. Credit Sanction Advice
It is document for a loan, which is filled by a customer. It included a margin and security section, which is filled by the banker.
2. Credit report
Credit Information Bureau (CIB) is a department of the State Bank of Pakistan
Other documents are:
¨ Balance sheet of the company
¨ Information and detailed address of stockholders
¨ Proposed letter from the company for the required facility
¨ Articles/memorandum of association
Purpose of Documentation
Documentation is done for two purposes. It serves as:
¨ Evidence of contract
¨ Evidence of charge
Documents are prepared keeping in view the type of borrower, type of finance and the type of security.
Car Finance Department
A scheme that enables you to own your desired car at easily affordable and flexible installments with minimum down payment and insurance.
Salient Features
Ø Lowest financing cost available in the market
Ø Tenure of 1 to 5 years as per requirement
Ø Quickest processing
Ø Minimum documentation required
Ø Minimum processing charges: Rs. 3000 payable once
Ø Down payment requirement of 20%
Ø Repayment through monthly installments
Ø Lowest insurance rates available from Bank’s approved insurance companies
Monthly Installments
Monthly installments for Alfalah Car can be calculated by multiplying the Bank’s financing amount (cost of vehicle minus down payment) with the following factors:
Duration | Advance Installments | Deferred installments |
| For 12 months: | 0.09072 | 0.09216 |
| For 24 months: | 0.04962 | 0.05041 |
| For 36 months: | 0.03609 | 0.03666 |
| For 48 months: | 0.02944 | 0.02990 |
| For 60 months: | 0.02552 | 0.02594 |
Eligibility Criteria
All businessmen, corporate employees’ salaried and self-employed professionals having net take home income in excess of three times the monthly installments.
Structured Finance Unit
Innovative solutions tailored to your needs
To provide innovative Investments banking Services, Bank Alfalah, have established Structured Finance Unit (SFU) for the benefit of the valued clients.
SFU has the capability to assist public and private sector entitles, major financial institution, multinational corporations, and domestic and international institution investors in innovative financing, including underwriting, private placement and securitisation. SFU scope of activities also includes advisory assignments such as privatization, M & A’s domestic listings, IPO’s and restructuring. Because of Alfalah’s strong financial backing, SFU can source and syndicate debt, equity and venture funds for organizations to meet their financing and capitalization needs.
For Capital Raising
Ø Loan syndication
Ø Public flotation of TFC’s and equity
Ø Private placement of TFCs and equity
Ø Underwriting
Ø Guarantee syndicate
Ø Term finance certificate
For Corporate Advisory
Ø Financial restructuring
Ø Mergers and acquisitions
Ø Fostering joint ventures
Ø Privatization sale side and buyers side advisory
Ø Structuring new financial instruments
Trade Finance Department
Opportunities for companies to buy and sell goods and services on a global basis will continue to increase. A new country, a new customer and a new source of needed materials; all these opportunities demand an experienced and innovative trade service bank as a partner.
Foreign Banks in Pakistan Islamabad
Import Department
The function of the import department is:
Ø Settlement of Imports
Ø Short-term Financing
The detail is as follows:
Ø Settlement of Imports
The major function is to deal with the documentary credit (i.e. the letter of credit), which is the most convenient method for the settlement of international trade. Documentary credit is used as a method of payment by importers. The import facilitation offered by Bank Alfalah consists of the following i.e.
ü Letters of Credit
ü Payment against Documents
The details are as follows:
Letter Of Credit (L/C)
Letter of credit is a non-funded facility provided by the Bank to its clients on the basis of credibility of each individual party.
A letter of credit is an open letter of request whereby the importer's bank request the exporter's bank to advance money, or to give credit to the exporter for a certain amount and promises that he will repay the same to the exporter's bank to accept bills drawn upon himself for the amount.
A documentary credit should strictly conform to the following rules:
ª The letter of credit should specifically state that it is a letter of credit
ª It must have specified expiry date or definite term
ª The Bank's undertaking should be limited in amount
ª The Bank's obligation to pay should arise only upon the presentation of a draft or other document specified in the letter of credit, and the bank must not be called upon to determine questions of fact or law at issue between the account party and the beneficiary
ª The Bank's customer should have an unqualified obligation to reimburse the bank for payments made to the beneficiary
Types of Letter of Credit
The following types of documentary credit facilities can be availed by the clients from the bank according to the rules of SBP.
v Revocable Credit
v Irrevocable Credit
v Confirmed & Unconfirmed Credits
v Sight Credit
v Acceptance Credit
v Negotiation Credits
Parties to Letter of Credit
Following parties are involved in the documentary credit
Applicant/Importer: Purchase of goods or importer who request the bank to open a letter of credit is known as applicant.
Issuing Bank: The bank that opens a letter of credit on the request of the customer is the issuing bank.
Beneficiary: Seller of goods or exporter to whom payment is to be made is known as beneficiary.
Advising Bank: When the opening bank is in a location different from that of the beneficiary of L/C, the L/C will be usually sent to a bank in the beneficiary's location with a request that the beneficiary of L/C be advised. the advising bank gives the L/C to the beneficiary with no responsibility on its part. It is the opening banks' credit that beneficiary is relying upon.
Confirming Bank: The opening ban sends the L/C to a bank in the seller's location requesting the bank to confirm the L/C to seller. The confirming bank adds it confirmation (for a fee), thereby guaranteeing that it will pay if the terms of L/C are met irrespective of the opening banks' ability to pay. The charges of confirmation are paid to the confirming bank and are recovered by importer or exporter depending upon the agreement.
Reimbursing Bank: It is the correspondent bank of the issuing bank for reimbursing funds to the negotiating bank. It only provides its services for the funds transfer and bears no liability of L/C.
Negotiating Bank: The bank to whom the beneficiary presents his documents for payment, negotiation or acceptance under the L/C.2
Requirement for Opening L/C
A customer requesting the Bank to open L/C must fulfill following requirements:
i) Registration with EPB and CCI & E
ii) Request Form
iii) I- form (Import form)
iv) Performance Invoice
v) Insurance Policy
The details of these requirements are as under:
Registration with EPB and CCI & E
One of the basic requirements for importer who wants to avail the facility of credit is to get him or his firm registered with Chief Controller of Imports and Exports (CCI & E). "No importer or exporter who has not been granted registration by the chief controller shall indent, import or export any good into or out of Pakistan
Import items are mentioned by the Government of Pakistan. Import items have been classified into two categories.
Free List
These include items, which can be imported against cash, or under loan, credits barters from world sources.
Tied List
These items are importable exclusively from specified countries against Import License. Imports are prohibited from Israel and India
The Bank checks the Import License for the following items
ª Value of import License
ª Endorsement of Import License
ª Date of issue and expiry
ª SBP registration number
ª Description of goods (allowed to be imported)
Request Form
After registration the customer makes request on the prescribed form to BAF to open a letter of credit in favour of seller. This form provides all the details regarding the sale contract and agreement between buyer and the seller needed by the Bank.
I-Form
It is incumbent on the bank to report remittance against imports to SBP whenever such transaction takes place. An import form (i-form) is to be signed by the importer or his agent for the purpose. This form has four copies. The original copy duly signed by the importer is to be sent to SBP. The duplicate copy is to be attached with exchange control copy of bill of Lading (B/L). The bank keeps the triplicate copy of the form for record purpose. In case of non-retirement of documents by the customer, the Bank itself signs the quadruplicate copy of the form and sends it to SBP.
Performa Invoice
Performa invoice is issued by the beneficiary and it must have signature of both the parties i.e. buyer (importer) and seller (exporter). This is also known as sale contract and its copy must be submitted to the Bank for opening L/C. This copy is known as Indent Form if it is to be submitted by the agent of exporter. Performa invoice is rejected if its date exceeds six months. It gives details about terms and conditions between importer and exporter regarding transaction.
Insurance Policy
According to the ICC (International Chambers of Commerce), an insurance policy of goods, amounting to value plus 10% should be obtained. This policy can be of two types
a) Cover Note i.e., Policy covers only L/C amount
b) Open policy i.e., Amount greater than L/C amount is covered. Same policy would be used till the exhaustion of its limit
Usually, insurance policy is for full CIF (Cost, Insurance Freight) invoice value and is endorsed to the order of issuing bank (BAF in this case). When an importer brings the insurance policy, the import officer checks the following points:
a) Authorized signatures of officer of Insurance Company
b) Registration of Insurance Company with SBP
c) Description of goods insured
d) Place of dispatch and destination
e) Expiry date of Insurance
f) Last date of shipment valid
Other Required Documents
In the operation of a documentary credit, all parties concerned deal in documents and not in goods to which the documents may relate.
Transport Documents
In order to ensure effective ownership of the goods till the opener accepts the bill or pays for goods, the issuing bank calls for transport documents. The nature of documents depends on whether the transport is by sea or by air. In case it is by sea, bill of lading is required, otherwise airway bill is needed.
Bill of Lading
A full set of "On Board" bills of lading to order of and endorsed in favour of BAF (the issuing bank) and market freight prepaid or freight payable at destination.
A bill of lading is a receipt issued by the carrier for the goods received and also transportation contract to deliver goods to a specified person, provided the freight is paid by exporter, or to be paid at destination.
Airway Bill
When the goods are sent by air, they are covered by an airway bill in set of three to be used by the carrier, consignor and with goods. Airway bill issued and signed by the carrier or their agent bearing reference to the credit number evidencing dispatch of goods consigned to issuing bank market freight prepaid/freight payable at destination as agreed upon by parties.
Terms and Conditions of letter of credit
Terms and Conditions of letter of credit
Following terms and conditions are needed for opening L/C
Membership Certificate
The customer of BAF applying for L/C must be the resident of Pakistan
Forward Booking
Forward booking is restored to guard against the risks involved in exchange fluctuation i.e., fluctuation in the rate of conversion of a local currency in terms of foreign currency. Such transaction is booked on the day of agreement/contract; but actual delivery of the exchange is mutually agreed to be effected at a later (future) date. Thus, importer enters into a contract with the bank for the future purchase of the foreign currency i.e., contracting with the bank to supply him foreign exchange at a rate agreed now after a certain period. Forward booking rates are different for different periods.
Amendments
For any amendments, customer submits an application duly signed giving details of the amendments to a L/C issued with the Bank. On the receipt of documents the bank secure the application that it should be serially numbered and must be accepted by the parties.
Procedure for Opening Letter of Credit
On receipt of request, which is made on prescribed L/C application form addressed to the Bank it is checked, whether the item to be imported is licensable or non-licensable from import policy issued by CCI & E (Import Tariff code given by ICC & E).
The terms of repayment relating to foreign exchange are also agreed, whether client wants to book a rate or will pay at the rate prevailing at the date of retirement.
The Bank recovers import fee, commission and other charges. A special adhesive stamp of Rs. 10/= should be affixed on application form and appendix B should be according filled as required by Ministry of Commerce.
The L/C (after the proper documentation mentioned above) is then sent to the foreign correspondent (negotiating bank) to advise the beneficiary message attached to L/C indicates the required documents and conditions of L/C. A copy of this message is sent to advising bank and another to reimbursing bank. Copies are also sent to the applicant and beneficiary. Two copies are kept by issuing bank. Any conditions pertaining to part/transshipment and dates of shipment and negotiation are clearly specified in this message. Charges by negotiating and reimbursing banks are paid by opener / beneficiary as agreed upon by parties.
Handling of Documents
When the exporter receives a letter of credit after shipping the goods, the exporter sends the documents evidencing the shipments of goods to the opening bank through advising bank. These documents in confirmation with terms and conditions of L/C are known as Import Bills. These are documentary confirmation by exporter regarding the shipments to importer.
Receipt of Documents
Generally, following documents are received by the Import Department.
1) Covering Schedule
* Date of covering schedule must not be later than date of negotiation as
provided in L/C. Otherwise negotiating bank should a certificate that
documents were received within a validity period of L/C
* The amount of Bill of Exchange should not exceed the value of L/C
* Negotiating charges or Foreign Correspondent charges should not exceed the prescribed limit, otherwise SBP's approval is required
* L/C date and number must be the same
* Tenure of draft or B/E must tally with the terms of L/C
* Number and details of documents supplied against L/C should be same as specified
* Amount on covering schedule should correspond with L/C and invoice
2) Draft or Bill of Exchange
In case of usance L/C, a draft is received by the importer's bank
* Amount of draft is checked to see whether partial shipment has been effected or not
* Name of the importer and account number
* Tenure of L/C
* Date of draft not later than validity date of L/C and date of negotiation
* Draft should be signed by the beneficiary and drawn on opener
* The period between date of draft and date of shipment on B/L should not exceed 21 days
3) Commercial Invoice
This document needed in quintuplicate indicates:
* Name and address of Applicant and Beneficiary
* L/C number and date
* Unit price, total price of imported goods
* Origin of goods
* Import numbers, ITC number, import license number, SBP registration number, shipping mark
4) Packing List explaining description, weights etc of goods
5) Bill of lading / Airway bill depending upon the shipment is by sea or by air
6) Certificate of weight in duplicate
7) Any other document needed under L/C
Checking of Documents
After receiving, documents are checked against letter of credit, Generally following information is checked:
* Applicant's full name
* Full or partial name
* Tenure
* Ready rates or forward booking rate
* Free list
* Shipping date
* Time limit for documents for presentation
* Date and place of expiry
Discrepancies in Documents
After checking whether documents are according to term and conditions of L/C or not, discrepancies (if any) are intimated to Importer.
If the importer accepts the documents with discrepancies e.g. excess amount, quantity differences or any other documents from L/C or contract terms or conditions, then before making payment to negotiating bank, the issuing bank is bound to seek permission from SBP.
If the importer rejects the documents then the documents are sent back to negotiating banks for removal of discrepancies.
Forms of Settlement
Settlement of L/C can take following forms
By Payments
In case of sight L/C goods imported are part of securities because title documents to goods imported are released against payment i.e., reversing L/C opening entries and creating PAD (Payment against documents). In other words, on the receipt of set of documents the issuing bank is obliged to make payments immediately, therefore, the payment is made to the debit of PAD, also called D/P, i.e., document against payment.
By Acceptance
In case of usance L/C requires some collateral securities because title documents are released just against acceptance (a commitment to pay subsequently). The exporter draws a bill of exchange for required amount on importer. When the importer accepts the Bill of Exchange, the documents are released against acceptance. The L/C opening entries are reversed and entries for acceptance are made.
Forms of Bank's Import Income
In the procedure of settlement of imports, the Bank derives its income from two sources
Mark-up
In case of sight L/C, mark up is recovered right from the date of negotiation until the payment from importer is received at prescribed rate. The period for which mark-up is recovered is classified as following
Pre-lodgment Period: Period from date of negotiation to date of lodgment.
Post-lodgment Period: Period from date of lodgment to the date when PAD is retired.
Mark up for pre-lodgment period is charged on total L/C amount, where for post lodgment period mark up is charged on the total L/C amount less margin, already held by the branch (if any)
In case of Acceptance, monthly commission is charged and on transfer to PAD, no mark up is charged for pre-lodgment period; only post-lodgment mark-up is recovered form client.
Commission and Charges
The second form of income for Bank is the Bank commission and courier charges.
Payment against Documents (PAD)
Payment against Document (PAD) is created at retirement of L/C or acceptance. It is a temporary loan to the computer and is adjusted as soon as the payment is received and documents are delivered to importer. At the lodgments are delivered to importer. At the lodgment date the L/C amount is converted at prevailing or booked rate.
Ø Short-term Financing
Bank Alfalah provides short term financing to the importer if he is short of working capital. In this case, there is an arrangement with the customer to allow him the facility of Finance against Imported Merchandise or finance against trust receipt.
Short-term financing facilities for imports include:
ü Finance against Imported Merchandise
ü Finance against Trust Receipt
The detail is as follows:
Finance against Imported Merchandise
If the customer has no working capital enough to adjust PAD or to release the imported goods, and he has a limit to enjoy the facility of FIM, he request the bank to transfer his obligation from PAD to FIM partly or in full amount. The set of documents is given to Mukadam (clearing agent) who release the imported goods from customer, which then are pledged in the name of bank for the agreed period and kept in a bounded warehouse. The terms of repayment are agreed between the bank and the customer. On the receipt of the part or full payment from the importer, the goods are released for the equivalent amount or as agreed upon. The pledged goods are insured on the customers expense and held under lock and a responsible bank official authorized and delivery from bounded warehouse whose specimen signatures are provided to Mukadam. The loan granted is restricted to the drawing power, which is calculated, keeping in view the value of stock, sum insured and margin to be held.
Finance under Trust Receipt
If the customer wants to release his goods immediately in absence of working capital and has a limit to enjoy FTR, he applies for the said facility. Application is received by import officer who checks the request with the sanction limit of the party against particular facility.
If found appropriate goods are delivered to importer under trust and the importer is supposed to pay back after the sale of goods or availability of working capital or at expiry of specified period which ever is earlier. Normally the repayments are made after the period agreed i.e., 30 days, 60 days etc.
A duly signed “Letter of Trust” is obtained from the client usually known as IB-27. FTR is secured by collector securities for example mortgage of property, pledge of deposits etc.3
Schedule Of Charges on Import Facilities by Bank
| Services | Charges | ||
| Letter of Credit Commission: | |||
| Cash L/C where total volume of import business of a customer during the period of limit or calendar year is: | First Quarter (or part thereof) | Each sub-sequent quarter (or part thereof) | Minimum |
| L/C’s up to Rs. 20M | 0.40% | 0.20% | Rs. 1000 |
| L/C volume from Rs. 20M to 100M | 0.35% | 0.15% | |
| L/C volume from Rs. 100M to 300M | 0.25% | 0.10% | |
| L/C volume from Rs. 300M and above | 0.15% | 0.05% | |
| L/C under “Supplier Credit”, pays as you-earn scheme and Deferred payment L/C for period over one year. | Commission at the time of opening of L/C at the rate of 0.40% per quarter or part thereof up to final payment. Commission to be charged on full amount of L/C, that is, liability plus interest payable thereon for the period form date of opening of L/C till its expiry, thereafter, commission will be recovered on quarterly basis on outstanding/reduced liability as per revised Schedule of Charges applicable as on date. | ||
| Revalidation Commission. | On expiry of L/C when the same is validation revalidation commission will be recovered as is applicable for opening fresh L/C as above. | ||
| Transfer of L/C to new beneficiary. | When L/C is transferred to new beneficiary, Transfer commission will be charged as applicable in case of opening fresh L/C as above. | ||
| L/C Confirmation. | At actual as claimed by the confirming bank plus 0.25% per quarter or part thereof till final settlement. | ||
| Non-reimbursable L/C under Barter/Aid/Loans. | | ||
| 1st quarter. | 1% per quarter/part thereof. Min. Rs.1000 | ||
| Subsequent quarter. | 0.30% for each subsequent quarter or part thereof. Minimum Rs. 500 | ||
| If bills are to be drawn at Usance under above L/Cs. | a) Rs 500 per bill (flat) to be charged at the time of retirement of bills. b) In addition, commission at the rate of 0.125% per month or part thereof to be charged from the date of expiry of the L/C until the date of payment. Min. 400 | ||
| Amendments. | Rs. 500 per amendment (flat). | ||
| Amendment involving increases in amount and on extension in period of shipment/negotiation. | Rs. 500 per transaction plus commission as per item above. | ||
| Other Charges: | |||
| Postage | Rs. 150 or Actual. Whichever is higher. | ||
| Courier Service. | Rs. 1200 or Actual. Whichever is higher. | ||
| Telex Messages. | | ||
| Full telex of L/C. | Rs. 1500 or Actual. Whichever is higher. | ||
| Brief Telex of L/C. | Rs. 500 or Actual. Whichever is higher. | ||
| Brief Telex/Fax amendment of L/Cs. | — do — | ||
| Obtaining credit reports on supplier. | Rs. 500 per report. | ||
| Correspondence Charges, if any will be recovered. | Actual. | ||
| Service charges against import transactions i.e., Import bill (PAD), Usance bills under L/C, collection and consignment basis. | 0.10% (flat). Minimum Rs. 300 | ||
| Handling of discrepant documents presented under L/C. | US $ 25 (to be recovered from presenting bank). | ||
Letters of Guarantee
Guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default. The person (in this case the bank) who give the guarantee is known as “The Surety”, the person in respect of whose default the guarantee is given is known as “The Principal Debtor”, and the person/department to whom the guarantee is given is called “The Beneficiary”. The guarantee once issued cannot be revoked before expiry of its validity without the consent/discharge by beneficiary. The guarantee is a contingent liability in terms of balance sheet item but it is definite undertaking enforceable on the happening of a certain event like default.
Types of Bank’s Guarantee
Financial Guarantee
a) Bid Bond/Tender Guarantee: The guarantee is submitted along with bids/tenders filled by the bidders/tenderers and is issued for a percentage value of the amount of the bid/tender. This guarantee is valid till finalization of the bid/tender. The utility of the guarantee ceases after the signing of the contract.
b) Security Deposit Guarantee: When a contract is awarded to a particular party. It is required to furnish security deposit in cash or in lieu thereof, a bank guarantees. It is issued for a certain percentage value of the contract.
c) Guarantee to Courts, Customs, Excise, Sales Tax Authorities for Disputed Liabilities: When a particular liability is in dispute an appeal in a money suit against the decision of a lower court can be filed with a senior authority. For this, it is required to deposit the amount in cash in the court/bank or alternatively, it should be secured against a bank guarantee.
Performance Guarantee
These guarantees are issued in respect of performance of a contract or obligation. In such a guarantee, in the event of non-performance of an obligation the guaranteeing bank will be called upon to make good the monetary loss out of non-fulfillment of the guarantee obligation. Although these guarantees are for performance, the quantum of pecuniary obligation is reduced to monetary terms and for this amount a guarantee is issued. Performance guarantee can illustratively be of following types:
a) Performance for installation of plant and machinery within a given time frame and with agreed specification
b) Performance of plant/machinery up to the agreed level
c) Performance relating to supply of agreed material within stipulated period
d) Performance towards payments of agreed sum at agreed periodical intervals
Deferred Payment Guarantee
Purchase of machinery requires either cash payment or a deferred payment plan duly supported by an assurance from a commercial bank that stipulated installments will be paid on respective due dates. The concept of DPG and its origin to the limited availability of funds from commercial bank for a medium to long-term investment. The mechanism of DPG channelizes the cheaper funds from development banks to industrial establishments. The assets created out of DPG are duly charged to the guaranteeing bank to secure the bank’s long-term contingent liability.
Schedule of Charges for Letters of Guarantee
| Services | Charges |
| Guarantees issued to shipping companies in lieu of Bills of Lading and Airways Bill | Rs. 800 (flat) |
| Guarantees issued to Collector of Customs in lieu of Payment of Export duty, which remains valid for 6 months | 0.50% per quarter or part thereof. Minimum Rs. 1000 |
| Guarantees secured against Cash | 0.20% per quarter or part thereof. Minimum Rs. 500 |
| Other Guarantees: Where total value of Guarantee business of a customer during a period of limit or calendar year | Minimum Rs. 750 for each guarantee issued. |
| i) Up to Rs. 3M | 0.50% per quarter Minimum Rs. 750 |
| ii) Above Rs. 3M to Rs. 5M | 0.45% per quarter or part thereof |
| iii) Above Rs. 5M to Rs. 10M | 0.40% per quarter or part thereof |
| iv) Above Rs. 10M to Rs. 20M | 0.35% per quarter or part thereof |
| v) Above Rs. 20M to Rs. 50M | 0.25% per quarter or part thereof |
| vi) Above Rs. 50M to Rs. 100M | 0.15 per quarter or part thereof |
| vii) Above 100 M | Subject to negotiation while confirming with SBP directives |
| Issued at other bank’s request in | 0.25% per quarter or part thereof Minimum Rs. 750 |
| Against Foreign Bank’s Guarantees | 0.15% per quarter or part thereof Minimum US$ 15 |
| i) Amendments of Guarantees | Rs. 300 per amendment |
| ii) increase in amount and or Extension in period | 0.45% per quarter or part thereof |
| Administrative fee (expired guarantees) | Rs. 750 per quarter |
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