Review of Muslim Commercial Bank: Banking in Pakistan

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.
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
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 Governments 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.
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.
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
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
Chart 3: DIVISIONS OF MCB
Central Accounts
Agriculture Division Investment Banking Finance and Treasury Islamization Division
PTC and Master Card HRD Division Special Assets Management Business Dept and Marketing Control Accounts General Service Division Information Management Corporate Affairs O&M Division (Source : MCB Manuals)
MCB HEAD OFFICE
Inspection And Audit Credit Management Industrial Credit Foreign Trade
Training Division Informational Division
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 Officers Grade-1 Officers Grade-2 Officers Grade-3 Cashiers Office Assistants Messengers Guards Total 13 Besides the two guards, which are on the banks 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 1 1 1 2 3 2 2 2
Chart 4 Hierarchy of the Branch
Chief Manager
Accoun
Advances
General
Foreign Exchange
* Credit proposal process * Credit marketing section * Legal Section * Classified/Bad Loan Section * Credit Administration Section * Master Card Section
* Cash Section * Bills Section * RTC Section * Remittance Section * Desk Dispatch Section
* Import Section * Export Section * Foreign Remittance Section * Foreign Exchange
Source: Operational Manual at branch
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 customers 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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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 bankers primary contract to repay money received for this customers account usually by honoring his cheques.
Cheques and their Payment
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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. 12
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 payees 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 bankers primary contract to repay money received for his customers 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 customers 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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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 drawers 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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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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Principles of Advances
There are five principles, which must be duly observed while advancing money to the borrowers. Safety. Liquidity. Dispersal. Remuneration. Suitability.
Safety Bankers 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 depositors 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 borrowers 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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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 bankers 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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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 bankers 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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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 borrowers 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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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 senders 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 20
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 buyers account at the selling office and crediting to the recipients 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 partys 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 21
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 cashiers counter cash book. Paying cashiers 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 Cashiers Counter Cash Book and the Payment Cashiers Counter Cash Book.
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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 26
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. Banks Secrecy Bond 2. Banks 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 i. ii. following: Approved contributory provident fund; 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
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1 6
Shahrukh Rafi Khan 50 years of Pakistans Economy Oxford University Press p.217 MCB Annual Report 2001

Review of Muslim Commercial Bank: Banking in Pakistan

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Review of Muslim Commercial Bank: Banking in Pakistan

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Section 2 Organizational Review