Section 2 Organizational Review

REVIEW OF MUSLIM COMMERCIAL BANK

INTRODUCTION:

Banking in Pakistan
After independence successive Pakistani governments adopted a
policy of ‘supply-leading’ finance. A policy designed to implement the
import-substitution development model leading to long-term
industrialization, was possible only with the mobilization and allocation of
large amounts of term finance. The problem of inadequate financial
intermediation was overcome by creation of nation wide system of
commercial bank branches. the banks were encouraged to mobilize
deposits and lend to corporate sector at attractive terms.

Pre-Nationalization
In the formative years of development of banking in Pakistan,
governments intervened in the banking system in three ways. First, a
central bank i.e. the State Bank of Pakistan was established and given a
multiplicity of functions: regulating monetary and credit system, fostering
economic growth, undertaking money market operations, and supporting
the development of the capital market. Second, low cost financing was
made available both through the commercial banks. Third the increase in
the number of branches allowed a profound increase in bank credit, based
on the increase in commercial bank deposits. But these steps had some
negative implications also. First the government policy supported lending
to specific industrial groups. Second considerable proportion of the bank
investments was directed towards government debt securities. Also high
premium on liquidity made the banks frequently reverting to SBP for
additional credit.

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Section 2 Organizational Review

Nationalization
During nationalization the system of credit ceiling, quotas, and
control affected the performance of Nationalized Commercial Banks. A
substantial part of their investment was maintained in low yield
government securities, given interest rate ceiling, banks controlled
deposits rates, thus leading to a negative real interest rate. These trends
affected the ability of financial system to generate resources for economic
development. Negative real interest rates encouraged disintermediation
from the formal to informal financial sector, where nominal rates of return
were substantially high. By 1990, the financial performance of the
Nationalized Commercial Banks had declined substantially.

Post-Nationalization
From 1991, a liberalization policy introduced by government,
involving disinvestments of state-owned commercial banks and
deregulation of financial and monetary controls, had far reaching effects
on banking system. The changing financial structure was accompanied by
reforms which had an impact on the inter-linkage between financial and
money markets. These reforms included:
 Introduction of a competitive auction market for government debt.
 An across-the-board increase in yields on government debt.
 An increase in rupee deposit rates to make them more attractive to
investors.
 Permission for banks to raise deposits to attract funds from informal
sector.
 And revised prudential ratios on both credit expansion and
maximum lending and deposit rates.1

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An overview of MCB as an organization

Muslim Commercial Bank was established on July 7 1947 at

Calcutta. Quaid-e-Azam M.A. Jinnah was very intent in the formation of
MCB because of his apprehensions about the future of banking industry in
Pakistan. Adam Jee Daud was the promoter of the Bank, who
commenced the venture with authorized capital of Rs.300, 000.

After the partition of Indo Pak Subcontinent the head office of the
Bank was shifted to Dhaka, capital of Bangladesh (formerly known as East
Pakistan). In 1956, the Bank moved its registered office to Karachi.

Until 1974, private management operated the Bank. In 1974, with

the promulgation of Nationalization of Banks Act, the Bank was merged
with the Premier Bank Ltd. and was handed over to Government. Under
the Government umbrella most of the enterprises could not do well. After
the Government’s decision to privatize government owned entities in
1992, the MCB was first bank to be privatized.

Privatization was the milestone in the progress of the Bank. After

privatization the Bank has achieved remarkable repute in the services
industry owing to dynamic policies of the management. Today the Bank
has a network of more than 1300 branches committed to excel in
customers service, profitability, and efficiency of management. Euro
money a leading financial journal of Europe has declared MCB, the best
domestic bank in the year 2003 again. The same journal has declared the
Bank as the best amongst all foreign and domestic banks in Pakistan in
year 2001 and 2003.

Officers Grade 1(OG 1), Officers Grade 2(OG 2), and Officers
Grade 3(OG 3) with decreasing level of authority as we move down the
list.

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Section 2 Organizational Review

Departmentalization on the basis of Geography

The Principal Office of the bank is located in Karachi. Then we

have two Area Offices namely Area Office South and Area Office North.

Area Office South manages the operations in Sindh and Balochistan while
Area Office North is responsible for the activities in Punjab, N.W.F.P, and
AJK.

Each Area Office is in turn divided into circles. To make

administration easier, each circle is divided into various regions. The
regional offices are responsible for the affairs of the branches operating in
their domain.

Departmentalization on the basis of Function

The whole organization is divided into various divisions on the basis

of the functions performed by them. Each division specializes in a
particular area of operations. For example, we have Agriculture Division
dealing with loans and other programs related to the agricultural sector,
Audit Division for keeping a check on the financial affairs of the
organization and IT Division for maintaining a computerized database of
the organization and other activities related to the computerization of the
bank. The number of divisions is not fixed and frequently changes either
due to merger of existing divisions or creation of new ones.

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Section 2 Organizational Review

Chart 1 Organizational Hierarchy of MCB

Chairman

Board of Directors

Chief Executive/President

Senior Executive Vice President

Executive Vice President

Senior Vice President

Vice President

Assistant Vice President

OG-1 OG-2 OG-3

Clerical Staff

Non Clerical Staff

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 Section 2 Organizational Review

Chart 2: BRANCH NETWORK OF MCB

Principal Office

Area Office North Area Office South Overseas Branches

Bahrain Sri Lanka

Punjab NWFP Sindh Balochistan

10 Circles 2 Circles 5 Circles 1 Circle

25 Regions 7 Regions 12 Regions 2 Regions

710 Branches 199 Branches 262 Branches 38 Branches

Source: MCB Annual report 2001

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Chart 3: DIVISIONS OF MCB

Central Accounts Agriculture

Division

PTC and Master Investment

Card Banking

HRD Finance and

Division Treasury

Special Assets Islamization

Management Division

MCB
Business Dept Inspection And
and Marketing HEAD Audit
OFFICE
Control Credit
Accounts Management

General Service Industrial

Division Credit

Information Foreign Trade

Management

Corporate Training
Affairs Division

O&M Informational
Division Division
(Source : MCB Manuals)

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Section 2 Organizational Review

MCB university town Branch

Muslim Commercial Bank university town Branch is located in the

residential commercial area of the Peshawar.

Mr. Burhan is presently the Manager of the branch. The total

number of employees in the branch is 13. Their designations are as
follows:

Assistant Vice President 1

Officers Grade-1 1

Officers Grade-2 1

Officers Grade-3 2

Cashiers 3

Office Assistants 2

Messengers 2

Guards 2

Total 13

Besides the two guards, which are on the bank’s payroll, the branch
employs the services of two other guards, which are provided by Phoenix
Security Company for a monthly fee of Rs. 4500/- per guard. The branch
has its own culinary section and the employees have to use the services
in the bank. The branch is equipped with computers and ATM machine
.The overall environment of the bank is friendly

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Section 2 Organizational Review

Chart 4 Hierarchy of the Branch

Chief Manager

Accoun Advances General Foreign Exchange

* Credit proposal * Cash Section * Import

process * Bills Section Section
* Credit marketing * RTC Section * Export
section * Remittance Section
* Legal Section Section * Foreign
* Classified/Bad * Desk Dispatch Remittance
Loan Section Section Section
* Credit * Foreign
Administration Exchange
Section
* Master Card
Section

Source: Operational Manual at branch

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Section 2 Organizational Review

Branch Departmentalization

The process of grouping individuals into separate units and

departments to facilitate the accomplishment of organizational goals is
known as departmentalization. In MCB UNIVERSITY TOWN,
departmentalization is done on pure functional basis. In the functional form
of departmentalization, people and resources having a common activity to
support are grouped together. Functions performed by some important
departments of MCB UNIVERSITY TOWN have been discussed in the
following text.

Account Opening Department

The opening of an account is the establishment of banker customer
relationship. Before a banker opens a new account, the banker should
determine the prospective customer’s integrity, respectability, occupation
and the nature of business by the introductory references given at the time
of account opening. Preliminary investigation is necessary because of the
following reasons.
♦ Avoiding frauds
♦ Safe guard against unintended over draft.
♦ Negligence.
♦ Inquiries about clients.

There are certain formalities, which are to be observed for opening

an account with a bank.
♦ Formal Application
♦ Introduction
♦ Specimen Signature
♦ Minimum Initial Deposit
♦ Operating the Account
♦ Pay-In-Slip Book
♦ Pass Book
♦ Issuing Cheque Book

Qualification of Customer
The relation of the banker and the customer is purely a contractual
one; however, he must have the following basic qualifications.
♦ He must be of the age of majority.
♦ He must be of sound mind.

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Section 2 Organizational Review

♦ Law must not disqualify him.

♦ The agreement should be made for lawful object, which create legal
relationship
♦ Not expressly declared void.

Types of Accounts

Following are the main types of accounts

♦ Individual Account
♦ Joint Account
♦ Accounts of Special Types
i. Partnership account
ii. Joint stock company account
iii. Accounts of clubs, societies and associations
iv. Agents account
v. Trust account
vi. Executors and administrators accounts
vii. Pak rupee non-resident accounts
viii. Foreign currency accounts

Cash Department
Cash department performs the following functions
Receipt
The money, which either comes or goes out from the bank, its
record should be kept. Cash department performs this function. The
deposits of all customers of the bank are controlled by means of ledger
accounts. Every customer has its own ledger account and have separate
ledger cards.

Payments
It is a banker’s primary contract to repay money received for this
customer’s account usually by honoring his cheques.

Cheques and their Payment

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Section 2 Organizational Review

The Negotiable Instruments. Act, 1881, “Cheque if a bill of

exchange drawn on a specified banker and not expressed to be payable
otherwise than on demand”. Since a cheque has been declared to be a bill
of exchange, it must have all its characteristics as mentioned in Section 5
of the Negotiable Instruments Act, 1881. Therefore, one can say that a
cheque can be defined as an:
“An unconditional order in writing drawn on a specified banker,
signed by the drawer, requiring the banker to pay on demand a sum
certain in money to, or to the order of, a specified person or to the bearer,
and which does not order any act to be done in addition to the payment of
money”. (Law of Banking by Dr. Hart, p.327).

The Requisites of Cheque

There is no prescribed form of words or design of a cheque, but in
order to fulfill the requirements mentioned in Section 6 above the cheque
must have the following.
♦ It should be in writing
♦ The unconditional order
♦ Drawn on specific banker only
♦ Payment on Demand
♦ Sum Certain in money
♦ Payable to a specific person
♦ Signed by the drawer

Parties to Cheque
The normal cheque is one in which there is a drawer, a drawee
banker and a payee, or no payee but bearer.
♦ The Drawer
♦ The Drawee
♦ The Payee

Types of Cheques
Bankers in Pakistan deal with three types of cheques

Bearer Cheques
Bearer cheques are cashable at the counter of the bank. These can
also be collected through clearing.

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Section 2 Organizational Review

Ordered Cheques
These type of cheques are also cashable on the counter but its
holder must satisfy the banker that he is the proper man to collect the
payment of the cheque and he has to show his identification. It can also
be collected through clearing.

Crossed Cheques
These cheques are not payable in cash at the counters of a banker.
It can only be credited to the payee’s account. If there are two persons
having accounts at the same bank, one of the account holder issues a
cross-cheque in favour of the other account holder. Then the cheque will
be credited to the account of the person to whom the cheque was issued
and debited from the account of the person who has actually issued the
cheque.

Payment of Cheques
It is a banker’s primary contract to repay money received for his
customer’s account usually by honoring his cheques. Payment of money
deposited by the customer is one of the root functions of banking. The
acid test of banking is the receipt of money etc. from the depositors, and
repayment to them. This paying function is one, which is the distinguishing
mark of a banker and differentiates him from other institutions, which
receive money from the public. However the bankers legal protection is
only when payment is in ‘Due Course’. The payment in due course means
payment in accordance with the apparent tenor of the instrument, in good
faith and without negligence to any person in possession thereof under
circumstances, which do not afford a reasonable ground of believing that
he is not entitled to receive payment of the amount therein mentioned. It is
a contractual obligation of a banker to honour his customer’s cheques if
the following essentials are fulfilled.
♦ Cheques should be in a proper form:
♦ Cheque should not be crossed:
♦ Cheque should be drawn on the particular bank:
♦ Cheque should not mutilated:
♦ Funds must be sufficient and available:
♦ The cheque should not be post dated or stale:
♦ Cheque should be presented during banking hours:

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Section 2 Organizational Review

Clearance Department
A clearinghouse is an association of commercial banks set up in
given locality for the purpose of interchange and settlement of credit
claims. The function of clearinghouse is performed by the central bank of
a country by tradition or by law. In Pakistan, the clearing system is
operated by the SBP. If SBP has no office at a place, then NBP, as a
representative of SBP act as a clearinghouse.
After the World War II, a rapid growth in banking institutions has taken
place. Th++++++++++++++ +e use of cheques in making payments has
also widely increased. The collection as settlement of mutual obligations in
the form of cheques is now a big task for all the commercial bank. When
cheque is drawn on one bank and the holder (payee) deposits the same in
his account at the bank of the drawer, the mutual obligation are settled by
the internal bank administration and there arises no inter bank debits from
the use of cheques. The total assets and total liabilities of the bank remain
unchanged.

In practice, the person receiving a cheque as rarely a depositor of

the cheque at the same bank as the drawer. He deposits the cheque with
his bank other than of payer for the collection of the amount. Now the
bank in which the cheque has been deposited becomes a creditor of the
drawer’s bank. The depositor bank will pay his amount of the cheque by
transferring it from cash reserves if there are no offsetting transactions.
The banks on which the cheques are drawn become in debt to the bank in
which the cheques are deposited. At the same time, the creditors’ banks
receive large amounts of cheques drawn on other banks giving claims of
payment by them.

The easy, safe and most efficient way is to offset the reciprocal
claims against the other and receive only the net amount owned by them.
This facility of net inter bank payment is provided by the clearinghouse.
The representatives of the local commercial banks meet at a fixed time on
all the business days of the week. The meeting is held in the office of the
bank that officially performs the duties of clearinghouse. The
representatives of the commercial banks deliver the cheques payable at
other local banks and receive the cheques drawn on their bank. The
cheques are then sorted according to the bank on which they are drawn. A
summary sheet is prepared which shows the names of the banks, the total
number of cheques delivered and received by them. Totals are also made
of all the cheques presented by or to each bank. The difference between
the total represents the amount to be paid by a particular bank and the
amount to be received by it. Each bank then receives the net amount due
to it or pays the net amount owed by it.

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Section 2 Organizational Review

In-Word Clearing Books

The bank uses this book for the purpose of recording all the
cheques that are being received by the bank in the first clearing. All details
of the cheques are recorded in this book.

Out-Word Clearing Book:

The bank uses outward clearing register for the purpose of
recording all the details of the cheques that the bank has delivered to
other banks.

Advances Department
Advances department is one of the most sensitive and important
departments of the bank. The major portion of the profit is earned through
this department. The job of this department is to make proposals about the
loans. The Credit Management Division of Head Office directly controls all
the advances. As we known bank is a profit seeking institution. It attracts
surplus balances from the customers at low rate of interest and makes
advances at a higher rate of interest to the individuals and business firms.
Credit extensions are the most important activity of all financial institutions,
because it is the main source of earning. However, at the same time, it is
a very risky task and the risk cannot be completely eliminated but could be
minimized largely with certain techniques.
Any individual or company who wants loan from MCB, first of all have to
undergo the filling of a prescribed form, which provides the following
information to the banker.

Name and address of the borrower.

♦ Existing financial position of a borrower at a particular branch.
♦ Accounts details of other banks (if any).
♦ Security against loan.
♦ Exiting financial position of the company. (Balance Sheet & Income
Statement).
♦ Signing a promissory note is also a requirement of lending, through
this note borrower promise that he will be responsible to pay the
certain amount of money with interest.

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Section 2 Organizational Review

Principles of Advances
There are five principles, which must be duly observed while
advancing money to the borrowers.
Safety.
Liquidity.
Dispersal.
Remuneration.
Suitability.

Safety
Banker’s funds comprise mainly of money borrowed from numerous
customers on various accounts such as Current Account, Savings Bank
Account, Call Deposit Account, Special Notice Account and Fixed Deposit
Account. It indicates that whatever money the banker holds is that of his
customers who have entrusted the banker with it only because they have
full confidence in the expert handling of money by their banker. Therefore,
the banker must be very careful and ensure that his depositor’s money is
advanced to safe hands where the risk of loss does not exist. The
elements of character, capacity and capital can help a banker in arriving at
a conclusion regarding the safety of advances allowed by him.

1. Character
It is the most important factor in determining the safety of advance,
for there is no substitute for character. A borrower’s character can indicate
his intention to repay the advance since his honesty and integrity is of
primary importance. If the past record of the borrower shows that his
integrity has been questionable, the banker should avoid him, especially
when the securities offered by him are inadequate in covering the full
amount of advance.

It is obligation on the banker to ensure that his borrower is a person

of character and has capacity enough to repay the money borrowed
including the interest thereon.

Capacity
This is the management ability factor, which tells how successful a
business has been in the past and what the future possibilities are. A

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Section 2 Organizational Review

businessman may not have vast financial resources, but with sound
management abilities, including the insight into a specific business, he
may make his business very profitable. On the other hand if a person has
no insight into the particular business for which he wants to borrow funds
from the banker, there are more chances of loss to the banker.

Capital
This is the monetary base because the money invested by the
proprietors represents their faith in the business and its future. The role of
commercial banks is to provide short-term capital for commerce and
industry, yet some borrowers would insist that their bankers provide most
of the capital required. This makes the banker a partner. As such the
banker must consider whether the amount requested for is reasonable to
the borrowers own resources or investment.

Liquidity
Liquidity means the possibilities of recovering the advances in
emergency, because all the money borrowed by the customer is
repayable in lump sum on demand. Generally the borrowers repay their
loans steadily, and the funds thus released can be used to allow fresh
loans to other borrowers. Nevertheless, the banker must ensure that the
money he is lending is not blocked for an undue long time, and that the
borrowers are in such a financial position as to pay back the entire amount
outstanding against them on a short notice. In such a situation, it is very
important for a banker to study his borrowers assets to liquidity, because
he would prefer to lend only for a short period in order to meet the
shortfalls in the wording capital. If the borrower asks for an advance for
the purchase of fixed assets the banker should refuse because it shall not
be possible for him to repay when the banker wants his customer to repay
the amount. Hence, the baker must adhere to the consideration of the
principles of liquidity very careful.

Dispersal
The dispersal of the amount of advance should be broadly based
so that large number of borrowing customer may benefit from the banker’s
funds. The banker must ensure that his funds are not invested in specific
sectors like textile industry, heavy engineering or agriculture. He must see
that from his available funds he advances them to a wide range of sector

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Section 2 Organizational Review

like commerce, industry, farming, agriculture, small business, housing

projects and various other financial concerns in order of priorities.
Dispersal of advances is very necessary from the point of security as well,
because it reduces the risk of recovery when something goes wrong in
one particular sector or in one field.

Remuneration
A major portion of the banker’s earnings comes form the interest
charged on the money borrowed by the customers. The banker needs
sufficient earnings to meet the following:
♦ Interest payable to the money deposited with him.
♦ Salaries and fringe benefits payable to the staff members.
♦ Overhead expense and depreciation and maintenance of the fixed
assets of the bank.
♦ An adequate sum to meet possible losses.
♦ Provisions for a reserve fund to meet unforeseen contingencies.
♦ Payment of dividends to the shareholders.

Suitability
The word “suitability” is not to be taken in its usual literary sense
but in the broader sense of purport. It means that advance should be
allowed not only to the carefully selected and suitable borrowers but also
in keeping with the overall national development plans chalked out by the
authorities concerned. Before accommodating a borrower the banker
should ensure that the lending is for a purpose in conformity with the
current national credit policy laid down by the central bank of the country.

Forms of Loans
In addition to purchase and discounting of bills, bankers in Pakistan
generally lend in the form of cash finance, overdrafts and loans. MCB
provides advances to different people in different ways as the case
demand.

Cash Finance
This is a very common form of borrowing by commercial and
industrial concerns and is made available either against pledge or

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Section 2 Organizational Review

hypothecation of goods, produce or merchandise. In cash finance a

borrower is allowed to borrow money from the banker up to a certain limit,
either at once or as and when required. The borrower prefers this form of
lending due to the facility of paying markup/services charges only on the
amount he actually utilizes.
If the borrower does not utilize the full limit, the banker has to lose return
on the un-utilized amount. In order to offset this loss, the banker may
provide for a suitable clause in the cash finance agreement, according to
which the borrower has to pay markup/service charges on at least on self
or one quarter of the amount of cash finance limit allowed to him even
when he does not utilize that amount.

Overdraft/Running Finance
This is the most common form of bank lending. When a borrower
requires temporary accommodation his banker allows withdrawals on his
account in excess of the balance which the borrowing customer has in
credit, and an overdraft thus occurs. This accommodation is generally
allowed against collateral securities. When it is against collateral securities
it is called “Secured Overdraft” and when the borrowing customer cannot
offer any collateral security except his personal security, the
accommodation is called a “Clean Overdraft”. The borrowing customer is
in an advantageous position in an overdraft, because he has to pay
service charges only on the balance outstanding against him. The main
difference between a cash finance and overdraft lies in the fact that cash
finance is a bank finance used for long term by commercial and industrial
concern on regular basis, while an overdraft is a temporary
accommodation occasionally resorted to.

Demand Financing/Loans
When a customer borrows from a banker a fixed amount repayable
either in periodic installments or in lump sum at a fixed future time, it is
called a “loan”. When bankers allow loans to their customers against
collateral securities they are called “secured loans” and when no collateral
security is taken they are called “clean loans”.
The amount of loan is placed at the borrower’s disposal in lump sum for
the period agreed upon, and the borrowing customer has to pay interest
on the entire amount. Thus the borrower gets a fixed amount of money for
his use, while the banker feels satisfied in lending money in fixed amounts
for definite short periods against a satisfactory security

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Section 2 Organizational Review

Remittance Department
Remittance means a sum of money sent in payment for something.
This department deals with either the transfer of money from one bank to
other bank or from one branch to another branch for their customers. MCB
offers the following forms of remittances.
♦ Demand Draft
♦ Telegraphic Transfer
♦ Pay Order
♦ Mail Transfer

Demand Draft
Demand draft is a popular mode of transfer. The customer fills the
application form. Application form includes the beneficiary name, account
number and a sender’s name. The customer deposits the amount of DD in
the branch. After the payment the DD is prepared and given to the
customer. MCB officials note the transaction in issuance register on the
page of that branch of MCB on which DD is drawn and will prepare the
advice to send to that branch. The account of the customer is credited
when the DD advice from originating branch comes to the responding
branch and the account is debited when DD comes for clearance. DD are
of two types.
♦ Open DD: Where direct payment is made.
♦ Cross DD: Where payment is made though account.

MCB CHARGES FOR DD

♦ Up to Rs. 100,000/- is 0.10%
♦ Over Rs. 100,000/- is 0.04%

Pay Order
Pay order is made for local transfer of money. Pay order is the most
convenient, simple and secure way of transfer of money. MCB takes fixed
commission of Rs. 25 per pay order from the account holder and Rs. 100
from a non-account holder.

Telegraphic Transfer
Telegraphic transfer or cable transfer is the quickest method of
making remittances. Telegraphic transfer is an order by telegram to a

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Section 2 Organizational Review

bank to pay a specified sum of money to the specified person. The

customer for requesting TT fills an application form. Vouchers are
prepared and sent by ordinary mail to keep the record. TT charges are
taken from the customer. No excise duty is charged on TT. The TT
charges are:
Telegram/ Fax Charges on TT = Actual-minimum Rs.150.
Cable telegram transfer costs more as compared to other title of money. In
cable transfer the bank uses a secret system of private code, which is
known to the person concerned with this department and branch manager.

Mail Transfer

When the money is not required immediately, the remittances can

also be made by mail transfer (MT). Here the selling office of the bank
sends instructions in writing by mail to the paying bank for the payment of
a specified amount of money. Debiting to the buyer’s account at the selling
office and crediting to the recipient’s account at the paying bank make the
payment under this transfer. MCB taxes mail charges from the applicant
where no excise duty is charged. Postage charges on mail transfer are
actual minimum Rs. 40/- if sent by registered post locally Rs.40/- if sent by
registered post inland on party’s request.

Accounting System of the Branch

The accounts at branch are maintained at double entry system.
Apart from the usual business of receiving deposits and lending money,
the Bank renders the following main type of services:
1. Collection of bills and bills exchange on behalf of customers.
2. Guaranteeing loans raised its customers.
3. Accepting bills of exchange and making endorsement on their
behalf.
When the Bank receives a bill of exchange from its clients to keep it till
the maturity. On realization the Bank credits the account of the client

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Section 2 Organizational Review

concerned. The bank has both an asset, and a liability of equal amount;
there is the asset because it will receive cash and the liability because the
amount must be credited to the account of client. Similar situation arises
when a client hands over documentary bills to the Bank to be handed over
to another party on payment of the specified amount. The amount on
collection will be credited to the client.

For these type of transactions a called Bills for Collection Register

is kept at the Bank. But to make sure the no account escapes notice,
accounts in total are opened in the ledger, Bills for Collection and Bills
Receivable are further debited and credited, when a bill is received for
collection. The entry is reversed when payment is reversed or when bill is
returned uncollected.

Books required
At MCB University Town Branch the following subsidiary books are
maintained:
• Receiving cashier’s counter cash book.
• Paying cashier’s counter cash book.
• Current account ledger.
• Saving bank account ledger.
• Fixed deposit account ledger.
• Investment ledger.
• Bills discounted and purchased ledger.

The principal books are:

• The cash book into which are summarized the results disclosed
by the Receiving Cashier’s Counter Cash Book and the Payment
Cashier’s Counter Cash Book.

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Section 2 Organizational Review

• The General Ledger which contains the control accounts for the
subsidiary ledgers listed above.
Entries are posted on the slip system. Accountant makes sure that the
accounts to be debited and credited are listed on separate vouchers.
The vouchers are sent to the different clerks who make entries in books
under their charge. Cheques drawn by customers or pay-in-slip made
out by the customers are the basis of entry in the ledgers. Control
accounts are prepared on the basis of analysis of these slips.
Beside the above mentioned books the following chief registers and
memorandum books are also kept:
• Bills for collection register
• Demand draft register
• Share security register
• Jeweler register

ACCOUNTING PRACTICE FOLLOWED BY MCB

The financial statements of MCB have been prepared in
accordance with the directives issued by the State Bank of Pakistan, the
requirements of the Banking Companies Ordinance(1962), Companies
Ordinance(1984), the accounting standards issued by the International
Accounting Standards Committee (IASC) and its interpretations issued by
Standing Interpretations Committee of the IASC, as adopted in Pakistan.
These statements have been prepared under the historical cost
convention except that certain fixed assets and investments have been
included at revalued amounts. Historical cost convention refers to the
practice of recording assets at their original value at which they were
acquired.

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Mark-up on advances and returns on investments are recognised

on an accrual basis except the mark-up on classified advances, which is
recognized on receipt basis, in accordance with the Prudential
Regulations issued by the State Bank of Pakistan. Commission income
too is recognized on receipt basis.

Accrual basis of accounting refers to the practice of recording

revenue for the period in which it is earned while, receipt basis calls for
recognition of revenue for the period in which it is actually received, no
matter when it is earned.

Investments are recorded in accordance with the requirements of

State Bank of Pakistan.

Advances are stated net of provisions for doubtful debts. Provision

for doubtful debts is determined on the basis of Prudential Regulations
issued by the State Bank of Pakistan and charged to the income
statement.

Property and equipment, other than land which is not depreciated,

are stated by deducting the accumulated depreciation from the original
cost or the revalued amounts. Any assets or liabilities that are in foreign
currencies are shown at their equivalent in Pakistani rupee at the
exchange rate prevalent on the balance sheet date. In case they are
covered by forward exchange contracts, i.e. contracts for the sale or
purchase of a given amount of foreign currency at a future time at a rate of
exchange that is fixed when the contract is made, then contracted rates
are used.

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Provisions for current taxation are based on taxable income at the

current rates of taxation after taking into consideration tax credits and
rebates available. For deferred taxes, liability method is used.6

Human Resource Management

Human resource management is responsible for the people

dimension of the organization. It is responsible for getting competent
people, training them to perform at high effort levels, and providing
mechanism to ensure that these employees maintain their productive
affiliation with the organization.

The MCB believes in investing in its people. On this account they

have very comprehensive and effective Human Resource Development
system. Since privatization the Human Resource Department has adopted
the strategy of streamlining, paving the way for unyielding
competitiveness.

Some of the major components of Human Resource Policy are

listed below in this chapter.

Selection and Recruitment

“Recruitment is the discovering of potential applicants for actual and

anticipated organizational vacancies”. The caliber of the work force of
an organization largely determines its strengths and its success as an
enterprise. The employment policies of many organizations are not
formalized. They have just evolved as practices over the course of many
years. The MCB has very orderly and impartial procedure for selecting
people. In fact it is the only bank in private sector with such an extensive
and irrefutable selection process. Human Resource Department has

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combined many selection techniques i.e. job application form, employment

test, interview, and physical examination.

MCB recruits candidates in three cadres

1. Probationary Officers

2. Management Trainees

3. Contractual Appointments

Most of the recruitments are made through Probationary Officers.

Management Trainees are selected amongst the graduates from foreign
universities, or prestigious national universities i.e. Institute of Business
Administration Karachi (IBA), Lahore University of Management Sciences
Lahore (LUMS), and Quaid-e-Azam University Islamabad. Contractual
Arrangements are made with persons possessing technical knowledge
and expertise related to specific departments like Treasury Department,
Foreign Exchange, and Information Technology etc. The persons hired
through these contractual arrangements are usually appointed at higher
posts. Now the Bank also awards contracts to the people for clerical jobs
like cashiers, date entry operators etc.

Prerequisites for probationary officers

1. The candidate should be Pakistani citizen

2. The candidate should be under 25 years of age, and preferably

unmarried.

3. The candidate should be a graduate.

The candidate fills out specific application form. After screening the
applications only selected candidates are called for test, which is designed
to test the analytical, comprehension, and general knowledge abilities of

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the candidates. After passing the test, the candidate undergoes an

interview. Those who pass the interview are referred to a medical board
for physical examination. The candidates, who are finally selected, are
offered appointments as probationary officers, after signing the following
bonds

1. Bank’s Secrecy Bond

2. Bank’s Security Bond

3. Service Agreement Bond

Training

“Training is the organized procedure by which people learn

knowledge and/or skills for a definite purpose”. Our education system
is primarily generalized, designed to provide guidelines to students for
their overall career advancement. It is not designed to teach specific job
skills for positions in particular companies or organizations. To overcome
this deficiency of our educational system, many organizations have to
setup their own training centers and programs.

MCB has a mix of training methodologies for its employees. We

can broadly categorize these methods into two groups Off The Job
Training, and On The Job Training.

Off The Job Training

The new probationary officers and management trainees selected

this year will be given 3 months off the job training along with 3 months on
the job training. Previously the duration of total training was 1 year. Off the
job training is given at one of the three training institutes of MCB at

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Karachi, Lahore, and Islamabad. Professionalism is the core objective at

these training institutes. The common methods used for training includes:

 Lectures and classroom discussions

 Conceptual exercise and problem solving
 Tutorial and syndicate discussion
 Analytical report and group presentation

Penal discussion

On The Job Training

The total of 6 months of training include 3 months on the job
training at different branches in order to be conversant with all operations
of retail banking, credit and marketing, foreign exchange etc. the trainee is
rotated at different branches, so that he learns to adapt himself/herself
quickly to different working conditions and branch cultures. Usually On
The Job and Off The Training are provided to trainees simultaneously.
After the training the trainee is kept at probation for another six months.
The successful completion of probationary period entitles the trainees to
permanent appointments.

Compensation
Any remuneration to an employee for services performed,
including wages, salaries, fringe benefits etc. MCB awards their
employees a lucrative compensation in return of their tough mental labor.
Apart from basic salaries they are offered many other benefits like utility
allowance, medical allowance, overtime allowance, education allowance,
house rent allowance, bonuses etc. They are also offered non-interest
loans from the bank.
There are also some cash prizes for employees who show better
performance. Those employees who pass IBP part 1 exam in first attempt,
are offered Rs.60,000 cash prize or two increments. Similarly those who

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pass part 2 exam, are offered Rs.100,000 or three increments. Those who
pass both examinations within one year of training are promoted to OG 2,
and those who get the gold medal in the exam, are promoted to OG 1.

Performance Appraisal
It is the description of job-relevant strengths and weaknesses
of an individual or a group. Performance appraisal in MCB involves
making ACRs of the subordinates. That is, a branch manager writes the
ACRs of employees in his branch, a Regional Manager writes the ACRs
for the various Branch Managers working under him and so on. An ACR
contains such information as the employee background, nature of his
work, performance of employee, performance rating and
recommendations. These ACRs are sent to the GM Office from where
they are forwarded to the Human Resource Division.

2.4-5 Retirements
Employees at all levels in MCB get retirement after either the
completion of 30 years in service or reaching an age of 60 years. The
bank operates the following staff retirement benefit schemes for its
employees:
a) For employees who did not opt for the new scheme, the bank
operates the following:
i. Approved contributory provident fund;
ii. An approved gratuity scheme
b) For new employees and for those who opted for the new scheme
introduced in 1975 for clerical staff and in 1977 for officers, the
bank operates the following:

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i. An approved funded pension scheme for which monthly

contributions are made on the basis of actuarial
recommendations.
ii. An approved non-contributory provident fund introduced in lieu
of the contributory provident fund.
c) For AVPs and above cadre and employees in officers’ cadre joining
after January 1,2000, the bank operates an approved contributory
provident fund.
The above benefits are payable to staff on completion of prescribed
qualifying period of service.

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References

31
1
Shahrukh Rafi Khan 50 years of Pakistan’s Economy Oxford University Press p.217
6
MCB Annual Report 2001