Internship Report on State Bank of Pakistan

State Bank of Pakistan BSC Quetta

Internship Report

Submitted By: Submitted To: Mr.Nadeem Iqbal (IMS, University of Balochistan) Miss Neelofar Nazir Mr. Lutfullah (Iqra University)

Submition Date: January 12, 2013

1Prepared by: Nadeem Iqbal & Lutfullah

Table of Contents

Executive Summary.................................................................................................................5Introduction...........................................................................................................................6

Background..................................................................................................................................................6Objectives....................................................................................................................................................6 Vision..........................................................................................................................................................6Mission........................................................................................................................................................7

INTRODUCTION TO BSC (BANKING SERVICE CORPORATION).........................................7Functions Delegated to SBP (BSC):............................................................................................................8SPB-BSC Field Offices.............................................................................................................................10

NIBAF:................................................................................................................................11Functions of NIBAF..................................................................................................................................11

Units in which the interns have been routed..............................................................................13Deposit Accounts Uni................................................................................................................................13Prize Bond and Saving Certificate Unit.....................................................................................................15Internal Audit Unit.....................................................................................................................................18Foreign Exchange Unit..............................................................................................................................18Public Accounts Unit.................................................................................................................................22Administration Unit...................................................................................................................................27Development Finance Unit........................................................................................................................30Currency Management Unit......................................................................................................................32

Role of SBP-BSC in Currency Circulation...............................................................................36National bank of Pakistan..........................................................................................................................36National bank and State bank act of 1956.................................................................................................37Enhanced Role of Currency Chests...........................................................................................................37National bank operations on behalf of state bank of Pakistan...................................................................38

Currency Circulation Through NBP Chests:............................................................................39Currency circulation process.....................................................................................................................40Currency circulation from NBP’s main chests to its sub-chests:..............................................................41Foreign circle chests of Balochistan..........................................................................................................42Treasury office:..........................................................................................................................................43 Withholding capacity of the chest............................................................................................................43Process of sending the remittance to the chests:........................................................................................45Channel used in sending the remittance:...................................................................................................46

Maintaining chest vault in state bank of Pakistan:....................................................................46 Accounting Process..................................................................................................................................46

Types of Accounts................................................................................................................47Home note account....................................................................................................................................47Value account............................................................................................................................................49

SWOT Analysis....................................................................................................................50Strengths....................................................................................................................................................50Weaknesses................................................................................................................................................50 Opportunities............................................................................................................................................51Threats.......................................................................................................................................................51

Suggestions and Recommendations.........................................................................................53Conclusion………………………………………………………………………………………………….57Bibliography.........................................................................................................................56



Acknowledgment.

First and foremost, we are greatly thankful to Alimighty ALLAH, who gave us strengh to

complete this report. we would like to deeply thank State Bank of Pakistan for giving us

the great opportunity to be the part of its internship program. It gave us lots of precious

and valuable knowledge regarding all the banking functions. We wish to express our

sincere gratitude to Ms. Neelofer Nazir, our internship program supervisor, her

willingness to motivate us, contributed tremendously to our internship program and

conducting the report. Beside, we would like to thank all the supervisors and mentors of

the state bank units, whose great effort and kind teachings gave us the opportunity to take

part and learn about the operations of those units working actively in the bank. Later on

we would like to express our thanks to Mr. Jan Muhammad, the currency management

unit head, Mr. Shehzad Aziz, the unit incharge and last but not the least Mr. Sher Jan and

Miss. Ghazal Nagi, without whose assistance we won’t be able to learn about our specific

unit.


Acronym

ACM Assistant Chief ManagerA/C AccountAG Accountant GeneralAGPR Accountant General Pakistan Revenue B.D Bank Draft BSC Banking Service CorporationCDNS Central Directorate of National SavingsCMU Currency Management Unit CTS Cheque Truncation System DAU Deposit Account UnitDDO Drawing and Disbursing OfficerD.P Demand Promissory FBR Federal Board of Revenue FEU Foreign Exchange UnitFTO Federal Treasury OfficerG.D Government DraftGPF General Prevalent Fund GTA Group Terms Assurance IAU Internal Audit UnitL.C Letter of CreditMT Mail Transfer NBP National Bank of PakistanNIBAF National Institute of Banking and FinanceNIFT National Institutional Facilitation Technologies NSS National Savings Scheme OG Officer GradePAU Public Accounts UnitPBC Pakistan Business CouncilPDO Public Debt OfficePSPC Pakistan Security Printing CorporationRTGS Real time gross settlementSBP State Bank of PakistanTO Treasury officer T.T Telegraphic Transfer



Executive Summary

As we all know that state bank is the central bank of Pakistan and it controls and

regulates all the commercial banks which operate in Pakistan. It is a monetary body. It

monitors all the commercial banks and maintains and manages the money supply in the

country.

State Bank of Pakistan is the Banker's Bank and it is also the Bank of Government this is

the reason by virtue of which we took our attention towards State Bank for internship .

There is a large no of Units in this bank and each Unit perform separate actions for daily

financial matters thats why one can learn a large number of things in this bank. We were

routeted in several Units of SBP-BSC. The Unit assigned to us on which we had to

prepare report is CMU (Currency Management Unit) in which we had to observe the

specific area of the unit related to Currency circulation through NBP (National Bank of

Pakistan) Chests. This Unit performs many operations regarding currency circulation.

We also discussed on the Strengths, Weaknesses, Opportunities and Threats related to the

SBP-BSC and our specific Unit .We prescribed Some valualbe suggestions to policy

makers of State Bank and in the end we concluded the overall discusion.


1.Introduction

1.1 Background

State bank of Pakistan is the central bank of Pakistan. It was established in 1948. Initially

State Bank of Pakistan was entrusted with the task to “regulate the issue of bank notes

and keeping of reserves with a view to securing monetary stability in Pakistan and

generally to operate the currency and credit system of the country to its advantage" (SBP

order, 1948).

In financial sector reforms of 1994 State Bank of Pakistan got full autonomy. “On

January 21, 1997 this autonomy was further strengthened when the government issued

three Amendment Ordinances. These changes gave full and exclusive authority to the

State Bank to regulate the banking sector, to conduct an independent monetary policy and

to set limit on government borrowings from the State Bank of Pakistan” (Wikipedia,

2010). Currently its primary functions include regulating banking sector, maintenance of

public accounts, devising monetary policy, management of public debt, issuance of

currency notes, and maintaining inflation.

1.2 Objectives

As we all know that state bank of Pakistan is a non-profit making organization. Its main

objective is to manage or maintain the currency supply in country. Increase and decrease

in money supply can create inflation or deflation in country ,so these things should be

handled immediately and state bank is doing this. The mission and vision of SBP is as

under.


1.3 Vision

To develop SBP-BSC into a dynamic and efficient organization equipped with requisite

technology and human resource capable of extending sustainable support to the State

Bank of Pakistan in achieving its objectives (SBP website).

1.4 Mission

To provide excellent banking and financial services to stakeholders besides ensuring

implementation of SBP policies, in order to command their trust and respect

State Bank of Pakistan has two Subsidiaries

1.5 INTRODUCTION TO BSC (BANKING SERVICE

CORPORATION)

Banking Services Corporation (BSC) – set up in January 2002, is the subsidiary of the

State Bank of Pakistan and is entrusted with the task of currency management,

operational and administrative oversight of foreign exchange Units, export and other

finance, management of Government accounts and operational work related to


Government certificates. With the changing environment of banking sector, BSC has

undergone significant change. On one hand BSC has had to relinquish certain functions,

It performed at the time when both interest,credit and foreign exchange was rigorously

regulated. On the other hand, it has to reposition itself to the deregulated environment

(while continuing to perform some old functions such as related to Export Finance

Scheme) and be equipped to deal with a transformed Central Bank and banking system.

The challenges posed by these changing requirements have been phenomenal but BSC

has been steadily shifting its goals and objectives to align it with the new demands. Going

forward, SBP is now working closely with BSC to develop a strategy for its further

transformation to assign a more relevant Mission to it in line with the withdrawal of some

of its old functions, consolidate the organization, fully automate its services and introduce

a new culture of change management along with better enforcement of the performance

management systems. Developing adequate capacity and managerial skills along with

better internal controls will be critical to achieve the anticipated transformation. SBP

(BSC) was established to perform operational work of State Bank of Pakistan (SBP

website). SBP-BSC is subsidiary of State Bank of Pakistan having 16 offices in major

Cities of the country and SBP (BSC) core function and operation area is Currency

Management. SBP (BSC) consists of following Units.

i. Internal Audit Unit.

ii. Currency Management Unit.

iii. Public Accounts Unit.

iv. Development Finance Unit.

v. Engineering Unit.

vi. Foreign Exchange Unit.

vii. Administration Unit.

viii. Internal Bank Security Unit.

ix. Training and development Unit.


1.5.1 Functions Delegated to SBP (BSC)

Banker to the State Bank;

Provide necessary assistance to SBP for indenting of currency notes

Operational work relating to management of public debt (i.e. floatation of loan) &

Foreign exchange.

Banker to the Govt. for the purpose of Revenue collection.

Payments and maintenance of accounts for and on behalf of the federal/

provincial/local Govt. etc… and Business relating to National Savings Scheme

(NSS).

Currency Management i.e. issue, distribution and exchange of bank notes and

coins as well as destruction of soiled bank notes.

Management of country wide clearing houses for settlement of payment

Any other business which the State Bank may specify to perform.


SPB-BSC Field Offices


Field Offices

Karachi OfficeChief Manager

Lahore OfficeChief Manager

Islamabad OfficeChief Manager

Rawalpindi OfficeChief Manager

Hyderabad OfficeChief Manager

Multan OfficeChief Manager

Muzaffarabad OfficeChief Manager

Bahawalpur OfficeChief Manager

Sialkot OfficeChief Manager

Peshawar OfficeChief Manager

Quetta OfficeChief Manager

Faisalabad OfficeChief Manager

N. Nazimabad OfficeChief Manager

Sukkur OfficeChief Manager

Gujrawala OfficeChief Manager

D.I.Khan OfficeChief Manager

1.6 NIBAF:

The state bank of Pakistan since its inception has played a pioneering role in the sphere of

banking education and training, both for its own staff as for the banking industry in the

country.

NIBAF was established by PBC and was taken over by SBP in 1997. The new complex

of the institute is daily suited for conducting residential training program. In which the

institute is located, specifically for public and private educational. Training institutions

by the government ensures peaceful and serene environment highly congenital for

academic pursuits.

1.6.1 Functions of NIBAF

Following are the functions which are conducted by the NIBAF

Upcoming event

Business plan

International courses

Certificate courses

Training program material

Requisitions


Organizational Chart of State Bank of Pakistan (Banking Service Corporation)


CHIEF MANAGER

Divisional head 1 (OG4) bankingbanking

Divisional head-2 (OG-4) issue & treasury cash

Engineeri-ng division civil/electrical unit

Exchange policy Division

Banking Division

RE-Fin. Division

Security Division

Prize Bond Division

Prize bond SSC/DSC unit with prize bond vault

Unit in -charge (OG-3)

Private remittance/Export/import checking & exchange companies B unit

Unit in-charge (OG-3)

Deposit Acc schedule bank,

export refinance/LMM

unit

Public accounts(payment & receipt) letter of credit, foreign transaction unit

Issue & treasury division(c

Division head 3 (OG-4)

Unit incharge (OG-3)

Treasury unit(cash deptt)

Currency mangt acc & claim note

unit

Exchange/chest/fresh notes vault

Bonded/cancelled notes vault

Notes verification unit

Admin unit

Audit division

Unit incharge (OG-3)

Staff matters & medical/welfare unit

Procurement & maintenance section unit

Payment & advance unit

System & support

Unit incharge(OG-3)

Internal monitoring unit pre audit)

Internal Audit(post Audit)

2. Units in which the interns have been routed.

These are the units in which we have been rotated and had the following experiences.

2.1 Deposit Accounts Unit

Main functions of the Deposit account unit are;

SBP-BSC acts as a banker to the banks. Commercial banks open their accounts with

state bank. 43 commercial bank accounts are maintained in the deposit accounts unit

DAU deals with the current accounts of Commercial Banks.

Handles export refinance scheme.

Deals with Government drafts

Clean Cash: Balances all transactions.

The facility of remittance of government payments is provided through this Unit.

Account reconciliation

Handles Miscellaneous Problems

Also facilitate public remittances and fee is charged for that whereas no fee is charged

from the government.

2.1.1 Personal Experience in Deposit Account unit

2.1.1.1 Mail Transfer (M.T)

It is the payment order issued by D.A.U when an employee of one branch of SBP wants

to make payment to the employee of the other branch. Usually no fee is charged for this

operation as SBP uses it to facilitate its employees.


2.1.1.2 Telegraphic Transfer (T.T)

Telegraphic transfer is used to transfer detail figures of Net transactions to SBP head

office .The detail of all the transactions took place in DAU are summarized the net

balance and report to head office by T.T.

2.1.1.3 Bank Draft (B.D)

A bank draft is used when general public make payments to government institutes.

2.1.1.4 Government Draft (G.D)

If one government institution wants to make payments to the other institute then they

make use of the govt. draft

Hierarchal Deposit Account Unit

.


2.2 Prize Bond and Saving Certificate unit

The Prize Bond scheme is the part of national saving scheme. The SBP-BSC provides

management services to the government for this scheme. SBP-BSC can decide about the

terms and conditions of the scheme can increase or decrease the amount of prize money

and can change the denomination. Prize bond unit perform the following functions.

Sale and purchase of Prize bonds

Maintenance of the prize bond stock

Giving the prize money

Help in organizing draws

Apart from prize bond this unit is involved in the management of defense saving

certificates and special saving certificates. These two instruments are dealt with in the

interest bearing account and the prize in non-interest bearing account of the unit.

2.2.1 Personal Experience in Prize Bond Unit

In Prize Bond unit we came to know that

It’s a part of the Government saving scheme.

Through this scheme, public debt is generated which is used for funding various

public projects.

Prize bonds are of seven denominations; 100, 200, 750, 1500, 15000, 25000, and

40000.

Prize bond of each denomination has a shut period of 2 months, and is included in

draw after one month of issuance, thus included in 4 draws per year.


Prize bonds can be issued and en-cashed in all SBP BSC banks, National Savings

Centers and scheduled banks.

Bonds of the denominations of 100 if win, and is claimed, the amount up to Rs

1500 are paid through cash counter in SBP. The winning amount which exceeds

Rs 1500 will be given through a check.

Government charged 10% tax on winning bond. Prize of up to 20,000 is paid in

Cash and more than 20000 prize paid through payment order.

High amount winning bond will be send to PSPC (Pakistan Security Printing

Corporation) for

further

Confirmation.

Different

prizes are

paid with

in different

period of

time. They

are as follow.

Hierarchal Chart of Bonds Unit


Price (Rs) Working Days

Upto 20000 Same day

185,000 10 days

500,000 15 days

Above 500,000 20 days

2.2.3 The Process of Issuance and Payment of Bond

At the time of bonds issuance it is recorded in "Receipt Register" and at the time

of payment it is recorded in "Payment Register".

Different prices are paid with in different periods.

The prices are paid in following time periods.

After the submission of the application form for claiming the prize, the

genuineness of the bond is first checked by the receiving OG-1 officer. Then after

entering it to the GLOBUS it is passed on to OG-2 for further verification and

authentication

The bonds of Rs.25000 and 40000 are proceed in Bonds Unit for which the

original bond, copy of N.I.C of Bond holder with 2 signatures which must be

similar to N.I.C.

After Manual verification it will be input in Globus Software.


The SBP- BSC will send the claim to PDO (Public Debt Office) by inputting the

prize bond number in Globus.

There are Two PDOs in Pakistan situated in Karachi and Lahore. Bonds issued in

Quetta are confirmed by PDO Karachi.

After confirmation the payment order will be signed by authorizer.

Later-on, the Bond Unit will issue a token for the payment, which is recorded in

Transit Book.

The application is send to Cash Department.

After it is confirmed by cash department, the claimer will be assigned the

payment order and he will submit it to the commercial bank to deposit it in his

account.

State Bank never pays directly to claimant. He will be paid by commercial bank

2.3 Internal Audit Unit

Internal auditing is a profession and activity involved in helping organizations achieve

their stated objectives. Internal Audit unit is an independent appraisal function

established within SBP-BSC to examine and evaluate its activities as a service to the

organization.

Main functions and responsibilities of IAU are given as follows;

It involves in-depth and independent examination of cases in the light of rules and

regulations to minimize the risk.

Pre audit the cases and vouchers received from various units under SBP

expenditure regulation, budgetary limit and head of accounts.

Prize Bonds’ Payment cases.


Export Refinance Cases before making payment to banks

Pay periodical surprise visits on timely basis (i.e. weekly, fortnightly, monthly,

quarterly etc.) to see various operations and activities of Units/Departments.

Verification of Examination Halls as per approved policy and prescribed

procedures.

Pre-audit of NIBAF’s Payments cases received for payments to different

stakeholder of NIBAF.

Pre-audit of staff loans (like HBA, temporary advance against GPF balance etc.)

Pre-audit of the cases regarding Policy Matters (i.e. Promotion, Confirmation,

Reification of pay etc.) to ensure that Bank’s Rules/Regulations are implemented

while processing such cases.

2.4 Foreign Exchange Unit

The operational matters relating to Foreign Exchange are handled by the Foreign Exchange Unit (FEU) of SBP Banking Services Corporation (BSC). The operations are as follow.

The implementation of different schemes announced by Federal Government concerning exports enhancement also comes under the domain of FEU.

Implementations of SBP foreign exchange policies.

Export Verification under Export Finance Scheme.

Perusing export overdue cases against delinquent exporters.

Implementation of various subsidy schemes of Federal Government.

Dissemination of SBP and Government policies.

2.4.1 Personal Learning in Foreign Exchange Unit


Outward remittances to foreign consultants, advance payments against import of

raw materials and spare parts.

Cases related to frustrated cargo and re-import of exported goods with the purpose

to re-export are also dealt by the FEU.

Following slips are used in the FEU

2.4.1.1 Export form (E form):

The export form is that form which is used to export any goods out of the country. This

form is given to the exporter and to be filled by person. The form has the following

important contents.

Name of the exporter

NIC of the exporter

Kinds of goods which the person wants to export

Country to which the goods are to be exported

The currency in which the business transactions is done

Invoice of the goods

The total value of goods

Custom clearance

Mean of transport

2.4.1.2 Import form (the M form)

The import form used and is filled by the importer, whenever he wants to import any

goods from outside of the country. The import form is given to him and has to be filled

and submitted in a bank where the importer has a maintaining account. Import form has

the following essential contents.

Name of importer


NIC of the importer

Type of goods which are to be imported

The country from which the goods are imported

Invoice of the goods from the importer country

The currency in which the business is completed

Mean of transport

2.4.1.2 The Remittance form (I form):

The remittance form is used whenever a government employee or student through

government scholarship is studying abroad and the education is financed from home

country. Therefore, the remittance form is assigned to that person who wants to send the

remittance. The form has the following contents.

Name of the student

Country in which he/she is studying

The course which he/she is currently enrolled

The amount of remittance sent

Total education expenses.

Hierarchal Chart of Foreign Exchange Unit


2.5 Public Accounts Unit

Under Section 21 of the State Bank of Pakistan Act 1956, the SBP has been entrusted to

perform banking services on behalf of the federal and provincial governments and also to

carry out their exchange, remittance and other banking operations including the

management of public debt.

The banking services provided by SBP-BSC to the federal, provincial and local

governments Includes following services.

Collection of revenues on behalf of government departments i.e. property tax,

income tax, sales tax and all other receipts of Govt of Pakistan.

Making payments on behalf of government departments

Modes of payment Modes of receipts

Cash

Cheque

Cash

Cheque

The Public Accounts Unit of SBP-BSC is responsible for maintenance of

The federal Govt A/C

Provincial Govt A/C


Local governments

Zakat accounts.

Defense A/C

The data pertaining to government transactions carried in various accounts is reported to

accountant general of the provinces, Accountant General Pakistan Revenue (AGPR),

Pakistan Railways and other concerned departments on daily/ periodic basis.

BSC provides following banking services to the government through its field offices:

Facility of transfer of funds of government departments from one place to

another.

Payment of pensions to the pensioners of various government departments.

Facility of safe deposit of articles to government departments, banks etc... on

nominal charges.

Other banking services as and when required by the government departments.

2.5.1 Personal Experience Public Accounts Unit (PAU)

Public Account Unit deals with Government Departments. Every department before

initiating its operations opens an account in SBP for its financial maters. PAU runs

operations of Government Receipts and Payments through clearing, transfer or cash .

2.5.1.1 Payments

PAU mostly receives cheques by AG and AGPR office for payments.

Green Cheques are for Federal Departments.

Red Cheques are for Provincial Departments.


After verification and payment of the cheuqes by PAU it will be send back to the

departments.

Only registered government departments can withdraw amounts.

The payments up-to Rs.5000 paid by TO (Treasury officer) and above Rs.5000

will be verified by PAU.

PAU also pays prize bonds. Up-to Rs.18000 paid in cash and above Rs.18000 will

be deposit in their accounts.

2.5.1.2 Types of Accounts

There are three types of accounts that public account unit maintain.

2.5.1.2.1 Drawing account

Drawing account is a general account

It does not have any restriction or limitation regarding amount

The State Bank has to pay what is drawn on it.

The Balance of this account may be in Debit or credit.

2.5.1.2.2 Personal Ledger Account

Government of Pakistan allocates a specific and limited Budget for different

government institutions.

Those institutions are entitled to draw the amount up to the extent of their budget.

The cheque must be endorsed by federal treasury officer (FTO).

The State Bank of Pakistan has the right to dishonor the cheque without the

endorsement.


The cheque drawn on this account has validity of one month from issuing date


Hierarchal Chart of PAU

.

2.5.3 Types of payments

2.5.3.1 Payment over the Counter

Payment over the counter means the payment of the required amount in cash in SBP-

BSC. The procedure for over the counter payment is given as follows.

2.5.3.2 Verification of cheque:

The cheque issued for encashment must be drawn by Drawing and Disbursing

Officer (DDO) of the concerned department.

The DDO may authorize a person for collection of payment.

The signature of DDO, the name and picture of the person to whom DDO has

authorized must be recorded with SBP.

The Cheque must be endorsed by DDO from the back side of the Cheque with a

stamp of Cash received.

Only these DDO or his authorized person is entitled to receive cash.

A Schedule must be sent by the instrument issuing authority to State Bank of

Pakistan for the verification of issued cheques.

The state Bank of Pakistan is entitled to refuse to pay without schedule.


The Schedule must contain:

Information about Drawee

Information about Amount of the Cheque

Information about Drawer

Information about Issuing Date

The particular of the cheque must match with schedule.

2.5.3.3 Recording of Transaction

A token is issued against receiving of cheque/s.

The token No. and the number of cheque/s received against that token is also

recorded in the Transit Book.

Only the complete and satisfied transactions are recorded in Transit Book

After recording the book is sent to the cash counter with a messenger, where the

payment is made.

2.5.3.4 Payment through Clearance

In payment through clearance the amount from government account is shifted to

receiver’s account and no cash is paid. Duration of clearance and its transfer to receiver’s

account depend on the issuer and receiving banks locations. It may take from 3 to 7 days.

State Bank of Pakistan has given mandate to National Institutional Facilitation

Technologies (pvt) limited (NIFT) to act as clearing house. NIFT has a network

throughout the country. It collects cheques from collecting banks where cheque is

presented, sort them and save data through automated mechanism RTGS and then send

them to issuing banks for their settlement.


NIFT provide settlement advice to commercial banks and net settlement position

to BSC for debit and credit of concerned bank accounts.

Same procedure is adopted for government payments; NIFT collects cheques of

Government accounts from presenting banks and send them to BSC for

settlement.

Cheque is matched with the schedule of the issued department, and

Genuineness of the instrument and signatures of the DDO are verified

Issuing department’s account is debited and concerned bank’s account is credited

as per cheque amount.

2.5.4 Day Closing

At the end of the day the cash counter sends all instruments e.g. cheques to PAU

for matching.

A Summary of payments is prepared

This summery is matched with Head Wise Report generated by automated

system.

A voucher is made with the debited amount of cash payments to the relevant

accounts.

2.6 Administration Unit

The major functions of Administration Unit are.

Disbursement of monthly salaries and allowances

Financing of life insurance

Making other payments like pension, retirement,


Making business plans, preparation of annual budget.

Assessment of employee loans

Procurement of office furniture, stationary, vehicles etc…

Activation and deactivation of employee medical facilities.

Permission for medical treatment outside BSC medical centers

Evaluation of employees through personal evaluation report and performance

management report.

2.6.1 Personal learning in Administration Unit

In SBP-BSC basic pay and other allowances are not maintained separately like

other Government institutions. Here in SBP-BSC they maintain Net monetize

base salary which is sum-up of basic salary and all allowances

The GPF (General Prevalent Fund) and GTA ( Group Terms Assurance) under

which the employ is insured by any insurance company in case of any unfortunate

accident.

Under Benevolent fund deducts 5% which will be paid for marriages of children

or in case of death given to recommended person by the employ.

Income tax deduction done on Net salary amount of the year starts from Rs. 300,

00. Different ratios for different Net amounts of salary.

Regulates the functions of paying pensions to retired employees.

General Service’s section maintains the record of assets, expenses, depreciation of

various assets, utility bills etc…


Medical section provides medical facilities to the employees of state bank.

Different hospitals have agreement with SBP-BSC to provide health facilities to

the employs, their wives and children.

Hierarchal Chart of Administration Unit



2.7 Development Finance Unit

2.7.1 Export Refinance Scheme

To increase the exports of Pakistan. SBP has started a financing scheme to

exporters known as exports refinance scheme.

Under this scheme, loan is granted to exporter at low interest rate (8.20%).

Commercial banks acts as an intermediary between exporter and the SBP and

charges 1% of the interest as its commission whereas the rest goes with the SBP.

The loan is usually granted for 180 days. After 180 days the SBP credits the

account of that commercial bank and notifies it about that (regardless the payment

made or not).

If the exporter pays before 180 days, then that bank is liable to pay to SBP within

72 hours.

Any exporter can avail the Export Finance Facility through any of commercial

bank, after fulfilling collateral requirements of the bank.

The decision to lend shall be taken by the bank under its own internally approved

credit policy.


2.7.2 FINANCING METHODS

There are two types of payments for export financing

Pre shipment payment

Post shipment payment

2.7.2.1 Pre-shipment financing

It is the financing to the exporter before the shipment occurs.

Following documents are required for pre shipment payments.

Purchase order

Agreement

Demand Promissory Note (D.P note)

In this after 180 days of loan 30 days are given to exporter to submit their shipment

documents to commercial bank.

Bank is given 7 days after those 30 days to give those documents to SBP. If not then the

bank is charged with fine of 42 paisa per thousand per day.

2.7.2.2 Post shipment financing

This is the financing after shipment had occurred.

Following documents are required for it


Purchase order

D.P Note

Agreement

Shipment document

2.7.3 Part-I of Export Financing Scheme

Financing under Part I of the Scheme is a transaction-based facility.

The finance is granted by the bank to the exporter on the basis of a Firm Export

Order / Export Letter of Credit, for a maximum period of 180 days.

The financing facility can be availed at pre shipment stage for procuring inputs

and manufacturing the goods to be exported.

Financing at Post Shipment stage is also granted against goods already shipped to

the importer abroad, for the period up-to realization of export proceeds or 180

days, whichever is earlier.

2.7.4 Part2 of Export Financing Scheme

Under Part-II of the Scheme, a revolving finance limit is sanctioned to the

exporter equivalent to 50% of his export performance during the previous year on

July -June basis.

Exporters can avail this financing facility for a period of 180 days. Facility once

availed needs to be repaid in totality.

Exporters having availed Part-II facilities have to export / ship eligible goods and

realize export proceeds and submit the evidence of performance on the prescribed

statement within two months from close of each financial year.

2.8 Currency Management Unit

Currency management unit involves a wide range of activities including.


Ensuring adequate supply of good quality notes across the province.

Examination and storage arrangements on receipt of fresh notes from PSPC,

Maintenance of sufficient balances of currency notes/ coins.

Withdrawal of soiled/defective notes from circulation and their destruction under

appropriate control mechanism.

Hierarchal Chart of CMU

2.8.1 Personal learning in CMU

Currency Management Unit CMU is the unit where all functions related to currency

management handled. In this unit we learned following.

2.8.1.1 Bank and non-bank treasuries


At district treasury sub treasury the cash business of which is conducted by the bank the

manager or agent as the case may be is responsible for the provision of funds to meet the

government disbursement

2.8.1.2 Non-bank treasury

At places where the cash business is not conducted by the bank the treasury officer is

responsible to keep sufficient fund at district treasury or sub treasury

Pre requisite of currency chest

Existence of a standard and spacious strong room

Arrangements for security and police guards

Feeding arrangements with safe movements

Posting of trained staff to handle the work

Means of communications for prompt reporting of government receipt and

payment

Cash remittances

Kinds of cash remittance

Outward inward

2.8.1.3 Outward remittance

Cash remittances are sent to other field offices, NBP chests and govt. sub treasuries

locating in the region.

On approval of the currency officer packing of cash and escort arrangements are carried

out and the receiving chest is informed in advance in coded form

2.8.1.4 Inward remittance

Cash remittances received in the office

All invoices are recorded in register of remittance


Cash remittances are duly examined

2.8.1.5 Examination of quarterly cash verification reports of NBP chests.

NBP regional authorities nominates well conversant officers for examining the chest

balances and other valuable documents viz. bland bank draft, govt draft and code books

etc.

On receipt of the from NBP authorities the same are examined at this office and

irregularities if found therein are communicated for rectifications

2.8.1.6 Inspection of currency chest

In terms of federal treasury rules and agreement between SBP and NBP

NBP is responsible for safe custody of currency balances in properly strong rooms

according to their holding capacity

SBP is allowed to access the chests for inspecting the contents arrangements for

safe custody of the balances, code books and draft forms

This office has an annual plan to inspect chests continuously on yearly basis.

2.8.2 Cypher code book

As all information about remittances is highly confidential, so codes are used in letters

/telegrams related to the remittance, which is translated by using cypher code book.

The core functions to,

Issue and distribute fresh notes and coins

Withdraw soiled notes from circulation and destruction thereof

provide exchange facility39

Prepared by: Nadeem Iqbal & Lutfullah

Disseminate ant counter forge measures

Maintain books of accounts in such a manner to provide reliable and timely

financial information to internal and external stakeholders and

To oversee the operations of NBP Chests

3. Role of SBP-BSC in Currency Circulation

Both the SBP and the BSC has a vital role in the currency circulation in the country

through its chests. Following are the roles of SBP in currency circulation

Considering the request of TO ( treasury officer) to establish a chest in any area,

To give authority to the chest to operate in that circle.

To monitor the chest whether it’s functioning properly and accordingly to the

rules and regulations of the SBP.

The roles of BSC in currency circulation are:

Currency management to ensure adequate supply of good quality notes and coins

across the country

Banking services to federal, provincial and district government, departments,

commercial banks and SBP

financial policies for developing an

inclusive financial system

3.1 National bank of Pakistan

National Bank of Pakistan is one of the

largest commercial bank operating in

Pakistan. It has redefined its role and has moved from a public sector organization into a

modern commercial bank. The Bank's services are available to individuals, corporate


entities and government. While it continues to act as trustee of public funds and as the

agent to the State Bank of Pakistan (in places where SBP does not have presence).

3.1 National bank and State bank act of 1956

According to the State Bank Act of 1956, “The amount of currency and the bank notes in

circulation, which constitute the liability of the issue department shouldn’t exceed assed

of that department held in gold, coins, and sterling securities”

The bank shall have sole right to issue bank notes made payable to bearer on demand in

Pakistan accordance with the provision hereinafter made.

In this act, an agreement was signed between the State bank of Pakistan and national

bank of Pakistan which included that “The national bank of Pakistan will serve the Govt.

Employees on behalf of the state bank of Pakistan”.

SBP has only 16 field’s offices in whole country. Therefore, in order to serve government

and public, there was a necessity of an agent who works instead of them in remote areas

where no office of State Bank of Pakistan exists. Each chest report to its respective issue

circles i.e. four issue circle set at SBP BSC Karachi, Lahore, Quetta and Peshawar.

Being the Agent of SBP, the national bank of Pakistan established its chests and sub-

chests across the cities and areas in the country. National Bank of Pakistan (NBP) has

been engaged through an agency agreement signed by Finance Department, SBP with

NBP to work as agent for assisting government departments using a wide network of its

1,243 branches in withdrawal/ deposit of cash and facilitating other banking transactions

pertaining to Government collections / payments etc…

3.1.1 Enhanced Role of Currency Chests

The network of currency chests maintained by National Bank of Pakistan (NBP) and by

the Government treasuries plays a key role in carrying out currency management function


in an effective manner. The stock of bank notes and coins held by the currency chests is

also taken into account for working out the cash reserve requirements of BSC concerned.

The chest/ sub-chests maintained with NBP branches are authorized to accept claim notes

from commercial banks and deposit them with BSC field offices under whose jurisdiction

they fall.

With a view to minimize the expenditure on frequent dispatch on remittance, the holding

capacity of NBP chests / sub-chests have been enhanced, in addition to setting up of more

chests at different locations across the country, ensuring the supply of bank notes both

new and re-issuable with ease and less time. Detailed information about the chests / sub-

chests is available in the Annexure of this report.

3.2 National bank operations on behalf of state bank of Pakistan.

Following are the operations conducted by the national bank of Pakistan on behalf of

state bank. Which are;

Management of Government Accounts:

The maintenance, consolidation and reporting of Federal/ Provincial/ District

Governments and Zakat accounts is one of the main responsibilities of the

Accounts Unit of BSC. NBP provides data on Government Accounts to the

Accountant General of provinces, Accountant General Pakistan revenue, Pakistan

Railways and other Government functionaries on daily or periodic basis.

Reporting of Zakat Balances

Maintenance of Zakat account including its collection, disbursement and

consolidation is another important responsibility of Accounts Department of NBP.


Reporting of FBR Transactions:

The collection of all Government taxes including FBR Tax Revenues at far areas

of various districts of Balochistan remained a vital area for NBP on behalf of BSC

during the period under review. Implementation of FBR Module at all BSC

offices enabled the offices to credit the relevant accounts and report the tax

revenue collected by them and NBP branches to FBR on daily basis through on

line system.

Operational Work Relating to National Savings Schemes

Pursuant to the powers vested in the BSC Ordinance 2001, the BSC through its 16

field offices and scheduled banks has been playing a pivotal role in savings

mobilization by managing sale/ encashment/profit payment of certificates in

respect of following schemes of the Central Directorate of National Savings

(CDNS), Government of Pakistan:

1. National Prize Bonds

a. National Saving Certificates

a. special saving certificate

b. Defense saving scheme

4. Currency Circulation Through NBP Chests


There are 33 NBP chests actively running in Balochistan. The main chests of NBP are

feeded by the Quetta BSC issue office and the sub-chests are supported by the main

chests of NBP. The currency is circulated from BSC to NBB chests and the sub-chests

are then replenished through the NBP main chest located in that district.

2.8.4.1 Currency circulation process

The Quetta SBP-BSC is the main currency issuer office, which is responsible to feed the

following NBP main chests in the province, after receiving the request of remittance from

them.

1. Dhadar

2. Dera Allah Yar


3. Murad jamali

4. Khuzdar

5. Loralai

6. Sibi

7. Mastung

8. Nuskhki

9. Zhob

10. Ziarath

11. Kharan

12. Dalbandin

13. Chamman

14. Muslim bagh

4.1 Currency circulation from NBP’s main chests to its sub-chests:

The sub-chests of the national bank of Pakistan are restocked from their key chests

without receiving remittance straight from the BSC Quetta. Following are the sub-

chests of the main NBP chests operating in different areas of the province.


The Main Chests feeding Sub chests

The above mentioned sub-chests are given instructions to send the indent, requesting for the

remittance, to the BSC Quetta office instead of notifying their main NBP branch. Later on, BSC

Quetta, after considering the indent will give instructions to the main chest of that specific area

to send the currency to its sub branch.

4.2 Foreign circle chests of Balochistan

Several of Baluchistan’s BSC chests are replenished by the Karachi BSC office on the

appeal of Quetta BSC issue branch. The purpose of this feeding is due to the existence of

the long distance in-between the Quetta BSC and the chest, which needs to be

replenished in the required time. Therefore, Karachi BSC is requested to consider on the

indent sent by one of the Balochistan foreign circle chest.

Following are some of the foreign circle chests located in Balochistan. However, they

are stocked up by the Karachi BSC office.


The Chests are feeded by foreign Circle

Treasury office:

There is only one treasury office operating in Balochistan province which is located in

langasht. It works as an agent on behalf of the state bank of Pakistan operations since

there is no NBP present in that region.

4.3 Withholding capacity of the chest

Each NBP chest is given ordered to hold a specific amount of currency capacity in their

vaults, keeping in view the number of the government employees working in that area

and the Government pension takers living there.

The larger the number of government employees working and government pension takers

living there, the more will be the withholding capacity of that specific chest. For

example: The main NBP chest of Dera.A.Yaar’s withholding capacity is 300 million

rupees whereas the Sorab main chest has withholding capacity of 100 million.


S.no Name of Treasury sub treasury and NBP Branches Replenished By Quetta Office

Whether chest or Sub chest

Holding Capacity Rs in Million

Name of Treasury sub treasury and NBP Branches Replenished By NBP Branches

Whether Chest or Sub-Chest


Name of Treasury sub treasury and NBP Branches Replenished By Karachi Office

Whether Chest or Sub-Chest


1. NBP Sibi Chest & SCD

100 NBP Musa Khail

Chest 40 NBP Turbat Chest 200

2. NBP Lorlai Chest 300 NBP Dukki Chest 50 NBP Gawadar Do 300

3. NBP Zhob Chest 120 NBP Lehri Chest 10 NBP Utal Do 200

4. NBP Pishin Chest 25 NBP Sorab Chest 70 NBP Panjgoor Do 200

5. NBP Noshki Chest 80 NBP Bhag Chest 50 NBP Pasni Sub-Chest

50

6. NBP kalat Chest 100 NBP Gandawa

Chest 50 NBP Dera Bugti

Do 120

7. NBP Khuzdar Chest 200 NBP Kohlu Chest 100

8. NBP Dadar Chest 60 NBP Harnai Sub Chest 30

9. NBP Kharan Chest 60 NBP Barkan Sub-Chest 40

10. NBP D. M. Jamali

Chest 80 NBP Ziarat Chest 50

11. NBP D.A.R Sub Chest 300

12. NBP Muslim Bagh

Sub Chest 80

13. NBP Chaman Chest & SCD

300

14. NBP Dalbandin Sub Chest 150

15. NBP Mastung Sub Chest 100

16. NBP Quetta Subsidary Chest/ SCD

100

17. NBP Qila Saif Ullah

Sub Chest 60

Holding Capacities Of NBP Chests & Sub-Chest


On the other hand, if the capacity of any chest or sub-chests of the NBP is depleted to

40% of their withholding capacity. They are given instructions to notify the BSC Quetta

office, which will in return send the remittance to those chests.

Subsequently, if the withholding capacity of any chest increases from its required volume

of currency, the BSC Quetta after analyzing its financial data, will give order to the NBP(

exceed currency chest) to send the surplus amount of currency from their capacity to any

of the sub-chest located near to it.

4.4 Process of sending the remittance to the chests

The process of sending the remittance to the NBP chests else wise from NBP main chests

to its sub-chests is done in the following ways:

Any chests, whose withholding capacity reaches to 40% of its total capacity

should notify the BSC Quetta branch by sending the indent to BSC Quetta branch.

The BSC Quetta branch once receives the indent, will examine the financial data

of that specific chest. Which also include: which domain currency is needed and

in how much quantity.

Later on, the BSC Quetta requests that particular chest to send the Annexure

letter. The Annexure is the letter in which the following things are mentioned

a) Name of the chest which needs the remittance

b) Location of that chest

c) Capacity/ oblique required

d) Number of requests which were requested before

The annexure is then signed by the ACM(cash),

The final authority is of the currency officer, who, after signing the annexure, the

remittance is sent to that chest.


The chest can be replenished by both the new notes taken out from the Stock vault

as well as from the re-issuable notes.

4.4.1 Transport Channel used in sending the remittance

Although there are many mean of transport in the country in the shape of railways, by air,

and by road but the SBP-BSC have chosen the Pakistan railway as their mean of transport

of sending the remittance to their chests.

The reason behind selecting this transport channel is because, SBP prefers to use the

government sector channels, which is the Pakistan railways. Similarly, for the security of

the remittance the Pakistan police officers are hired to accompany the transport of the

remittances to its destination, even though the private security agencies are present in the

city and are ready to be hired and provide the services.

4.5 Maintaining chest vault in state bank of Pakistan:

The state bank of Pakistan has a currency vault of its national bank chests by the name of

chest vaults. Where all the currency received from its chests is maintained on daily and

weekly basis.

The chest vaults of NBP are examined having the NBP’s representative present at that

moment.

4.6 Accounting Process

The transactions occurring in each Currency Chest are reported to SBP on daily basis

through Currency Chest Slips (A-17) also called as TE-2 form. These transactions are the

deposits and withdrawal from chest which are recorded and accounted for in the Globus

system. The total amount of Deposits and Withdrawals from all chests and their net


difference are also reported to SBP in a summarized form on a statement called F-157.

Accounting entries on daily basis are done in Globus for the total deposits, withdrawals,

net difference (Dr./Cr.) and for Coins issued or received in chests. Further, accounting

entries are also made for the remittances dispatched/received from all the chests in

Balochistan.

4.6.1 Types of accounts maintained in CMU

Issue department maintains the two types of accounts.

1. Home Note account

2. Value account

Home Note account

We know that a currency note is the liability of SBP. Home Note A/c is reflected on the

Liability side of SBP’s Balance Sheet. As the currency note come into the vault of SBP, it

is recorded in books of Home Note A/c. And so on, as the same currency notes changes

its position i.e. from SBP vault to Circulation, Chest, Cancelled etc. the same is

maintained in the books of Home Note A/c.

4.6.1.1.1 Currency chest slips

Daily transactions of chest are recorded on cc slip, and this slip is then forwarded to SBP

Quetta on the next day to issue department to maintain accounts and the same cc copy is

send to main branch NBP

A-17 book/ subsidiary register of chests.


Transactions reported by each chest through currency chest slip are recorded in the

subsidiary register of chest called A-17 book. It contains the details about currency

denomination wise. It has a separate record of each type of note issued by SBP and

aggregate balances are extracted. These balances are further utilized to prepare the home

note ledger account.

F-157 statement.

This statement is sent by the NBP main branch Quetta. SBP Quetta daily receives this

statement. It contains the aggregate amount of receipt and withdrawals of each chest and

their net balances. This statement is then used to make A-10

A-10

It is the chest balance book. It is prepared on the monthly basis. Each chest ending

balances are recorded on it

A-12

It is the balance reconciliation book. It is prepared to verify the balances.

A-8

It is home note ledger account. It consists of main accounts, currency account is head of

accounts, it must have credit balance, and the other 6 main ledger accounts are

A. Transfer account

B. Cancelled note account

C. Exchange note account

D. Chest account

E. Circulation account

F. Invoiced account

They must have debit balances


A-14

It is prepared to report Karachi SBP about the transactions of chests

4.6.1.2 Value account

Value account is as “Asset” account and is shown under Assets in SBP’s Balance Sheet.

This account hits the circulation. We also record all type of coin transactions in Value

A/c like:

a) Coins transferred from reserve to exchange

b) Coins transferred from exchange to reserve

c) Remittances of coins sent to chest

d) Remittances of coins received from chest

e) Remittances received from mint Lahore

f) Remittance sent by SBP Karachi to SBP Quetta chests

g) Net T.T effect

h) Remittances sent by SBP Quetta chest so SBP Karachi.

4.6.2 Foreign circle (FC) account

Transactions between issue offices of SBP are handled through FC account.

Problem faced during making the report

Difficulty in finding the data related to our topic because the topic which was

assigned to us was not broad enough.

There were not sufficient PC's available in order to prepare the report

No internet facility

Penalties charged on chests:


The penalties which are charged on NBP chests are as follows;

late reporting of currency chest slips, the amounts charged in that mean time

are Rs.20,000 for non-reporting and Rs.1000 per day as it delays sending the

slip.

5. SWOT Analysis

5 .1 Strengths

5.1.1 Strong Check and Balance

The structure of verification, authorization, checking and counter checking of

transactions is very sophisticated, reliable and strong. This is the major reason why fraud

and false payment cases are rare in SBP-BSC.

5.1.2 Job security and attractive Salary

Employees of SBP-BSC enjoy good salary packages and benefits. For example interest

free loans are given for building house and buying car etc. employees feel secure because

of the permanent nature of job. Therefore young and talented candidates opt for SBP-

BSC posts. Senior employees enjoy more benefits in the form of recognition and other

fringe benefits which work to retain them.

5.2 Weaknesses

5.2.1 Technological backwardness


Unlike most of the Central Banks of other countries SBP-BSC is not updated in

technology. They are using old Pentium processor computers and CRT monitors. The

GLOBUS software used is not updated. Computers and GLOBUS software was

introduced in 2003 and they are in the same form, not updated. This causes system

freezes and hang ups and hence time wastage.


5.2.2 Over strictness

The strictness is a tool of discipline but the over strictness may convert into mental stress

for the employees of state bank.

5.2.3 Staff is not well trained in IT

SBP-BSC employees in general and imputers should be trained at least for improving

their typing speed. It will speed up the payment process and entry system.

5.2.4 Over Burden of work and No Backup Staff

In many units of SBP-BSC lack of staff caused over burden of work on employees

working in that particular unit. Due to the unavailability of backup staff, when an

employee is not present in that unit, all the work for which he is responsible is not

operating. Therefore, The unit may face trouble in flow of work.

5.3 Opportunities

5.3.1 Investment in IT and latest technology

There is a great opportunity for SBP-BSC to invest in latest technology. By replacing the

present system of physical movement of cheque for clearance with image based clearance

system like Cheque Truncation System (CTS) SBP can enable commercial banks to offer

new products and services. It could be a source of earning for SBP and would also help

achieve its goal of providing a facilitating financial market.


5.4 Threats

5.4.1 Political instability and pressure can harm the operations of SBP

Frequently changing governments and their policies harm the functionality and

consistency of SBP-BSC policies.

5.4.2 Excessive government borrowings

Excessive borrowings of the present government is making difficult for SBP to maintain

foreign exchange reserves.

5.4.3 Circulation of fake currency

A huge amount of fake currency is floating in the market which is causing inflation in the

economy and is devaluing rupee. Fake money makers have improved the quality of their

fake notes and it is hard for general public to distinguish them from original currency

notes.

6. Suggestions and Recommendations

It was observed that the major bottleneck in payment system is the physical movement of

the instrument. The circulation of money is one of the major function of SBP-BSC is

operated by CMU through NBP chests. The existing system of flow of work is well

organized but it should be more efficient and more effective to compete other central

banks of the world. We have some suggestions which may assist the policy makers of

state bank.

6.1 Monitoring and Checks

The monitoring can be increased by using the biometric devices like thumb impression

for the record of entry and leaving time of the employees instead using the older register


method which only marks attendance and no time and hence puts no check on the entry

and exit of the employees in the organization.

6.2 Removing communication gap

The communication gap between the lower grade employees and higher ranked officers

of SBPBSC should be reduced to make sure that the employees can communicate their

problems as well as suggestions about ongoing policies more easily, to the higher

authorities.

Periodic meetings should be conducted with employees to get more and more feedback

about the current processes and procedures and also to make necessary improvements if

any.

6.4 Hire new staff

The overburden of work on the existing staff seems to be an obstacle in the flow of work.

The SBP should hire new staff and make sure the availability of backup staff in.


Conclusion

State bank of Pakistan provides a large number of services. In public account department they receive cash

or checque and also make payments on the behalf of government and they also clear checques. In DFU unit

they provide export financing money to exporters. In prize bond department they provide prize bonds and

also conduct draws on the behalf of govt. DAU deals with commercial banks whereas The CMU deals with

the management of currency and this is the unit which plays key role in the circulation of money through

NBP chests.

The NBP plays vital role in circulation of money. There are 33 chests operating in the Balochistan and one

treasury office. In case where there is no NBP chest, The Treasury office works as agent on behalf of SBP.

The roles of these chests are to deal with the circulation of currency in the province.


Bibliography

www.sbo.org.pk

www.wikipedia.com

Financial Magazine


http://www.wikipedia.com/

http://www.sbo.org.pk/

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Internship Report on State Bank of Pakistan

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