Introduction Research is the systematic process of collecting and analyzing information to increase our understanding of the phenomenon under

study. It is the function of the researcher to contribute to the understanding of the phenomenon and to communicate that understanding to others. This chapter explains what research is and what it is not. Eight characteristics of research are presented. The process of research as a helical cycle is discussed. Definition of Research Research has been defined in a number of different ways. A broad definition of research is given by Martin Shuttleworth - "In the broadest sense of the word, the definition of research includes any gathering of data, information and facts for the advancement of knowledge. Internal and external research team Internal research team Not all decision making rely on research to make decisions. Those firms that do are likely to have an internal research department or an individual who coordinates research initiatives. The structure and scope of these operations are as diverse as the management dilemmas that they research. They range from one-person operations, in which the individual primarily coordinates the hiring of external research suppliers, to small-staffed operations that do some survey or qualitative studies, to large-staffed divisions that more closely approximate the structure of research companies. For budget, equipment, facilities and expertise reasons, the trend in the industry is clearly not to staff large internal research departments. In poor economic times, many firms eliminate their internal research operations altogether, feeling that such services are expendable or are readily available from external research team. External research team (Full services firm/full-services researcher) Full-services firma are often involved in research planning for their clients from the moment of discovery of the management dilemma. Such firms usually have expertise in both qualitative and quantitative methodologies and they often have at their disposal multifaceted facilities capable of serving a wide variety of research designs, including both fieldwork and laboratory operations. Some are capable of working in worldwide venues, which others offer their services to only one 1

industry one or more areas of note worthy expertise, they are truly multidimensional in terms of both research planning and execution. In a research environment where clients increasingly demand managerial insights, not just research reporting, these firms are often a combination of research and consulting operations. Internal researcher/evaluators When an organisation employs its own staff and skills to carry out an evaluation, it is usually termed self-evaluation. Foundations report that the main advantages of using an internal evaluator are the positive effects in terms of organisational development; the increase in communication between the foundation and its grantees, and the good grasp the evaluator has of the foundations operation, easing the interviewing process and making the answers easier to understand. However, the issue of subjectivity might also be raised as well as how open grantees feel they can be with their evaluator-finder, particularly if they may apply for future grants. ii) Importance of Sub-topics Scientific research relies on the application of the scientific method, a harnessing of curiosity. This research provides scientific information and theories for the explanation of the nature and the properties of the world around us. It makes practical applications possible. Scientific research is funded by public authorities, by charitable organizations and by private groups, including many companies. Scientific research can be subdivided into different classifications according to their academic and application disciplines. Historical research is embodied in the historical method. Historians use primary sources and other evidence to systematically investigate a topic, and then to write histories in the form of accounts of the past. The phrase my research is also used loosely to describe a person's entire collection of information about a particular subject.
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Identification of origin date Evidence of localization Recognition of authorship Analysis of data Identification of integrity Attribution of credibility

Steps in conducting research The major steps in conducting research are: o Identification of research problem o Literature review o Specifying the purpose of research o Data collection o Analyzing and interpreting the data o Reporting and evaluating research The steps generally represent the overall process; however they should be viewed as an everchanging process rather than a fixed set of steps. Most research begins with a general statement of the problem, or rather, the purpose for engaging in the study. The literature review identifies flaws or holes in previous research which provides justification for the study. The purpose of the research identifies a specific hypothesis. The researcher(s) collects data to test the hypothesis. The researcher(s) then analyzes and interprets the data via a variety of statistical methods, engaging in what is known as Empirical research. The results of the data analysis in confirming or failing to reject the Null hypothesis are then reported and evaluated. At the end the researcher may discuss avenues for further research. Research methods The goal of the research process is to produce new knowledge, or deepen understanding of a topic or issue. This process takes three main forms (although, as previously discussed, the boundaries between them may be obscure.):
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Exploratory research, which structures and identifies new problems Constructive research, which develops solutions to a problem Empirical research, which tests the feasibility of a solution using empirical evidence.

Research can also fall into two distinct types: Primary research Original findings Secondary research Summary, collation and/or synthesis of existing research

In social sciences and later in other disciplines, the following two research methods can be applied, depending on the properties of the subject matter and on the objective of the research: Qualitative research Understanding of human behavior and the reasons that govern such behavior. Asking a broad question and collecting word-type data that is analyzed searching for themes. This type of research looks to describe a population without attempting to quantifiably measure variables or look to potential relationships between variables. It is viewed as more restrictive in testing hypotheses because it is extremely expensive and time consuming, and typically limited to a single set of research subjects. Qualitative research is often used as a method of exploratory research as a basis for later quantitative research hypotheses. Quantitative research Systematic empirical investigation of quantitative properties and phenomena and their relationships. Asking a narrow question and collecting numerical data to analyze utilizing statistical methods. The quantitative research designs are experimental, correlational, and survey (or descriptive).[9] Statistics derived from quantitative research can be used to establish the existence of associative or causal relationships between variables. iii) Practical study of the organization with respect to the topic Commercial organization in Pakistan Statistics indicate that Pakistan is one of the most populous countries of the world with a GDP growth rate of more than 20%. Economically, Pakistan can be termed as a developing economy as the country has been facing severe economic and political crisis over a long period of time. In recent times, many banks in Pakistan have helped in financing agricultural productivity of the region thereby ushering a new lease of reform in the agricultural sector which has also helped in fostering economic growth of the country to some extend. In order to meet the challenges of the new economic reform, the government has decided to establish viable banking institutions in Pakistan that could help in development of the country at the national level. The industrial output of the country has been largely backed by the banks in Pakistan, which are scattered at almost every nook and corner of the country.

Types of loans granted by commercial banks Secured loan A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. The debt is thus secured against the collateral in the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to regain some or all of the amount originally lent to the borrower, for example, foreclosure of a home. From the creditor's perspective this is a category of debt in which a lender has been granted a portion of the bundle of rights to specified property. If the sale of the collateral does not raise enough money to pay off the debt, the creditor can often obtain a deficiency judgment against the borrower for the remaining amount. The opposite of secured debt/loan is unsecured debt, which is not connected to any specific piece of property and instead the creditor may only satisfy the debt against the borrower rather than the borrower's collateral and the borrower. Mortgage loan A mortgage loan is a very common type of debt instrument, used to purchase real estate. Under this arrangement, the money is used to purchase the property. Commercial banks, however, are given security - a lien on the title to the house - until the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it. In the past, commercial banks have not been greatly interested in real estate loans and have placed only a relatively small percentage of assets in mortgages. As their name implies, such financial institutions secured their earning primarily from commercial and consumer loans and left the major task of home financing to others. However, due to changes in banking laws and policies, commercial banks are increasingly active in home financing. Changes in banking laws now allow commercial banks to make home mortgage loans on a more liberal basis than ever before. In acquiring mortgages on real estate, these institutions follow two main practices. First, some of the banks maintain active and well-organized departments whose primary function is to compete actively for real estate loans. In areas lacking specialized real estate financial institutions, these banks become the source for residential and farm mortgage loans. Second, the banks acquire mortgages by simply purchasing them from mortgage bankers or dealers. 5

In addition, dealer service companies, which were originally used to obtain car loans for permanent lenders such as commercial banks, wanted to broaden their activity beyond their local area. In recent years, however, such companies have concentrated on acquiring mobile home loans in volume for both commercial banks and savings and loan associations. Service companies obtain these loans from retail dealers, usually on a nonrecourse basis. Almost all bank/service company agreements contain a credit insurance policy that protects the lender if the consumer defaults. Unsecured loan Unsecured loans are monetary loans that are not secured against the borrower's assets (i.e., no collateral is involved). These may be available from financial institutions under many different guises or marketing packages:
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bank overdrafts

An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn". If there is a prior agreement with the account provider for an overdraft, and the amount overdrawn is within the authorized overdraft limit, then interest is normally charged at the agreed rate. If the POSITIVE balance exceeds the agreed terms, then additional fees may be charged and higher interest rates may apply.
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corporate bonds credit card debt credit facilities or lines of credit personal loans

Banks act as payment agents by conducting checking or current accounts for customers, paying check drawn by customers on the bank, and collecting checks deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as Automated Clearning House (ACH), Wire Transfers or telegraphic transfer, EFTPOS, and automated teller machine (ATM). Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by 6

making advances to customers on current accounts, by making installment loans, and by investing in marketable debt securities and other forms of money lending. Banks provide almost all payment services, and a bank account is considered indispensable by most businesses, individuals and governments. Non-banks that provide payment services such as remittance companies are not normally considered an adequate substitute for having a bank account. iv) Review of theoretical and practical situations A bank can generate revenue in a variety of different ways including interest, transaction fees and financial advice. The main method is via charging interest on the capital it lends out to customers. The bank profits from the differential between the level of interest it pays for deposits and other sources of funds, and the level of interest it charges in its lending activities. Practical framework Function of Commercial Banks Commercial Banks act as intermediaries between those who have surplus money and those who need it. To receive deposits and advance loans are thus two main functions of all commercial banks. In short they borrow to lend. They borrow in the form of deposits and lend in the form of advances. Besides there are other incidental functions which have developed according to the needs of society. We discuss all of them below. 1. ACCEPTING DEPOSITS Banks attract the idle savings of people in the form of deposits. These deposits may be of any of the following types. (a) Demand Deposits or Current Accounts: There are repayable on demand without any notice. Usually no interest is paid on them; because the banks cannot utilize short term deposits and must keep almost cent percent reserve against them. On the other hand a little commission is charged for the service rendered. Occasionally, however a small interest is paid to the people who keep large balances. (b) Fixed deposits or time deposits: These deposits can only be withdrawn after the expiry of the period for which these deposits are made. Higher interest is paid on them, the rate rising with the length of the period and the amount of deposit. (c) Savings Bank Deposits: These deposits stand midway between current and fixed accounts. One or two withdraws up to a limit of one fourth of the deposit is allowed in a weak. The rate of 7

interest is less than on fix deposits. 2. Giving Loans Receiving of deposits is not the whole story about a banks function. It that were so, how could a bank pay interest? Hence after collecting money, a bank invests it or lends it out. Money is lent to businessmen and traders usually for short periods only. This is so because the bank must keep itself ready to meet the demand of the depositors who have deposited money for short periods. Money is advanced by banks in any one of the following ways. (a) By allowing an Overdraft: Customers are given the right to over-draw their accounts. In other words they can get more than they have deposited, but they have to pay interest on extra amount which has to be repaid within a short period. The amount of permissible over draft varies with the financial position of the borrower. (b) By Creating a Deposit: Cash-credit is another way of lending by banks. When a person wants a loan from a bank, he has to satisfy the manager about his ability to repay, the soundness of his venture and his honesty of purpose. After that the bank may require a tangible security, or it may be satisfied with borrowers personal security. Usually such security is accepted as can be easily disposed of in the market e.g. government securities or shares of approved concerns. The details of time and rate of interest are settled and the loan is advanced. A borrower rarely wants to draw the whole amount of his loan in cash. Usually he opens a current account with that amount in bank, if he has already not got an account with this bank. Now it is exactly as if that sum had been deposited by him. This is how a deposit is created by a bank. That is why it is said every loan creates a deposit. After the period for which the money has been borrowed is over, the borrower returns the amount with interest to the bank. Banks make most of their profits thus by giving loans. (c) Discounting Bills: Discounting of bills is another way of lending money. The banks purchase these bills through bill brokers and discount companies or discount them directly for the merchants. These bills period a very liquid asset (i.e. asset which can easily be turned into cash). The banks immediately pay cash for the bill after deducting the discount (interest) and wait for the bill to mature when they got back their full value. The investment in the bills is quite safe, because a bill bears the security of two businessmen the drawer as well as drawer, so that if one proves dishonest or fails, the bank can claim money from other. This is regarded as the best investment by the banks. It is liquid, lucrative and safe. This is why it is said that a good bank manager knows the difference between a bill and mortgage. 3. REMITTING FUNDS Banks remit funds for their customers through bank drafts to any place where they have branches 8

or agencies. This is the cheapest way of sending money, it is also quite safe. Funds can also be remitted to foreign countries. 4. MISCELLANEOUS FUNCTIONS Beside these main functions, the banks perform several other functions as given below. (a) Safe Custody: Ornaments and valuable documents can be kept in safe deposit with a bank, in its strong room fitted with lockers, on payment of a small sum per year. Thus risk of theft is avoided. (b) Agency Functions: The banks works as an agent of their constituents. They receive payments on their behalf. They collect rents, dividends on shares etc. They pay insurance premia and make other payments as instructed by their depositors. They accept bills of exchange on behalf of the customers. They pass bills of lading or railway receipts to the purchasers of goods when they pay for them. The amount is passed on to the suppliers. Banks also collects the amount of utility bills from customers of different utility agencies. (c) References: They give references about the financial position of their customers. When required they supply this information confidentially. This is done when their customers want to establish business connections with some new firms within or out side the country. (d) Letters of Credit: In order to help the travellers, the banks issue letters of credit. A man who is going abroad takes with him a letter of credit from his bank. It is mentioned these that he can be paid sum up to a certain limit. He shows this letter to banks in other countries which make the payment to him and debt the bank which has issued the letter of credit. (e) Collection of Statistics: The modern bank collects statistics about money, banking, trade and commerce and publishes them in the form of pamphlets and hand outs. This helps the banks customer in acquiring knowledge about the latest economic situation on the basis of which they can formulate their business policy. (f) Under writing Services: Some time private companies issue debentures for public sale. But the public may hesitate in buying these debentures unless they are under written by the banks. The public has full confidence in the banks. If debentures carry the signatures of a bank, the public would not hesitate in buying them. For under writing these debentures, the bankers charge a small underwritingcommission from the companies. (g) Advice of Financial Letters: Since the bank is fully acquainted with the economic situation in the county, it is in a position to render useful advice to its customers on financial matters. UTILITY OF BANKS An efficient banking system is absolutely necessary for a country. It is to prosper commercially the services that an efficient banking system can render a county cannot be exaggerated. The 9

banking system can be useful in the following ways in addition to what has been mentioned above as in the functionsof banks. substitutes for money. This means a great saving. 1. The banks create instruments of credit: The banks create instruments of credit which serve very convenient 2. The Banks increase the mobility of capital: They bring the borrowers and the lenders together. They collect money from those who can not use it and give it to those who can. They thus help the movement of funds from place to place and form person to person in a very convenient and inexpensive manner. 3. The bank encourage the habit of thrift: One of the requisite conditions of saving is that there should be channels of investment so long as money is kept in one pocket; the chances are that it will be spent and not saved. But if it is put in the bank, it is out of sight and to be out of sight is to be out of mind. The chances are that it will remain in the bank. 4. Accumulation of Capital: By encouraging savings, the banks bring about accumulation of large amounts of capital in the country from small individual savings. In this way they add to productivity of the resources of the country and contribute to the general prosperity and welfare. In a word banks are indispensable not only to maintain economic activity has i.e. consumption, production, exchanged distribution but also for promoting economic development. Situation As the central bank of the country and the regulator of the banking sector, State Bank of Pakistan Has the basic responsibility for formulation and implementation of the monetary policy, availability of credit and liquidity in the financial system and stability of the exchange rate regime. It is essential that the overall policy framework is based on premises and rationale, well understood by all the stakeholders where all their legitimate concerns and issues are given due weightage to promote ownership and operational transparency. Toward this end, State Bank has opted extensively for formal interactions with significant stakeholders where a regular and structured exchange of views and information could provide immediate and visible value addition in terms of policy alignment and proactive regulatory response to emerging issues and developments. The ongoing efforts in this regard include the following forums: Pak istan Bank s Association (PBA) Pakistan Banks Association (PBA) is a forum of Banks operating in Pakistan for discussion and resolution of matters of common interest. State Bank of Pakistan being the regulator of the banks although has remained in close coordination with the banks, the need was felt for formalized and for continuous consultation with the industry to include the stakeholders in the decision making 10

process for considered and effective policy decisions. It was therefore decided by the Governor to hold quarterly meetings with the Executive Committee of Pakistan Banks Association so as to discuss and resolve current issues and obtain feed back on matters of conflict on this forum. The first meeting of the executive committee of Pakistan Banks Association with the Governor was held on December 6, 2000. From then onwards quarterly meetings are being held wherein various issues are discussed and resolved/settled. The main issues tackled in the above meetings were: 1) Minimum Capital Requirements for Banks. 2) Recovery of exorbitant service charges from general public and maintaining of minimum balance requirements. 3) 4) 5) 6) Office / business hours for evening banking. Issue relating to credit cards Role of external auditors Taxation issues 7) Prudential Regulations for corporate / commercial banking, consumer financing and Small & Medium Enterprises (SMEs) 8) 9) 10) 11) 12) 13) 14) 15) 16) 17) 18) 19) 20) 21) 22) 23) 24) 25) Restructuring of Non Bank Financial Institutions Maintenance of Statutory Liquidity Requirements Rupee Travelers Cheques Financing of Information Technology projects Forward cover on Import Loans Jumbo Issues to Improve Secondary Market Abridged Version of Accounts Threshold Point for Leasing Business Operational Reforms Recovery of NPLs through Legal Recourse Restructuring of Advances and Revaluation of Fixed Assets Formation of Working Group on WTO Matters related to the Banking Sector Separate Schedule for Financial Services. Cash Management. Fit & Proper Test. Textile Vision Prohibition of Service Charges / Penalties on PLS Accounts. Profit Rates on Deposits. Criteria for enlistment of Professional Valuers. 11

26) 27)

Collection of Utility Bills By Banks Lending Rate for commodity operations.

The above major issues can be resolved via external and internal team. Thats why State Banks of Pakistan (SBP) were being hired the services of the following: INTERNAL AND EX TERNAL CONSULTATIO NS & STAKEHOLDERS INVOLVEMENT 1) 2) 3) 4) 5) National Credit Consultative Council (NCCC) Agriculture Credit Advisory Committee (ACAC) Local Credit Advisory Committees (LCAC) Advisory Group on Financial Sector Advisory Group on Housing Finance 6) Senior and middle level research, accountants and statistician (internal and external) V) Merits, demerits, deficiencies and strength of the organization with respect to topic under study

Merits Strengths Our leading position in the industry, with respect to our market shares of assets, loans and deposits, puts us in a position to influence the level of interest rates. We are the only local commercial bank with a Board of Directors, a Board that can attract good business to the Bank as it consists of successful & respected business people with a good mix of expertise in key industries and with strong social links in the country. Approval of loans is faster with a local Board in place. Most of the staff are young and have the requisite capabilities, and are retrainable for newer systems and technology. This will therefore make the selection and training of the sales team easy. All the members of the staff are local and very well known and have good contact with all sectors of the community. They will therefore be in a good position to attract more customers to the Bank.

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Opportunities The Bank is very well placed with a good and assured customer base from the level of the government and the public sector business. Many patriotic Nationals will do business with Commercial bank because they know that the profits of the Bank belong to the people of the country and are used for the countrys development. The availability of modern telecommunication systems and technology will facilitate the improvement and strengthening of the Banks international business and ATM services, and the development of new services, such as telephone banking. Demerits Threats Some customers prefer to do business with our competitors because bank Ltd is Government owned and political interference or changes often affect their confidence in the Bank. Commercial bank may be unable to attract certain customers because it is Government owned and there is the perception that their account information is open to the Government and its agencies. The introduction of Asian culture and lifestyles into our society could result in greater external spending and so have a negative impact on the local economy. With the establishment of the CARICOM Single Market and Economy the Bank will be faced with competition from regional banks that are better equipped and prepared to meet the changing needs of customers. Weaknesses (Deficiencies/limitations) The lack of exposure for our staff as a result of our poor customer mix makes it difficult for our staff to be as experienced and equipped as most of our competitors to deliver services efficiently and maintain high standards of service. Our international competitors, the other four commercial banks, are better prepared to stay afloat in the face of strong competition with research departments and qualified staff to keep their institutions in line with legal, technological, operational and other changes. The Bank is totally reliant on its correspondent banking relationships to conduct its foreign exchange business and may find it impossible to survive against its international competitors if its correspondent banks should close such relationships. Although Bank has the largest customer base, it has over the years had little success in attracting the business community because it is government owned, and may continue to fail in this regard.

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Vi) Conclusion and recommendations Conclusion Relationship banking can reduce information asymmetry between a business firm and its creditors, making the relationship bank (and other creditors) willing to give easier access to credit, allowing the firm to mitigate liquidity constraints in its investment activities. Based on the information, relationship banks are often willing to provide insurance functions to their client firms. This can take the form of adjusting the terms of loans according to the cyclical business situation, or giving more intensive care to the client firms in times of financial distress. Here, relationship banks can play a critical role in corporate governance. At the first sign of serious deterioration in the performance in a client firm, the relationship bank begins to intervene in corporate management, typically sending a banker to the board of the firm to help better handle the problems of financial distress. Depending on the severity of the situation, the banker may devise a corporate restructuring plan and direct its implementation. This contingent corporate governance may indeed provide a flexible, informal alternative to the roles played by the market for corporate control or bankruptcy proceedings. Furthermore, the roles of relationship banks seem to be best played under certain financial market conditions faced by corporate clients. For instance, when the capital market is deregulated, giving firms easier access to cheap capital, relationship banks may lose their grip on the firms and little monitoring will be undertaken. Also, in the presence of asset price bubbles, relationship banks may neglect their monitoring or insurance functions, and may not be able to fulfill their implicit obligations in the face of massive corporate defaults or a financial crisis. As the corporate financing environment changes, the client base of banks also changes. At such times, banks tend to be strained in their monitoring activity, since they have to keep monitoring inactive clients (for existing loans or guarantees) in addition to intensifying relation-specific investments with new clients. Recommendations/Suggestions To meet the challenges of the firm/organization, the commercial organization must prefer external and internal research team for removing all kinds of thereat, deficiencies along with all serious and burning issues. 14

State Banks of Pakistan should establish internal and external research/investigation/technical examination team for further improvement the ongoing process of commercial banks. It is also suggests that there is a need to arrange the training program for researcher, statistician and manger so that they can increase their skills and expertise to participate actively in the organization/bank. vii) Annex, if any Already attached as annexure-1

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