INTRODUCTION

Muslim Commercial Bank (MCB) unfolds 52 years of gro !"# In $anuary %&'() !"e *o+ernmen! of ,akis!an na!ionali-ed MCB follo ing !"e .anks (Na!ionali-a!ion) /c! %&(') ,remier Bank 0imi!ed merged i!" MCB# / a+e of economic reforms s e1! ,akis!an in !"e la!e %&&2) in!roducing !"e need for 1ri+a!i-a!ion of s!a!e o ned .anks com1anies# In /1ril %&&%) MCB .ecame ,akis!an3s firs! 1ri+a!i-ed .ank# T"e go+ernmen! of ,akis!an !ransferred !"e managemen! of !"e Bank !o Na!ional *rou1) a grou1 of leading indus!rialis!s of !"e coun!ry .y selling 245 s"ares of !"e .ank# In !erms of agreemen! .e! een !"e *o+ernmen! of ,akis!an and !"e Na!ional *rou1) !"e grou1) making !"eir "olding 525 "as 1urc"ased addi!ional 2(5 s"ares# No ) 255 is 1urc"ased .y !"e *o+ernmen!) "ic" s"all .e sold in !"e near fu!ure#

Credit department & credit Policy 0f MCB Credit 6rom an accoun!ing 1ers1ec!i+e "en credi! is gran!ed an accoun! recei+a.le is crea!ed# 7uc" recei+a.les include credi! !o o!"er firms called !rade credi! and credi! gran!ed consumers called consumer credi!

Credit Department:
MCB 1ro+ides !"e facili!y !o !"e 1eo1le "o need ad+ance money !o mee! !"eir re8uiremen!s# 6or ge!!ing !"e ad+ance !"e follo ing s!e1s are !"ere9 %# 2# :# Informa!ion re8uired .y !"e .ank ,re1ara!ion of credi! 1ro1osals 7anc!ion ad+ice

1. Initial Information 6ollo ing informa!ion is re8uired !o .e su.mi!!ed !o .ank# Na!ure ; s!ruc!ure of .orro er .usiness# Names of 1ro1rie!ors) 1ar!ners or direc!ors# De!ail of all firms or com1anies associa!ed i!" .orro er# 6inancial condi!ion of .orro er .usiness# /n assessmen! of "is .usiness a.ili!ies#

/ccura!e and u1 !o da!e financial s!a!emen!s of las! ! o years for com1arison 1ur1oses#
1

 Marke! re1or! on !"e .orro er "ere .orro er "as main!ained an accoun! ano!"er .ank) a re1or! from "is .ank s"ould also .e o.!ained# / re1or! from credi! s!anding .ureau of 7!a!e Bank of ,akis!an#

i!"

2. Preparation of Credit Proposal /! firs! a formal a11lica!ion for credi! a11ro+al is o.!ained from !"e 1ar!y along i!" com1le!e grou1 1osi!ion# T"e 1ar!y3s credi.ili!y re1or! is o.!ained from !"e .ank i!" "ic" !"e .ank is doing i!s .usiness# T"e 1ar!y3s credi.ili!y re1or! is also !aken from !"e <ead office of Trade Informa!ion Di+ision# 6or o.!aining credi!) 1ar!y "as !o su.mi! !"e las! ! o years Balance 7"ee! and ,rofi! ; 0oss s!a!emen! duly a!!es!ed .y au!"ori-ed audi!ors# If !"e 1ar!y is also in+ol+ed in e=1or! or im1or! .usiness !"en !"e .ank also considers !"e da!a of !"ree years a.ou! im1or! ; e=1or!# Curren! de.! and e8ui!y ra!io is also calcula!ed .y !"e .ank# T"e !y1e of da!a re8uired !o 1re1are !"e credi! 1ro1osal is !o .e ga!"ered from !"e differen! de1ar!men!s# 7ome da!a is o.!ained from !"e foreign >=c"ange de1ar!men!# 7ome da!a is a+aila.le in /d+ance De1ar!men!# T"e 1ur1ose of o.!aining Credi! s"ould .e e=1lained clearly# T"e securi!ies offered .y !"e 1ar!y !o !"e .ank are also e+alua!ed# In case of 1ledging of 1ro1er!y in s"a1e of land or .uilding !"e com1le!e e+alua!ion of !"e 1ro1er!y s"ould also .e a!!ac"ed# /f!er all !"e necessary documen!s for a11lying for ad+ance is fulfilled .y !"e 1ar!y !"en !"e case is sen! !o Manager for a11ro+al# If !"e credi! limi! is in "is range !"en "e can decide o+er i! o!"er ise !"e case is for arded !o seniors# If !"ere is any discre1ancy !"en !"e 1ar!y is informed of i!# 3. Sanction Ad ice ?"en !"e documen!s re8uired are com1le!e and !"ere is no am.igui!y !"en !"e 1ar!y is ad+ised !"a! !"eir credi! or loan is a11ro+ed and ill .e a+aila.le !o you soon# T"ere is a se1ara!e form for e+ery annual a11ro+al or in case of a ne facili!y# Components of credit policy %# Terms of sale 2# Credi! analysis :# Collec!ion 1olicy 1. !erms of Sale T"e condi!ions under "ic" a firm sells i!s goods and ser+ices for cas" or credi! @T"e 1eriod for "ic" credi! is gran!ed @T"e cas" discoun! and !"e discoun! 1eriod
2

@T"e !y1e of credi! ins!rumen! "actors t#at Infl$ence credit period T"ere are a num.er of o!"er fac!ors !"a! influence !"e credi! 1eriod# Many of !"ose also influence our cus!omer o1era!ing cycle# i. Pericia%ility I! "as rela!i+ely ra1id !urno+er and rela!i+ely lo colla!eral +alue credi! 1eriods are s"or!er# ii. Cons$mer Demand 7eller may c"oose muc" longer credi! 1eriods for off season sales# iii. Cost& profita%ility and standardi'ation 7!andard 1roduc! "a+e s"or! credi! 1eriod i . Credit ris( T"e grea!er !"e credi! risks of !"e .uyer !"e s"or!er !"e credi! 1eriod# . Si'e of t#e acco$nt If !"e accoun! is small !"e credi! 1eriod may .e s"or!er as small accoun!s are more cos!ly !o manage# i. Completion 0onger credi! 1eriod are offered in com1le!ion Credit "$nction i# 6irms "a+e e=1enses of running a credi! de1ar!men!# ii# 6irms c"ose !o con!rac! all or 1ar! of credi! !o a fac!or# iii# 6irms !"a! manage in!ernal credi! o1era!ions are self insured agains! defaul!# i+# 6irms .uy credi! insurance !"roug" an insurance com1any

2. Credit analysis Refers !o !"e 1rocess of deciding usually in+ol+es ! o s!e1s# a. )ele ant information @financial s!a!emen!s @credi! agency @.anks @marke! good ill %. Credit *ort#iness i. C#aracter T"e cus!omer3s illingness !o mee! credi! o.liga!ions ii. Capacity T"e cus!omer3s a.ili!y !o mee! credi! o.liga!ions ou! of o1era!ing cas" flo s iii. Capital T"e cus!omer3s financial reser+es i . Collateral /n asse! 1ledged in !"e case of defaul! Credit scorin+ T"e 1rocess of 8uan!ifying !"e 1ro.a.ili!y of defaul! "en gran!ing consumer credi! 3. Collection Policy Collec!ion 1olicy is !"e final elemen! in credi! 1olicy# Collec!ion 1olicy in+ol+es moni!ory recei+a.les !o s1o! !rou.le and o.!aining 1aymen! on 1as! due accoun!s "e!"er or no! !o e=!ernal credi! !o 1ar!icular cus!omer# I!

A,!-.)I!I/S 0 1).,PS I23.43/D I2 C)/DI! )/4A!/D ",2C!I.2S 1. Board of Directors 2. Credit Committee 3. S$% Committee 5. B$siness 1ro$ps: Cor1ora!e ; In+es!ing Banking *rou1

Cor1ora!e Banking In+es!men! Banking

Commercial ; Re!ail Banking *rou1

7M>ACommercialA/gricul!ure financing Consumer 6inancing Micro 6inancing

6inancial Ins!i!u!ion ; Cas" Managemen! Di+ision .t#er 1ro$ps: 5# Credi! Managemen! *rou1 4# O1era!ions *rou1 '# 71ecial /sse!s Managemen! *rou1 B# Com1liance *rou1 ; RMD &# Treasury Managemen! *rou1

C)/DI! MA2A1/M/2! 1).,P

Credi! Managemen! *rou1 (CM*) in i!s core func!ion a11ro+es credi! 1ro1osals recei+ed from res1ec!i+e .usiness grou1s as 1er .usiness discre!ionary 1o ers in line i!" .ank3s credi! 1olicies and 7B, regula!ions af!er an in de1!" credi! risk assessmen! and 1lacemen! of necessary mi!igan!s# <o e+er) Credi! 1ro1osals .eyond !"e .usiness discre!ionary 1o ers of CM* are referred !o Credi! Commi!!ee for a11ro+al# De!ailed func!ions of CM* and i!s coun!er1ar! i#e# Regional Credi! Managemen! C"ief) are ela.ora!ed .elo in !"is c"a1!er#
5

C)/DI! ADMI2IS!)A!I.2
Doc$mentation:6 I! is !"e res1onsi.ili!y of credi! adminis!ra!ion !o ensure com1le!eness of documen!a!ion (loan agreemen!s) guaran!ees) !ransfer of !i!le of colla!erals) in accordance i!" a11ro+ed !erms and condi!ions# Ou!s!anding documen!s s"ould .e !racked and Credit Dis%$rsement:6 T"e credi! adminis!ra!ion func!ion s"ould ensure !"a! loan a11lica!ion "as 1ro1er a11ro+al .efore en!ering !"e facili!y limi!s in !o com1u!er sys!ems# Dis.ursemen! s"ould .e effec!ed only af!er com1le!ion of co+enan!s) and recei1! of colla!eral "oldings# In case of e=ce1!ions) necessary a11ro+al s"ould .e o.!ained from com1e!en! au!"ori!ies# Credit Monitorin+:6 /f!er !"e loan is a11ro+ed and dra do n allo ed) !"e loan s"ould .e con!inuously a!c"ed o+er# T"ese include kee1ing !rack of .orro ers com1liance i!" credi! !erms) iden!ifying early signs of irregulari!y) conduc!ing 1eriodic +alua!ion of colla!eral and moni!oring !imely re1aymen!s# 4oan )epayment:6 T"e o.ligors s"ould .e communica!ed a"ead of !ime as and "en !"e 1rinci1alAmark@u1 1aymen! .ecomes due# /ny e=ce1!ion suc" as non@1aymen! or la!e 1aymen! s"ould .e !agged and communica!ed !o !"e managemen!# ,ro1er records and u1da!es s"ould also .e made af!er recei1!# Maintenance of Credit "iles:6 MCB de+ises 1rocedural guidelines and s!andards for main!enance of credi! files# T"e credi! files no! only include all corres1ondence i!" !"e .orro er .u! s"ould also con!ain sufficien! informa!ion necessary !o assess !"e financial "eal!" of !"e .orro er and i!s re1aymen! 1erformance# I! need !o no! men!ion !"a! informa!ion s"ould .e filed in organi-ed ay so !"a! e=!ernalAin!ernal audi!ors could re+ie i! easily# Collateral and Sec$rity Doc$ments MCB ensures !"a! all securi!y documen!s are ke1! in fire1roof safe under dual con!rol# Regis!er of documen!s are main!ained !o kee1 !rack of !"eir mo+emen!# ,rocedure is es!a.lis"ed !o !rack and re+ie rele+an! insurance co+erage for cer!ain facili!iesAcolla!eral# ,"ysical c"ecks on securi!y documen!s s"ould .e conduc!ed on a regular .asis#

",2C!I.2S ." )/1I.2A4 C)/DI! MA2A1/M/2! C-I/" Analy'e t#e credit Proposals Bo!" for fund and non fund .ased facili!ies (including !rade financing)) for arded .y RBC af!er 1rocessing !"e 1ro1osal recei+ed from Branc"es) in !"e lig"! of In!erna!ional Risk Managemen! 1rac!ices and 1rocedure as laid do n in 7!andard ,rocedure Manual (7,M) as ell as o!"er circulars issued from !ime !o !ime# RCMC also re+ie s risk ra!ing for eac" .orro er assigned .y !"e Branc"ARBC# Appro e Credit Proposals In+ol+ing .o!" fund .ased and non fund .ased facili!ies Coin!ly i!" Regional Business c"ief) i!"in !"eir delega!ed 1o ers as defined in !"e 1re+alen! Documen! of >m1o ermen!# 6ur!"er) RCMC along i!" o!"er Regional Commi!!ee Mem.ers s"all recommend proposals falling .eyond !"eir 1o ers !o <ead Office# <e ill also ensure !"a! 1ro1osals referred !o <ead Office are com1le!e in all res1ec! and associa!ed risks "a+e .een iden!ified and a11ro1ria!e risk mi!igan!s are in 1lace# <o e+er) credi! 1ro1osals "ere allo ing e=ce1!ion !o !"e Bank3s 1olicies ; 1roceduresA7B, ,Rs is no! Cus!ifia.le or "ere e=1ec!ed 1ay@off doesn3! commensura!e i!" !"e associa!ed risk may .e declined .y RCMC a! "is end# Confirmation of Action RecommendArefer 1ro1osals a11ro+ed in e=cess of !"e 1o ers) if admissi.le under !"e Bank3s 1olicy for 1os! fac!o confirma!ion of ac!ion .y !"e a11ro1ria!e au!"ori!y a! <ead Office# Confirma!ion of ac!ion of Branc" Manager for cases a11ro+ed .eyond !"eir delega!ed 1o ers#

Iss$e Sanction Ad ices ?"en !"e documen!s re8uired are com1le!e and !"ere is no am.igui!y !"en !"e 1ar!y is ad+ised !"a! !"eir credi! or loan is a11ro+ed and ill .e a+aila.le !o you soon# T"ere is a se1ara!e form for e+ery annual a11ro+al or in case of a ne facili!y# T"e form con!ains follo ing informa!ion9 Na!ure and amoun! of limi!# ,ur1ose 7ecuri!yA Colla!eral Margin (5)# Mark u1A C"arges Dalidi!y
7

!)AI2I21 & P/)".)MA2C/ APP)AISA4 3ISI! ." B)A2C-/S

<I>R/RC<E O6 CR>DIT <I>R/RC<E T"ere is a dis!inc! segrega!ion among !"e func!ions of credi! origina!ion) credi! a11ro+al) credi! o1era!ions A C/D) credi! risk managemen!) moni!oring and measuremen!# Credi! ac!i+i!ies in+ol+ed in eac" of !"ese func!ions are 1erformed !"roug"ou! !"e Bank) a! !"e !"ree dis!inc! le+els) !"ey are9 %# Branc" 2# Regional Office :# <ead Office / "ierarc"y of officersA e=ecu!i+es) .o!" i!"in a grou1 and in!er grou1) is in+ol+ed in almos! e+ery s!age of Credi! cycle) !"e num.er .ecoming lesser in some s!ages "ereas in some s!ages i!3s more#

Branc#
Branc" Manger O1era!ions Manager Credi! Officer

)e+ional .ffice
Regional Managemen! Commi!!ee Regional Business C"ief Regional Credi! Managemen! C"ief Regional O1era!ions C"ief Regional Com1liance C"ief

-ead .ffice
Board of Direc!ors Credi! Commi!!ee *rou1 C"iefs ?ing <eads

Appro al Sta+e:
/11ro+als !"roug"ou! !"e Bank ould .e of any of !"e follo ing si= le+els /11ro+al 0e+el I Branc" Manager
8

/11ro+al 0e+el II RBC Coin!ly i!" RCMC /11ro+al 0e+el III Regional Managemen! Commi!!ee /11ro+al 0e+el ID *rou1 C"ief CM* i!" *C CIB* or CRB* /11ro+al 0e+el D Credi! Commi!!ee /11ro+al 0e+el DI Credi! Commi!!ee i!" 7B, a11ro+al for e=em1!ion

BANKS TARGET MARKET

MA)7/! S/1M/2!S Marke! segmen!a!ions s"all refer !o !"ose su.grou1s of !"e marke! "ic" can .e differen!ia!ed on !"e .asis of !"eir .usiness s!ruc!ure) !ec"nicalAmanagerial so1"is!ica!ion) financial needs) 1references or 1a!!erns and o!"er c"anges "ic" Cus!ify "a+ing differen! s!ra!egies# 6ollo ing are !"e Marke! segmen!s of our .ank 9@ %# Cor1ora!e 2# Commercial :# 7M> (# /gricul!ure or /grarian 7ec!or 5# Micro >n!er1rises 4# Consumer '# BanksA6inancial Ins!i!u!ions B# *o+!# A*o+!# De1ar!men!sA /genciesA /u!onomous Bodies &# ,u.lic 7ec!or >n!er1rises %2# Non@!rading /ssocia!ions %%# 0ocal Bodies %2# Trus!

!ypes of credit %y MCB

NB, "a+ing a .ig marke! com1rising of many !y1es of grou1s !o ser+e) "as differen! kinds of financing modes !o res1ond !o !"eir +aried financing needs# /s differen! modes ser+e differen! needs) modali!ies of eac" mode is differen! from o!"ers# T"e main !erms and condi!ions of eac" mode are co+ered in !"is c"a1!er# T"e .asic s!ruc!ure of any financing facili!y gran!ed s"ould no! run agains! !"e rules es!a.lis"ed "ereunder9

M/!-.D *IS/ 4/2DI21

Pro+rammed 4endin+: T"e s!ruc!ured financing !o a !arge!ed sec!orAindus!ry .y ay of de+elo1ing a 6inancial ,roduc! ca!ering !"e needs of !"a! sec!orAindus!ry# T"e underlying risks of !"e sec!orAindus!ry "a+e already .een iden!ifiedF measured and 1ro1er risk mi!igan!s "a+e .een 1u! in 1lace# T"e a11roac"

is 8ui!e o11osi!e !o Do nscaling a11roac" for 7M>s under "ic" cus!omi-ed solu!ion is offered !o !"e clien!s# earc# definition of Pro+rammed lendin+ 1eneral "inancin+ /s !"e e=is!ing e=1osure canno! .e s i!c"ed o+er !o 1rograms suddenly .u! 7M> financing ,Rs encourage .anks !o lend under ,rogram 0ending Conce1!# Bu! !"e e=is!ing loans ill con!inue on !"eir e=is!ing s!ruc!ure and !o .e called *>N>R/0 6IN/NCIN*# *radually e ill lend on Gs!ruc!ured 1rogram .asisH#

2A!,)/ ." C)/DI! *IS/ 4/2DI21

"$nd6Based Prod$cts 6acili!ies "ere funds are 1ro+ided !o cus!omers u1on sanc!ion of !"e res1ec!i+e credi! lines# %# 6und .ased credi! 6ollo ing are !"e 6und .ased credi!9 Running 6inance(R6) Cas" 6inance(C6) 6inance agains! im1or!ed goods(6IM) >=1or! Refinance 1ar!@I (,re@s"i1men!) >=1or! Refinance ,ar!@II 6inance agains! 1urc"ase collec!ion(6/,C) 6inance agains! foreign .ills(6/6B) 6oreign .ill 1urc"ases(6B,) 0ocal Manufac!uring Mac"inery(0MM) ,aymen! /gains! Documen!(,/D) Demand 6inance(D6) I"ud Ro-gar 7c"eme

T"e de!ail of a.o+e@men!ioned i!ems is gi+en .elo 9

a. )$nnin+ "inance 8)"9

T"e ma= !ime of re1aymen! is one year# I! is according !o ill of cus!omer# T"ese !y1es of ad+ances are gi+en !o Trade) Commerce and manufac!uring general 1ur1oses# T"ese finances as e+iden! .y !"e name are gi+en !o mee! !"eir daily needs# T"e mark u1 is c"arged on daily .alances# Normally 2#5( 1aisa 1er !"ousand is c"arged on daily .asis# I! is dra n !"roug" c"e8ue#

%. Demand "inance 8D"9

T"e dura!ion of D6 is more !"an running or Cas" 6inance# T"ese are made in 0um1 sum and are !"ere is a 1ermission !o re1ay !"e amoun! in 1eriodic ins!allmen!# U1on recei1! of documen!s nego!ia!ed .y !"e seller .ank) !"e o1ening .ank makes sure !"a! documen!s are according !o !erms and condi!ions of !"e 10

credi!# Bank makes !"e 1aymen! !o !"e 1ar!y agains! documen! and u1on e=1ire da!e) .ank recei+es .ack money i!" mark u1 ra!e#

c. Payment a+ainst Doc$ment 8PAD9

0MM funds are 1ro+ided .y !"e 7B,# T"e .ank 1ro+ides !"e facili!y !o !"e .usinessman .uy !"e local manufac!ured mac"inery# "o an!s !o

d. 4ocal Man$fact$rin+ Mac#inery 84MM9

I! is a long !erm financing# MCB also gi+es loan under !"e "ead of demand finance !o indi+iduals) indus!rial uni!s and commercial .usiness e!c# T"is is a !y1e of secured loan and demand loan is ne+er allo ed i!"ou! securi!y#

e. "orei+n Bills P$rc#ases 8"BP9

T"e e=1or!ers) "ic" are under 0AC) are also 1ro+ided e=1or!er af!er !"e a11ro+al of 0AC .y !"e issuing .ank# i!" !"e facili!y of loan# /moun! is gi+en !o !"e

f. Cas# "inance 8C"9

MCB gi+es !"e facili!y of cas" credi! !o !"e .usiness# T"e .orro er gi+es a s1ecific reason for !"e need of cas"# T"e amoun! is 1assed !"roug" +ouc"er and credi!ed !o 1ar!y3s accoun!# Normally 2#52 1aisa 1er !"ousand is c"arged on daily .asis !o cus!omers#

+. "inance a+ainst Imported 1oods 8"IM9

T"ese !y1es of ad+ances are gran!ed agains! !"e 1ledge of im1or!ed goods# T"ese goods are 1ledged .y !"e .ank# Bank 1ays all !"e c"arges !o cus!oms and kee1s !"e goods in i!s con!rol# T"e .ank releases !"e good on 1aymen! from !"e clien! !o .ank#

#. /:port )efinance Part61 8Pre6S#ipment9

T"e go+ernmen! 1ursues !"e .anks !o 1ro+ide !"e loan !o !"e e=1or!ers !o 1romo!e !"e e=1or!# T"e .ank 1ro+ides !"is !y1e of ad+ance facili!y !o only !"ose e=1or!ers "o "a+e no! enoug" money !o make s"i1men!# Bank 1ro+ides !"e loans !o !"e cus!omer a! !"e ra!e of s1ecific 5 for 1eriod of %52 days#

i. /:port )efinance Part61 8Post S#ipment9

T"is means !"a! !"e cus!omer "as enoug" amoun!s !o make firs! s"i1men! .u! no! more# 7o !"e .ank issues a loan !o !"e e=1or!er# T"is financing is for 1eriod of %52 days# 6inance is 1ro+ided .y !"e 7B, !o !"e e=1or!ers for 1urc"ase of ra ma!erial) i!s 1rocessing) ,acking and s"i1men!# In case) if !"e 1ar!y is una.le !o make !"e s"i1men! i!"in %52 days of financing# T"e 1ar!y "as !o 1ay cer!ain amoun! of finance as asked .y !"e 7B, and af!er %52 days !"e ra!e of mark u1 also goes u1 J 5% 1aisa 1er !"ousand 1er day# 7o usually e=1or!ers !ry !o make !"e s"i1men! i!"in !"e fi=ed 1eriod se! .y !"e 7B, "ic" is usually %52 days#

;. /:port )efinance Part611

In !"is case !"e .ank af!er recei+ing !"e 1erformance of years in e=1or! .usiness of 1ar!y se!s !"e limi! for !"e 1eriod of one year# <ere !"e limi! canno! .e se! .y !"e !erms 1ledged of !"e 1ermission of !"e .ank#

(. "inance a+ainst P$rc#ase Collection 8"APC9

/ .ill may .e 1urc"ased .y !"e .ank# If a clien! is in urgen! need of money and "e "as a .ill "ose clearance may !ake a fe days !"en "e sells i! !o .ank# Bank 1ays !"e amoun! !o !"e clien! af!er deduc!ing i!s commission#

11

l. "inance a+ainst "orei+n Bills 8"A"B9

Bank also 1ro+ides finance agains! !"e foreign .ills# T"is facili!y is gi+en !o !"e e=1or!er) if "e needs urgen! money# <e gi+es .ill of e=c"ange !o !"e .ank as securi!y and .ank sends !"ese .ills for collec!ion and gi+es money !o e=1or!er#

A+ric$lt$ral 4oan
Bank 1ro+ides !"e agricul!ure ad+ances in order !o en"ance and su11or! !"e agricul!ure sec!or of !"e coun!ry# Bank3s /gricul!ure di+ision deals i!" !"e agricul!ure ad+ances# T"ese ad+ances are of follo ing !y1es9

6arm Credi! Non 6arm Credi!

"arm Credit
T"ese are !"e credi!s 1ro+ided .y !"e MCB or 1urc"ases of in1u!s for de+elo1men! of agricul!ure sec!or# 6ollo ing are ! o main 7u. classes of 6arm credi!9

Prod$ction "inance
T"ese are s"or! !erm loans# T"ese loans are 1ro+ided !o farmers for 1urc"ases of differen! !y1es of in1u!) for e=am1le seeds) fer!ili-er) and 1es!icides#

De elopment "inance:
T"ese are medium or long !erm loans# T"ese loans are 1ro+ided for !"e de+elo1men! of agricul!ural sec!or# Main ,ur1oses of !"ese loans are as under9

To 1urc"ase !rac!ors To 1urc"ase im1lemen!s (Trolley) T"res"ers) and Drill e!c)# 6or ins!alla!ion of !u.e ells 6or 1lan!ing of gardens

2on "arm Credit

T"e second maCor form of agricul!ure ad+ance is Non 6arm credi!# T"ese loans are 1ro+ided !o .oos! u1 agricul!ure sec!or !o 1ro+ide !"e sources of earning of foreign e=c"ange as ell as !o 1ro+ide em1loymen! o11or!uni!ies !o 1eo1le# T"ese loans are 1ro+iding agains! mor!gage of land as securi!y or 1ledge of e8ui1men! as colla!eral securi!y# T"ese are long !erm or medium !erm in+es!men! de1ending u1on !"e 1roCec!# 6ollo ing are !"e differen! !y1es of small indus!ries for "ic" loans are 1ro+ided !o im1ro+e !"e economy of !"e coun!ry#

6is" 6arm Ca!!le 6arm ,oul!ry 6arm Dairy 6arm

12

1. 2on "$nd Based Ad ances

T"ese are con!ingen! lia.ili!ies) "ere no funds are 1ro+ided a! !"e !ime of sanc!ion ) ra!"er .ank under!akes !o 1ro+ide funds) if clien! fails !o disc"arge "is o.liga!ion
?"en an a11lican! for an ad+ance canno! offer any !angi.le securi!y !"e .anker may rely on 1ersonal guaran!ees) le!!ers of credi! !o 1ro!ec! "imself agains! loss on ad+ance or loan# T"ere are ! o !y1es of ad+ances "ic" come under Non 6und /d+ances#

*uaran!ees# 0e!!er Of Credi!#

1,A)A2!//S
Introduction Bank e=amines cus!omer3s rela!ion i!" !"e .ank ' !"e na!ure of !"e .usiness# Bank also sees "is 1as! .usiness i!" !"e .ank# 7ome!imes .ank issues *uaran!ee on !"e .e"alf of !"e cus!omer .y ge!!ing some margin from "im# T"is margin may +ary from cus!omer !o cus!omer# !<P/S ." 1,A)A2!//S !-/ BA27 MA< ISS,/ In !"e normal course of .usiness !"e Bank may issue !"e follo ing !y1es of guaran!ees and Bonds) ca!egori-ed according !o !"e na!ure of 1ur1ose i!3s issued for9 %# 2# :# (# 5# 4# ,erformance *uaran!ees# Bid BondsA Tender De1osi! *uaran!ee 7"i11ing *uaran!ees# *uaran!ees for /d+ance ,aymen!sAMo.ili-a!ion *uaran!ees# 7ecuri!y De1osi! *uaran!ees# *uaran!ees for 1aymen! of duesACour! *uaran!ees#

P/)I.D ." 1,A)A2!//:

!<P/S On !"e .asis of !"e 1eriod for "ic" a guaran!ee is issued) guaran!ees can .e classified as under9 6or a 1eriod of one year or less 6or a 1eriod of more !"an one year .u! less !"an ! o year

13

SP/CI"IC P/)I.D 1,A)A2!//

I!3s !"e guaran!ee "ic" "as one !ime +alidi!y (!ime .ond +alidi!y) af!er no! in+okedAclaimedA .y !"e .eneficiary or rene ed# "ic" i!3s e=1ired if

On !"e .asis of !"e 1eriod for .e classified as9

"ic" a guaran!ee is issued or guaran!ee is +alid) guaran!ees can

7"or! !erm guaran!ee i#e# u1 !o One year Medium !o long !erm guaran!ee i#e# for more !"an one year 7"or!@!erm guaran!ees s"ould .e 1referred o+er medium and long@!erm guaran!ees as !"e la!er in+ol+es ider risk# Requirements for Guarantee
Banks issue guaran!ee on !"e .e"alf of cus!omers# 0imi! 1ro1osals co+ering su.mi!!ed i!" full de!ails for !"e a11ro+al of a11ro1ria!e sanc!ioning au!"ori!y# !ransac!ions s"ould .e

*enerally *uaran!ees are issued in fa+oring of 7"i11ing com1anies) *o+! De1ar!men!s guaran!eeing s1ecific 1aymen!s a! fu!ure da!es .y cus!omer on "ose .e"alf !"e guaran!ees are issued# ?"ile e=ecu!ing a guaran!ee) !"e !erms and condi!ions of !"e guaran!ee are closely e=amined in order !o de!ermine !"e e=!en! of .ank o.liga!ions and financial lia.ili!y under !"e guaran!ee and !"e !y1e of guaran!ee) all condi!ion are con!ained in !"e guaran!ee#

Procedure
Bank c"arges a commission on !"e amoun! for "ic" guaran!ee is issued# Normally !"e +alidi!y 1eriod of guaran!ee does no! e=ceed one year# /f!er !"e guaran!ee "as .een issued) a co1y of same is issued !o !"e coun!er guaran!ee issued !o !"e cus!omer#

4etter of Credit Definition of letter of credit

/ le!!er of credi! is a ri!!en ins!rumen! issued .y a .ank au!"ori-ing !"e seller !o dra in accordance i!" cer!ain !erms and s!i1ula!ing legal forms) !"a! all suc" .ills ill .e "onored# /:planatory Definition / le!!er of credi! consis! of an under!aking .y an issuing .ank !"a! .ills dra n .y !"e e=1or!er ill .e duly o ner 1ro+ided !"e com1ly i!" !"e !erms of credi!# )easons for 40C T"e e=1or!ers are uncer!ain of !"e im1or!er ca1aci!y !o 1ay# T"e im1or!ers are un illing !o 1ay !"e amoun! unless !"e goods are ac!ually s"i11ed and !"e documen!s recei+ed .y !"e .ank# In case of non@1aymen! !"e seller s"ould .e assured !o legal rig"!s in foreign coun!ry# 14

T"ere s"ould .e an agency) "ic" s"ould mee! !"e seller3s need of finance "en !"e goods are s"i11ed# T"e commercial .anks come !o !"e "el1 of e=1or!ers and im1or!ers# T"e im1or!ers can under!ake !"e o.liga!ion !o 1ay !o !"e e=1or!er for !"e 1urc"ase made .y !"e im1or!er and !"is is usually done !"roug" a le!!er of credi!#

/:planation / le!!er of credi! is a9 %# ?ri!!en under!aking .y im1or!ers .ank !o a !"ird 1ar!y i#e# !"e e=1or!er# 2# T"a! i! ill .e 1ay or acce1! draf! (le!!er of credi!) dra n u1on i! u1 !o a s!ar!ed sum of money i!"in a s1ecified !ime# :# T"a! !"e 1aymen! ill only .e made !o !"e e=1or!er if "e com1lies i!" !"e s1ecified !erms of credi!# Parties In ol ed in a 4etter of Credit T"ere are four 1ar!ies in+ol+ed in a le!!er of credi!

o /ccoun! 1ar!y o Issuing 1ar!y o >=1or!er o ,aying or nego!ia!ing .ank

o Acco$nt party or Importer T"e .uyer or !"e im1or!er on "ose accoun! and re8ues! !"e le!!er of credi! is o1ened is kno n as accoun! 1ar!y# o Iss$in+ party T"e .ank) "ic" issues or o1ens a le!!er of credi! a! !"e re8ues! of im1or!er) i! is called !"e issuing .ank# o /:porter T"e seller or !"e 1ar!y in "ose fa+or !"e le!!er of credi! is dra .eneficiary# is !"e !"ird 1ar!y and i! is also kno n as

o Payin+ or ne+otiatin+ %an( T"e 1aying .ank in !"e e=1or!er3s coun!ry on "ic" !"e draf! is dra n is called !"e 1aying .ank#

.peration of a letter of credit:

%# T"e im1or!er of .uyer con!ac!s !"e seller in foreign coun!ry for !"e 1urc"ase of a 1ar!icular good or goods# 2# <e se!!les i!" !"e seller !"e 8uan!i!y and 8uali!y of !"e goods !o .e im1or!er# :# T"e sale con!rac! also includes !"e me!"od of 1aymen!#

15

(# T"e im1or!er !"en su.mi!s an a11lica!ion !o "is .ank for !"e issuing of an indi+idual le!!er of credi!# 5# T"e form on "ic" !"e im1or!er em1loyees for a le!!er of credi! is su11lied .y !"e .ank# 4# T"is form con!ains all !"e necessary de!ails discussed .e! een !"e im1or!er and e=1or!er for !"e s"i1men! of goods "ic" include !"e descri1!ion of merc"andise) 1or! of s"i1men!) 1or! of unloading) !"e documen!s agains! "ic" !"e .ank is !"e "onor !"e draf!) !"e !o!al +alue of !"e goods e!c# '# If !"e documen!s su11lied .y !"e seller conform !o !"e !erms of con!rac! !"e e=1or!er ill .e 1aid# B# T"e issuing .ank ill no! .e res1onsi.le if !"ere is any fraud or !"e merc"andise does no! conform !o !"e sales con!rac!# &# T"e o.liga!ion of !"e .uyers .ank is) To issue le!!er of credi! on agreed !erms and condi!ion i!" !"e .uyer# To "a+e a 1ro1er e=amina!ion of !"e documen!s# To "onour draf! "en 1resen!ed i!" 1ro1er documen!s#

P/)I.D *IS/
S#ort !erm "inancin+ T"e loans "a+ing !enor of one year or less are called 7"or! !erm e=1osure# Medi$m !o 4on+ !erm "inancin+ T"e loans "a+ing !enor of more !"an one year are ca!egori-ed as medium !o long !erm loans# /n ideal conce1! demands !"a!9 %# Businesses s"ould mee! fi=ed asse!s and 1ermanen! orking ca1i!al needs !"roug" 0ong Term 7ources (o ner3s >8ui!y and 0ong !erm finance)F and 2# T"e s"or! !erm needs mus! .e me! !"roug" s"or! !erm sources (Banks Borro ings or marke! credi!) T"erefore s"or! !erm finance s"ould mee! !"e ?orking Ca1i!al re8uiremen!s and !"e long !erm finance s"ould .e used for ac8uisi!ion of fi=ed asse!s A long !erm needs# 7!ruc!ure of finance facili!ies s"ould .e .ased on !"e a.o+e conce1! as i! ill a+oid emergence of !"e li8uidi!y 1ro.lems (of!en called Tec"nical Insol+ency) !"a! is) ina.ili!y of a .usiness !o mee! i!s cas" o.liga!ions#

16