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State Bank of Pakistan BSC Quetta

Internship Report
Submitted By:
Mr.Nadeem Iqbal Mr. Lutfullah
(IMS, University of Balochistan) (Iqra University)

Submitted To:
Miss Neelofar Nazir

Submition Date: January 12, 2013


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Table of Contents
Acknowledgment................................................................................................................4 Acronym.............................................................................................................................5 Executive Summary...........................................................................................................7 1.Introduction.....................................................................................................................8 1.1 Background................................................................................................................8 1.2 Objectives...................................................................................................................8 1.3 Vision.........................................................................................................................8 1.4 Mission.....................................................................................................................9 1.5 INTRODUCTION TO BSC (BANKING SERVICE CORPORATION)...............9 1.5.1 Functions Delegated to SBP (BSC)......................................................................11 SPB-BSC Field Offices..................................................................................................12 1.6 NIBAF:........................................................................................................................13 1.6.1 Functions of NIBAF..............................................................................................13 2. Units in which the interns have been routed...........................................................15 2.1 Deposit Accounts Unit.............................................................................................15 2.2 Prize Bond and Saving Certificate unit....................................................................17 2.3 Internal Audit Unit.................................................................................................20 2.4 Foreign Exchange Unit..........................................................................................20 2.5 Public Accounts Unit...............................................................................................23 2.6 Administration Unit.................................................................................................29 2.7 Development Finance Unit......................................................................................32 2.8 Currency Management Unit.....................................................................................34 3.1 National bank of Pakistan........................................................................................39 3.1 National bank and State bank act of 1956.............................................................39 3.1.1 Enhanced Role of Currency Chests....................................................................40 3.2 National bank operations on behalf of state bank of Pakistan..............................40 4. Currency Circulation Through NBP Chests.............................................................42 2.8.4.1 Currency circulation process..............................................................................42 4.1 Currency circulation from NBPs main chests to its sub-chests:.............................44 4.2 Foreign circle chests of Balochistan........................................................................45 Treasury office:..............................................................................................................46 4.3 Withholding capacity of the chest..........................................................................46 4.4 Process of sending the remittance to the chests....................................................48 4.4.1 Transport Channel used in sending the remittance...............................................49 4.5 Maintaining chest vault in state bank of Pakistan:..............................................49 4.6 Accounting Process................................................................................................49 4.6.1 Types of accounts maintained in CMU.................................................................50 Home Note account.......................................................................................................50 4.6.1.2 Value account...................................................................................................52 5. SWOT Analysis..........................................................................................................53 5 .1 Strengths................................................................................................................53 5.2 Weaknesses.............................................................................................................54 5.3 Opportunities.........................................................................................................55 2 Prepared by: Nadeem Iqbal & Lutfullah

5.4 Threats...................................................................................................................56 Bibliography.....................................................................................................................59

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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 wont be able to learn about our specific unit.

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Acronym

ACM A/C AG AGPR B.D BSC CDNS CMU CTS DAU DDO D.P FBR FEU FTO G.D GPF GTA IAU L.C MT NBP NIBAF NIFT NSS OG PAU PBC PDO PSPC RTGS SBP TO T.T

Assistant Chief Manager Account Accountant General Accountant General Pakistan Revenue Bank Draft Banking Service Corporation Central Directorate of National Savings Currency Management Unit Cheque Truncation System Deposit Account Unit Drawing and Disbursing Officer Demand Promissory Federal Board of Revenue Foreign Exchange Unit Federal Treasury Officer Government Draft General Prevalent Fund Group Terms Assurance Internal Audit Unit Letter of Credit Mail Transfer National Bank of Pakistan National Institute of Banking and Finance National Institutional Facilitation Technologies National Savings Scheme Officer Grade Public Accounts Unit Pakistan Business Council Public Debt Office Pakistan Security Printing Corporation Real time gross settlement State Bank of Pakistan Treasury officer Telegraphic Transfer

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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.

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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). 8 Prepared by: Nadeem Iqbal & Lutfullah

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. 9 Prepared by: Nadeem Iqbal & Lutfullah

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. ii. iii. iv. v. vi. vii. viii. ix.

Internal Audit Unit. Currency Management Unit. Public Accounts Unit. Development Finance Unit. Engineering Unit. Foreign Exchange Unit. Administration Unit. Internal Bank Security Unit. Training and development Unit.

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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.

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SPB-BSC Field Offices

Field Offices

Karachi Office Chief Manager

Lahore Office Chief Manager

Islamabad Office Chief Manager

Peshawar Office Chief Manager

Rawalpindi Office Chief Manager

Quetta Office Chief Manager

Hyderabad Office Chief Manager

Faisalabad Office Chief Manager

Multan Office Chief Manager

N. Nazimabad Office Chief Manager Sukkur Office Chief Manager

Muzaffarabad Office Chief Manager Bahawalpur Office Chief Manager Sialkot Office Chief Manager

Gujrawala Office Chief Manager

D.I.Khan Office Chief Manager

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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

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


CHIEF MANAGER

Divisional head 1 (OG4) banking banking Exchange policy Division Banki ng Divisi REFin. Secur ity Divisi Prize Bond Divis

Divisional head-2 (OG4) issue & treasury

Division head 3 (OG-4)


Engin eering divisio n civil/el ectric

Issue & treasur


Unit incharge (OG-3) Treasury unit(cash deptt) Currency mangt acc & claim note unit Exchange/ch est/fresh notes vault Bonded/canc elled notes vault Notes verification unit

Adm in

unit

Audit divisi on

Unit in -charge (OG-3)


Private remittance/Exp ort/import checking & exchange companies B unit

Unit in-charge (OG-3) Deposit Acc schedule bank, export refinance/LMM

Prize bond SSC/DSC unit with prize bond

vault

Unit incharge (OG-3) Staff matters & medical/w elfare unit Procureme nt & maintenan ce section unit Payment & advance unit System & support

Unit incharge (OG-3)


Internal monitoring unit pre audit)

unit

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

Internal Audit(post Audit)

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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. 15 Prepared by: Nadeem Iqbal & Lutfullah

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

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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 Its 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. 17 Prepared by: Nadeem Iqbal & Lutfullah

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. Price (Rs) Upto 20000 185,000 500,000 Above 500,000 Working Days Same day 10 days 15 days 20 days

Hierarchal Chart of Bonds Unit

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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

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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 NIBAFs 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 Banks 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. 20 Prepared by: Nadeem Iqbal & Lutfullah

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 reexport 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 21 Prepared by: Nadeem Iqbal & Lutfullah

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.

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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.

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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 Cash Cheque Modes of receipts 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)

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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

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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

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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 SBPBSC. 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 27 Prepared by: Nadeem Iqbal & Lutfullah

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 receivers account and no cash is paid. Duration of clearance and its transfer to receivers 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. 28 Prepared by: Nadeem Iqbal & Lutfullah

Cheque is matched with the schedule of the issued department, and Genuineness of the instrument and signatures of the DDO are verified Issuing departments account is debited and concerned banks 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


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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 Services 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.

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Hierarchal Chart of Administration Unit

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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.

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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 33 Prepared by: Nadeem Iqbal & Lutfullah

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. 34 Prepared by: Nadeem Iqbal & Lutfullah

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 35 Prepared by: Nadeem Iqbal & Lutfullah

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 36 Prepared by: Nadeem Iqbal & Lutfullah

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, 37 Prepared by: Nadeem Iqbal & Lutfullah

Issue and distribute fresh notes and coins Withdraw soiled notes from circulation and destruction thereof provide exchange facility 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 its 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

38 Prepared by: Nadeem Iqbal & Lutfullah

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 shouldnt 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 fields 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 39 Prepared by: Nadeem Iqbal & Lutfullah

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 subchests 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 / subchests 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; 40 Prepared by: Nadeem Iqbal & Lutfullah

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 41 Prepared by: Nadeem Iqbal & Lutfullah

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

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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 43 Prepared by: Nadeem Iqbal & Lutfullah

8. Nuskhki 9. Zhob 10. Ziarath 11. Kharan 12. Dalbandin 13. Chamman 14. Muslim bagh

4.1 Currency circulation from NBPs 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 44 Prepared by: Nadeem Iqbal & Lutfullah

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 Baluchistans 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

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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.Yaars withholding capacity is 300 million rupees whereas the Sorab main chest has withholding capacity of 100 million.

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Holding Capacities Of NBP Chests & Sub-Chest


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 Replenishe d By NBP Branches NBP Musa Khail NBP Dukki NBP Lehri NBP Sorab NBP Bhag NBP Gandawa NBP Kohlu NBP Harnai NBP Barkan NBP Ziarat Whether Chest or SubChest Holding Capacity Rs in Million Name of Treasury sub treasury and NBP Branches Replenished By Karachi Office NBP Turbat NBP Gawadar NBP Utal NBP Panjgoor NBP Pasni NBP Bugti Dera
Whether Chest or SubChest Holding Capacity Rs in Million

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.

NBP Sibi NBP Lorlai NBP Zhob NBP Pishin NBP Noshki NBP kalat NBP Khuzdar NBP Dadar NBP Kharan NBP D. Jamali NBP D.A.R M.

Chest SCD Chest Chest Chest Chest Chest Chest Chest Chest Chest

&

100 300 120 25 80 100 200 60 60 80 300 80 300 150 100 100 60

Chest Chest Chest Chest Chest Chest Chest Sub Chest Sub-Chest Chest

40 50 10 70 50 50 100 30 40 50

Chest Do Do Do SubChest Do

200 300 200 200 50 120

Sub Chest Sub Chest Chest & SCD Sub Chest Sub Chest Subsidary Chest/ SCD Sub Chest

NBP Muslim Bagh NBP Chaman NBP Dalbandin NBP Mastung NBP Quetta NBP Qila Saif Ullah

47 Prepared by: Nadeem Iqbal & Lutfullah

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), 48 Prepared by: Nadeem Iqbal & Lutfullah

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 NBPs representative present at that moment.

4.6 Accounting Process

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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 SBPs 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 50 Prepared by: Nadeem Iqbal & Lutfullah

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 51 Prepared by: Nadeem Iqbal & Lutfullah

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 SBPs 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. 52 Prepared by: Nadeem Iqbal & Lutfullah

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

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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 SBPBSC 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.

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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.

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5.4
5.4.1

Threats
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 56 Prepared by: Nadeem Iqbal & Lutfullah

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.

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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.

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Bibliography
www.sbo.org.pk www.wikipedia.com Financial Magazine

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