You are on page 1of 54

CHAPTER ONE

INTRODUCTION

1.1 Background of Study

1.1.1 Background of BBA Program
Bachelor in Business Administration (BBA) program is run by Tribhuvan
University from 2002 under the supervision of the Faculty of Management
(FOM). It aims to provide quality education through quality and professional
courses. BBA is four years international standard program consisting of eight
semesters along with internship program. Thus, BBA program is a blend of
theoretical and practical knowledge on the financial sector enabling the students
in understanding business environment and solving practical business problems. It
also aims to develop creative, socially responsible, knowledged professionals who
are able to carry out the responsibility of middle level managerial positions in the
rapidly growing business sector in Nepal as well as abroad.

1.1.1 Importance of Internship
Since theoretical knowledge is not sufficient in this competitive world. Thus, in
the eight semester of BBA program, student is required to work in financial
institution for at-least eight weeks where they can experience real life situations of
working in the organization. It also helps in understanding organizational
environment and work culture. Internship program enables in acquiring skills and
techniques by experiencing practical work situations directly applicable to
develop career on financial sectors. It may also create the opportunities for
placements in the same host organization or other organizations.

1

1.2Objective of Report
After the completion of internship program, it is required to prepare the report to be
acquainted with what the student have learnt in the host organization over the
internship period. It helps to share the experience of student along with problem faced
by them.

The main objective of the study is to highlight the activities carried out in Himalayan
Bank Limited and to get the practical exposure to the organization’s environment and
gaining the practical knowledge to deal with the real management problems through
various managerial skills. The specific objectives of this study are:
 To provide a brief synopsis on the present scenario of Nepalese banking sector.
 To enlighten the task performed in HBL under various departments.
 To comprehend the operational system of HBL.
 To give details of the product and services provided by the HBL.
 To built self confidence and experience in preparing the report.
 To fulfill the partial requirement of BBA program.

1.3Methodology

This internship report is based on research methodology. It helped to analyze the data
in finding the causes and effects of relationship to see how bank is performing. Since,
research is a scientific discipline; it needs much more attention on the part of the
researcher.

1.3.1 Organization Selection
Decision about the organization selection for the internship program is very
crucial task due to existence of different financial institutions in the Nepalese
financial market. Internship from a reputed organization definitely enlarges the
prospects of gaining more practical knowledge and also enhances confidence of
every student. Since I did specialization on Banking and Finance I selected to do
internship in the Banking institution to boost my knowledge. As commercial
banks are 'A' class financial institutions I chose them among other financial
institutions. I drop the college recommendation letter and personal application
with resume in Himalayan Bank Ltd. since it is one of the reputed banking
institutions and have good performance. Further, I did regular follow–up with the

2

human resource department of HBL. After screening my resume by the Human
Resource Department of HBL I was selected for internship placement. HBL has
well developed intern culture which helped me to learn and gather experience
about real banking environment, working procedures, etc. that would be very
helpful in uplifting my career. It has really helped me to obtain insights about
career opportunities through interactions, observation and work experience in the
organization. Those two months period as intern in HBL was highly educative and
cherish able.

1.3.2 Placement

As concern to my placement in HBL, throughout my internship period I was
placed in Thamel branch. There I got an opportunity to work in different
department such as bills and remittance department, customer service department,
trade operation centre, customer relation department, credit management and
administration department. The task was assigned as per the requirement of the
different department under the supervision of respective department head. I was
fortunate enough to gain knowledge on various departments under proper
supervision of department heads and staffs during the internship period. I
presented myself with full confidence and well disciplined in this institution and
create mutual trust among the staffs and get the opportunity to learn functioning
of different departments.

1.3.3 Duration of Internship

The duration of internship period has been declared for minimum 8 weeks by
FOM, Tribhuvan University for the partial fulfillment of the requirements for the
degree of Bachelor of Business administration that an eight semester student
should complete to acquire six credit hours. As per the requirement, the internship
was carried out from June 05, 2011 to August 4, 2011 in HBL, Thamel branch
from 10:00 am and to 5:00 pm in different departments. In this period I was
placed in various departments so that I could develop knowledge about various

3

activities performed in each department making me able to achieve practical;
disclosure to functioning process.

Departments/ Weeks 1 2 3 4 5 6 7 8 9
Bills and Remittance
Customer Service
Letter of Credit
Customer Relation
Credit management
and administration
Table 1.1 Duration of Internship

1.3.4 Information collection methods
The primary as well as secondary information has been used to prepare this
report.
 Primary sources:
a. Observation during internship period in HBL
b. Questionnaire with employees and customers of HBL
c. Files, registers, computer data

 Secondary sources
a. Internet surfing
b. Reports and Brochures
c. Publications and journals
d. Newspapers, bulletin, booklets

1.4 Activities performed in HBL

During internship period for two months, my placement in various departments helped
me to gain knowledge regarding various operational activities carried in the banking
institutions, built self confidence and experience organizational environment. I
accomplish the task as per the requirement of different departments. The activities
assigned to me in HBL under different departments are listed below:

1.4.1 Customer Service Department (CSD)

4

Customer service department is the part of bank where customers are
pleased with interaction, a phone call, self-service systems (e-banking, SMS banking)
or by other means. Hence, customer service is the process of ensuring customer
satisfaction with a product or services of the banks while performing a transaction for
the customer, such as opening an account, providing cards facilities, issuing cheques,
etc. Banks have worked hard to increase their satisfaction levels through direct
interaction with customers that form customers’ optimistic perceptions towards the
bank as a whole.

Activities done in CSD are:

 Dealing with regular and new customers of the bank.
 Advise customers about HBL's products and services and respond their
queries.
 Providing different kinds of forms to customer such as Account opening form,
Account closing form, Debit card application form, Internet banking form,
SMS banking form, etc.
 Collecting necessary documents and checking forms of the customers required
for account opening procedures.
 Filing application forms and writing different application on behalf of
customers on the request of customers.
 Keeping record of the account opened, account closed, transfer of the account,
customer taking additional facilities such as Internet banking, SMS banking,
etc.
 Providing ATM cards to the cardholders.
 Providing the balance statement and balance certificate to the demanding
customers after verifying the account holder signature.
 Recording the ATM card holder information in the register after arrival of
ATM card and pin number and providing them to the respective customer after
checking the form filled to get card and verifying the signature.
 Preparation of cheque books, recording the information and providing it to the
respective customer after verifying the signature.
 Making entry of void cheques, loss cheques, issuance of cheques, etc.
 Photocopies of citizenship cards, passports, license and other documents of
the customer required for recording of customer service department.

5

The activities done in ID payment are:  Entry of reference no. credit advice for advance payment.4.  Verification of the information of the remitter and beneficiary. Bills and remittance department of HBL perform various fund transfer operations such as ID payment. fixed deposits and fund transfer. making TC and bills purchase and collection. sending to international bank about payment against TC. Western Union Money Transfer.  Contacting authorized personnel if problem arise.  Photocopies of customer Id  Recording of remittance information  Forwarding the verified information for cash payment. on web based remit system to get remittance information under various exchange houses such as Himal Remit. Choice Money Transfer. domestic money transfer. from one country to another or within the country through various means of fund transfer.  ID Payment Section ID payment is the process of providing cash to the customer that is received through remittance after verification of receiver. The activities done in bills collections are: 6 .e. entry on Nostro and Vostro account. It is a transfer of money by a foreign worker to his or her family or making domestic payment. etc. etc. clearing. Money Gram. HBL has facility for both international payment (For eg: Himal Remit of HBL) and domestic payment (Domestic Money Transfer (DMT) facility by HBL).  Bills Collections Section It does the all tasks related to international banks cheque.2 Bills and Remittance department Remittance simply refers to the transfer of funds from one place to another i.e. international cheque collection. etc.1. traveler's cheque (TC) i.

Fees payment of student reading abroad is done by telex.  Observation of procedures for forwarding Traveler's Cheque.  Filing of the bank copy of APC.  Manual entry of Traveler's Cheque. It is also called time deposits. The activities done in APC are:  Informing customer about account credited. Fixed deposit Fixed deposit is the process of depositing money that pays higher interest than a savings account but imposes conditions on the amount.  Observation of account to account transfer entries by the employee. and/or period of withdrawals. frequency. Fund Transfer It is transfer of fund from one place to another through demand draft or telex transfer. It is basically used by customer involved in exporting goods to receiver advance payment for making supply. Transaction related to fixed deposit account of HBL were carried out by remittance department. 7 . For e. Demand draft is a written payment order from one party (the drawer) to another (the drawee to pay a stated sum to a third party (the payee) by issuing the cheque.. Telex transfer is the mechanism in which bank transfer the fund to another banks account in the request of customer.  Checking statement of customer related to fund transfer.  Advance Payment of Credit Advice (APC) Section APC does the transaction related to transferring of funds from one account to another account but only receivable of information of credited account that is done through SWIFT mechanism.g.  Print account movement advice and account payment advice.  Stamping Traveler's Cheque that are purchase and collected which are to be presented to Americans Association for Traveler's Cheque.  Fixed deposit and Fund transfer Section i. international cheques collection and purchase in registers. ii.

The activities done in clearing section are:  Receiving the cheque for clearing and endorsing the cheque  Making entry in the Globus system for clearing  Informing the client in case of cheque return  Returning the rejected cheque to the respective clients and maintain proper records  Handling queries of the customer  Returning the rejected cheque to the respective clients and maintain proper records  Handling queries of the customer regarding their cheques sent for clearing. The activities done in fixed deposit and fund transfer are:  Providing different kinds of forms to customer such as demand draft forms. in the registers and filing the documents.  Going NRB for observation of clearing procedures carried out by banks. fixed deposits forms. etc.4. 1. 8 .  Clearing Section Clearing section is one of the counters under the bills and remittance department where both the inward and the outward cheques are handled. An individual might receive payments via cheques of various banks but it will be time consuming for him to go in all the banks. telex transfer forms. NRB provides the common platform for each and every bank to deal with the cheques of different banks.  Recording of fixed deposits account.3 Letter of credit department Letter of credit is defined as an undertaking issued by a bank in favor of a beneficiary by which the bank substitutes its own creditworthiness for that of the applicant by promising to honor (pay) if the documents specified in the letter of credit are timely presented. and telex transfer. etc.  Filing application forms and writing different application on behalf of customers on the request of customers. demand draft transfer.  Observation of record keeping in the HBL software system (T24 software) by the employees.  Writing in the cheques using Cheque Writer.

B. thus for forecasting and analyzing customers trends and behavior and maintain highest levels of protection good quality relationship management is preferred.  Forwarding approval sheet to the Customer relation department. so it is named as customer relation department. Activities performed in LC department are:  The study of the LC and Bank Guarantee manual of HBL. or draw down loans. As loan are the investment for the bank they should be secured. Bank Guarantee is the non fund based fee generating service which provides the assurance that if the debtor fails to settle a debt. etc.  Dealing with the customer about nature of loan facilities they sought. Activities performed in CRD department are:  The study of Credit Policy Guidelines (CPG) of HBL. forms in the demand of customers  Faxing the necessary documents to different HBL branches  Photocopies of necessary documents required in trade operation centre  Typing SWIFT messages under the supervision of staffs  Cancellation and amendment of letter of credit  Document checklist 1. buy equipment.  Observation of preparation procedures of LC documents. the bank will cover it and enables the customer (debtor) to acquire goods.  Observation of procedures of import and export LC issuance. 9 . Ni.  Preparation of Account Movement Advice  Preparation of B.  Observation of preparation procedures of detailed Credit Analysis Package (CAP).4 Customer Relation Department (CRD) Customer relation department is the division of credit department of HBL where customer initially goes for receiving loan services.  Preparation of Approval Sheet for import LC and Guarantee after the request by customer for issuance of LC and guarantee.  Chronological filing of the trade related documents. and thereby expands business activity.  Preparation of financials. guarantee issuance.4.

1. CRD forward the documents to CMAD for further implementation of the credit granting process. related to credit facilities  Preparation of legal documents  Transfer the credit files to the legal department  Doing photocopies requires for documentation process  Observation of implementation of loan facilities to the customer  Observation of renewal of the loan facilities of the customer  Observation of loan settlement by the customer  Release of the documents of the customer after loan settlement under supervision of staffs  Maintain 'safe in' and 'safe-out' registers  Proper documentation of the files of CMAD 1. security realization. CMAD take the charge of lending to the customer after fulfilling the task of documentation and make estimation of interest rates.5 Credit Administration and Management Department (CMAD) Credit administration and management department is another division of credit department of HBL where customers are facilitated with loan facilities after analysis is done by customer relation department.  Detailed valuations of the property. financial condition.  Observation of financials of latest fiscal year of different corporate clients as it was end of the fiscal year during internship period. technical strength.  Conduct five pillars analysis of credit facility i.  Participation in site visits for valuation of collateral and renewal of the credit facilities.4. stock reports. reconciliation.  Observation of CICL (Credit Information Centre Ltd. property valuation.  Calculation of market value of the shares for renewal of loan against shares.  Preparation of reminder letter for renewal. etc. industry environment. collateral details.5 Limitations of the Study 10 .e. etc. Activities performed in CMAD are:  Preparation of offer letter to be issued to the customer  Scrutinize and verify all loan documentation  Preparation of account movement advice  Study of different cases.) report of the clients. management quality.

the business of banking was resumed. The word "bank" is commonly regarded as derived from the Italian word 'Banco'.1 Introduction of Bank After commerce and the arts had revived in Italy. Such problems are listed below:  This study is mainly concentrated on activities done during internship period. a bench .  As internship period was during closing of the fiscal year i.  Due to limited time. And people around the world start to use different 11 .e Ashad bank's staffs have excess workload due to which they cannot supervise the intern properly. Kathmandu.  The details of prescribed departments and its transaction were not provided to intern due to confidentiality reasons and policies of the bank. ideas and skills achieved during the internship period rather than theoretical knowledge.  Being a student. the same tendency happens while preparing this internship report. Some constraints were faced while preparing this report.  Less interaction and guidance by the staffs to the intern due to rush of their own tasks and shift of head office to the Kamaladi. So. CHAPTER TWO INTRODUCTION OF THE INDUSTRY 2. the study has been conducted quickly.  Because of rush by the customer in some departments. intern were confined to routine job of the bank and was not able to acquire crucial information of the bank.Every activity is chase by the boundaries and limitations.the Jews in Lombardy having benches in the market-place for the exchange of money and bills. lack of technical knowledge was another factor which limit the report  This report is based on my individual experience.

bank means moneylenders who sat in the bench for keeping." –Nepal Rastra Bank Act 2002 12 . which provides financial services that may be in the form of accepting deposits. collecting cheques for customers and lending or investing surplus deposits until they are requires for repayment. etc. advancing loan." --The Shorter English Dictionary "Banking means the accepting for the purpose of lending or investment of deposits of money from the public. a bank has broadened its scope by providing financial as well as non-financial services to its customers. lending and exchanging of money in the market place. "Bank is an establishment for the custody of money from or on behalf of its customer's essential duty to pay their draft on its profit arises from its uses of the money left unemployed by them. A bank is an institution which deals in money receiving it on deposits from customers. Nowadays. A bank is a financial institution that serves as a financial intermediary." --Indian Banking Company Act 1949 "Bank is an organization established for the purpose of exchange money deposit lending money and participation in transactions. bank is an institution which deals with money and credit. providing necessary technical advices." --Commercial Bank Act of 2031 "Bank is a financial institution. Latin 'Bancus'. and German 'Bank'. At ancient times. honoring customers drawing against such deposits on demand.words for their convenient like in French 'Banque'. repayable on demand or otherwise and withdrawal by cheque draft order or otherwise. To give specific meaning of bank is very difficult task however following are the few definitions given by different authors. who bridges gap between the savers of the fund and users of the funds. It allows interest on the deposits made and charges interest on the loans granted and further it creates credit and supports for the formation of capital and hence it is regarded as manufacturer of money. In simple. remitting funds. dealing overt foreign currencies.

Before 1960 there was no such word as “banking’. Chanakya in his Arthashastra written in about 300 B. When the word bank is used it is meant for commercial bank. after being possibly the first city to found a bank for the keeping of 13 . Thus. we draw the conclusion that a bank is a financial intermediary that accepts deposits and channels those deposits into lending activities. bank receives demand deposits and time deposits. there are records of loans made by the priests of the temple. makes loans. either directly or through capital markets. However. and pays interest on them.2 History of Banking in Global Scenario The history of banking is nearly as old as civilization. The different in interest rate on lending and deposit. in the temple Babylon the practices of safeguarding and saving flourished as early as 2000 B. Originally. advance loans and hundies. From the above definitions. drafts and certifies depositor's cheques and issues drafts and cashier's cheques. Merchants and goldsmith were ancestors of bank. In the Babylon. at the time of Hammurabi.D. established in1157 A. The concept of banking has arrived. honors instruments drawn on them. Interest on lending is higher than the deposits. Venice. honoring customers drawing against such deposits on demand. is the major source of income for the bank. interest rate spread. in the 18th century BC. 2. It is the most important financial institution dealing with money.C. receiving it as deposits from customers. The 'Bank of Venice'.C. mentioning about the existence of powerful guilds of merchant’s bankers received deposits. is supposed to be the ancient bank. it was not a bank in real sense being simply on office for the transfer of the public debt. and invests in securities. collects cheques. collecting cheques for customers and lending or investing surplus deposits until they are required for repayment.

D. which in turn became like cheques as a mode of exchange. 'Bank of Barcelona' (1401) and 'Bank of Geneva' (1407) were established.). He started to keep some reserve as a safeguard. They used to do their trading activities by remitting the money from one place to another. An honest goldsmith was also trusted with billions money and ornaments by merchants in neighborhoods.D. In the Nepalese chronicles. The 'Bank of England'. 14 . is also a pioneer in the involvement of a bank with state financiers. it was the “Merchant bank” that first evolved the system by trading in commodities than money. 2.3 History of Banking in Nepal Banking service is the oldest service industry in Nepal. It organizes the sale of government bonds when funds need to be raised. It has gone through various stages of evolution and development since the Vedic times (2000 to 1400 B. it was recorded that the new era known as Nepal Sambat was introduced by Shankhadhar. History apart. Subsequently. In this way the goldsmith money lender become a banker who started performing the two functions of modern banking that of accepting deposits and advancing loans.C. During the 18th century the Bank of England gradually undertakes many of the tasks now associated with a central bank. facilitating and processing their daily transactions. which has got into trouble through the making of unsecured loans. first English Bank. In 1617 the Banco Giro is established to solve problems encountered by the earlier. As an evidence for receiving valuables he issued a receipt. was established in1964 A.money on safe deposit and the clearing of cheques. He started charging for acting as custodians of these valuables. He started advancing the coins on loan by charging interest. It acts as a clearing bank for government departments. a Sudra merchant of Kantipur in 879 or 880 A. The next stage in the growth of banking was goldsmith.

it had played an important role in the development process of banking system in Nepal. during Malla regime. as a semi government organization with an authorized capital RS. In this contest.. became quite popular.The banking in the form of money leading can be traced back in the reign of Gun Kam Dev towards the end of 8th century. Rastriya Banijya Bank was established in 2022 B. His Majesty King Tribhuvan inaugurated first commercial bank i. this marked the beginning of an era of formal banking in Nepal.10 million of which 51% share are owned by government. It is further believed that money-lending business. The need to regulate financial and monetary system increased enormously resulting the establishment of Nepal Rastra Bank in 2013 B. Nepal Industrial Development Corporation was established in 2016 BS to provide the 15 . 1994 B. Modern banking business started in the country just before the Second World War. Later some development banks and financial institutions were established to provide medium and long-term credit facilities to the industry and agriculture.. the king of Kathmandu had borrowed money to rebuild and to rule Kathmandu. In 1938 state financial institute which supply credit or loan against security.S. In the 11th century. The credit facilities of "Tejarath Adda" were also extended outside the valley during the Prime Minister ship of Chandra Shamsher Rana. Another historical example as to the pre-modern banking system is found when Rana Prime minister Randip Singh was administering Nepal in 1880 AD During his regime one financial institution name by "Tejarath Adda" was establish to give loan facilities to the governmental staff and to afford loan facilities to the public in general in the term of 5% interest.e. there was an evidence of professional money- lenders and bankers. particularly for financing the foreign trade with Tibet. In the year 1994 B. In order to cater the demand of banking system.S. Although this institution did not accept any deposits.S with 100% government ownership. Nepal Bank Limited on Kartik 30. According to the historical evidence in 723 Gun Kam Dev. Until then all monetary tractions were carried out by private dealers and trading center.S.

and financial instruments along with regulations and laws. Financial institutions are the organization that channelizes the savings of government.financial and managerial assistance in the field of industry and to help private sector in the field of industry.S. Foreign investment and participation of private sector were encouraged. and so on. businesses and individual into loans and investment. Nepal Arab Bank Ltd. financial market. The government of Nepal adopted liberal economic policy to accelerate country's growth and development.. NRB has classified depository institutions as follows: 16 . Commercial Banks should operate under the Commercial Bank Act 2031. Nepal Grindlays Bank (Standard Chartered bank) 2043 B.S.S.S. Agriculture Development Bank Ltd. Himalayan Bank Limited in 2049 B. In Nepal.. Financial system facilitates resources transfer and mobilizes savings to the productive sectors thereby contributing to the economic development. 2. With the passage of time several other joint venture and private bank has been established such as Indosuez bank Limited (Nepal investment bank) in 2042 B. In order to provide service to the agriculture sector. was established in 2024 B. (currently known as NABIL) is the first bank established in joint investment in Nepal in 2041 B.4 Present Scenario of Nepalese Financial System Financial system is the set of financial institutions.S. Nepal Rastra Bank Act 2058 and Contract Act 2056. The government then enacted "Joint Venture Banking" policy. It consists of: Depository Institutions Depository institutions are the banking institutions which collect amount through deposits accounts and sold bulk amount through loan account.

and money market accounts and that accepts time deposits. They make funds. They hold the deposits of millions of persons. savings.1 List of no. available through their lending and investing activities to borrowers. It is a bank that provides transactional. Table 2. of depository institutions Class Financial Institutions No. A commercial bank (or business bank) is a type of financial institution and intermediary. They are insurance companies. Banks 16 .org. 2.nrb. governments and business units. etc.5 Concept of Commercial Banks Commercial Banks are the heart of our financial system. investment banks.np Non-depository Institutions Non-depository institutions are an intermediary who does not accept the deposit directly from the customers. Saving and Credit 38 Cooperatives NGOs Total 272 Source: www. Their purpose is to provide a collecting point for savings of a relatively small average amount from a large number if individual source so long as the to utilize savings safely and profitably. individual business firms and government. pension funds. of Institutions A Commercial Bank 31 B Development Bank 87 C Finance Companies 79 D Micro Credit Development 21 . 17 . Therefore the task of commercial banks in an under developed countries is almost self-evident.

to accept and pay drafts. 2. to issue letters of credit.  Collecting and supplying business information. for making payments for purchase of goods. Demand loan  Fixed deposits ii. Cash Credit ii.  Issuing demand drafts and pay orders and  Providing reports on the credit worthiness of customers. and to engage in similar activities and ventures. Children plan. Acceptance of Deposits B. to rent safety deposit boxes. Term loan  Recurring deposit  Advances (Short-term financial assistance)  Miscellaneous deposits (Home i.  Undertaking safe custody of valuables. 18 . Secondary functions including agency functions. Primary functions The primary functions of a commercial bank include: A. Bank Overdraft construction deposit scheme. to engage in trust services. Hence.  Transferring money from one place to another and from one branch to another branch of the bank. and securities by providing safe deposit vaults or lockers  Providing customers with facilities of foreign exchange. to make loans of various types. Old age pension scheme.5. etc) 2.  Standing guarantee on behalf of its customers. Sickness iii.1 Functions of Commercial Banks The functions of commercial banks are divided into two categories: 1. Granting loans and advances  Currents deposits (demand deposits)  Loans (Credit facility for more than 1 year)  Savings deposits i.  Issuing letters of credit. circular notes etc. machinery. Discounting of Bill benefit scheme. commercial bank is the financial institution authorized to receive both time and demand. important documents. travelers' cheques. vehicles etc.

Nepal Bank Ltd. if instructed by them. 2.  Undertaking foreign exchange business. etc.10 million of which 51% share are owned by government within few years of its establishment it extended a number of branches. etc. interest and rent. etc. commercial banks also render a number of ancillary services.S. as a semi government organization with an authorized capital RS.e. These services supplement the main activities of the banks.5. They are essentially non-banking in nature and broadly fall under two categories: I) Agency Services Agency services are those services which are rendered by commercial banks as agents of their customers. on behalf of customers.  Purchase and sale of shares and securities on behalf of customers  Payment of rent.  Supplying trade information and statistical data useful to customers. debentures. II) General utility services General utility services are those services which are rendered by commercial banks not only to the customers but also to the general public. 19 .6 Commercial Banks in Nepal The year 1994 BS marks the beginning of new era.  Safe-keeping of valuables in safe deposit locker.  Collection of dividends. They include:  Issuing letters of credit and travelers' cheques.  Underwriting of shares.2. in the history of modern banking in Nepal. insurance premium. Thus we see the establishment of its first commercial bank i. They include:  Collection and payment of cheques and bills on behalf of the customers.2 Agency and General Utility Services provided by Modern Commercial Banks Besides these two main activities. on behalf of customers. if instructed. These are available to the public on payment of a fee or charge. In the year 1994 B. interest.

S..1 An Overview of Himalayan Bank Limited Himalayan Bank was established in 1993 in joint venture with Habib Bank Limited of Pakistan. HBL Proprietary Card and Millionaire Deposit Scheme besides services such as ATMs and Tele-banking were first introduced by HBL. Legacy of Himalayan lives on in an institution that's known throughout Nepal for its innovative approaches to merchandising and customer service. Till 2067 there are many commercial banks as well as development banks that have been working smoothly in Nepal. Himalayan Bank has been able to maintain a lead in the primary banking activities. Products such as Premium Savings Account. Similarly. Despite the cut-throat competition in the Nepalese Banking sector.. Nepal Grind lays bank (Standard Chartered bank) was established in 2043 B.. As the country followed economic liberalization. The licensed commercial banks according to the central bank of Nepal i. was also established in 2049 B. with joint venture with Habib Bank Ltd. With the highest deposit base and loan portfolio amongst private sector banks and extending guarantees to correspondent banks covering exposure of other local banks under the credit standing with foreign correspondent banks. Pakistan. in order to play a major role not only in domestic banking services but also in foreign trade. NRB are 31 and they are listed with their paid up capital in annex 1. there was massive entrance of foreign banks in Nepal.e.D. The last year rating of HBL by Bankers’ Almanac as country’s number 1 Bank easily 20 .S. Therefore.D. Nepal Indosuez Bank was established as a joint venture between Nepal and France in 1986 A. HBL believe it as lead the banking sector of Nepal. HBL stand for the innovations that bring about in this country to help customers besides modernizing the banking sector. Other financial institutions in the country have been following our lead by introducing similar products and services. It goes with a punch line “The Power to Lead”. CHAPTER THREE INTRODUCTION OF THE ORGANIZATION 3. and Himalyan Bank Ltd. As the time passed “Rastriya Banijya Bank” was established in 1966 A.Loans and Deposits.

There are two components in the mission of the Bank. Internet Banking and SMS Banking. International Travel Quota Credit Card.2008 awarded by The Institute of Chartered Accountants of Nepal. Living up to the expectations and aspirations of the customers and other stakeholders of being innovative. Consumer Finance through Credit Card and online TOEFL. Britain  Number 1 bank of Nepal-2003 awarded by the Bankers’ Almanac.2003 awarded by federation of Nepal chambers of Commerce and Industry. HBL's VISION To become a "Leading Bank of the country" by providing premium products and services to the customers. Millionaire Deposit Scheme. Other awards and recognitions received by the bank in the past 6 years also ranks the bank in high positions with awards like:  Best Presented Account Award. etc. HBL's MISSION To become preferred provider of quality financial services in the country. All Branches of HBL are integrated into Globus (developed by Temenos). Preferred Provider and Quality Financial 21 . fee payment facility are some of the products and services. HBL also has a dedicated offsite ‘Disaster Recovery Management System’.confirms our claim. in the Middle East and Gulf region. Britain  National Excellence Award. HBL has developed exclusive and proprietary online money transfer software. the single Banking software where the Bank has made substantial investments.  Number 1 bank of Nepal-2006 awarded by the Bankers’ Almanac. SAT. IELTS.HimalRemitTM. All this only reflects that HBL has an outside- in rather than inside-out approach where customers’ needs and wants stand first. HBL very recently introduced several new products and services. thus ensuring attractive and substantial returns to the stakeholders of the bank. This has helped the Bank provide services like ‘Any Branch Banking Facility’. Pre-paid Visa Card. Small Business Enterprises Loan. By deputing our own staff with technical tie-ups with local exchange houses and banks. HBL is the biggest inward remittance handling bank in Nepal. Looking at the number of Nepalese workers abroad and their need for formal money transfer channel.

Many activities that do a common good to the society have been undertaken by HBL in the past. Kathmandu as a humanitarian aid for conducting rescue and relief operations in the flood affected areas of Pakistan. The major services being rendered by HBL in this front include those related to education.  2010: Donation of Rs. it is a committed corporate citizen. The bank always strives positioning itself in the hearts and minds of the customers. 0. therefore HBL believe that the mission will be accomplished only by satisfying these two important components with the customer at focus. HBL’s Objective: "To become the Bank of first choice" is the main objective of the Bank. HBL has always promoted social welfare activities. it has been discharging its social responsibilities through various social and allied institutions. culture and social services. HBL CSR Activities:  2011: Blood Donation Program organized by the bank at Bhaktapur Durbar Square.  2010: Sponsorship of cricket tournament organized by WATO Nepal. Being one of the corporate citizens of the country. 3. Corporate Social Responsibility (CSR) holds one of the very important aspects of HBL. aimed at raising funds for planting 2000 trees in Kathmandu city.Services. healthcare.5 million to Embassy of Pakistan. HBL allocates a significant portion of its ‘Annual Sponsorship & Donation Budget’ for fulfilling social responsibilities. HBL is enthusiastically interested in enrolling itself in such activities on an ongoing basis. Right from the time of its commencement. Being one of the active and responsible corporate citizens of the country.2 Corporate Social Responsibilities by HBL HBL is not only a bank. WATO Nepal is a 22 . sports.

water & energy conservation projects. ‘Clean Up The World’ in partnership with the United Nations Environment Program (UNEP) works for inspiring & empowering communities to clean up & conserve environment through waste removal. member of ‘Clean up the World’.  2009: Financial assistance to Muscular Dystrophy Child Care Society .Friends of Bagmati  2008-09: Assistance to specially disable citizens for publishing newsletters & magazines as part of intellectual development activities designed for them by various institutions 23 .Nepal. Bhaktapur  2008-10: Extension of helping hand to various government bodies for maintaining peace & security situation at various regions of the country  2008-09: Assistance to various institutions for conducting activities related to environment conservation .  2009-10: Financial contribution to Spinal Injury Rehabilitation Center.  2010: Active participation in the opening ceremony of Nepal Tourism Year 2011 organized by NTY 2011 Coordinating Committee in coordination with Nepal Tourism Board.1 million to the local dairy product processing centers for the installation of hi-tech equipments.  2009: Entered into agreement with Dairy Development Corporation (DDC) for extending financing opportunities of up to Rs. Kavre.  2009: Financial Assistance for the renovation/construction of various temples & historic places in Kathmandu city  2009: Donation to flood victims of Nepal  2009: Founder Membership of National Children Eye Hospital and Rehabilitation Center. tree plantation.

000.1: Bar Diagram view of capital structure of HBL 24 . 3.) 0 Fig 3.00.00.000.000.3 Capital Structure of HBL The Capital structure of Himalayan Bank has been briefly summarized in the Table below: Table 3.000 Amount (in Rs.  2008: Charity to various orphanages and physically challenged poor children  2008: Sponsorship of a dental health checkup camp organized by Budhanilkantha school  2008: Sponsorship of various blood donation campuses.000 e: Issued Capital 1.000 1.000 500.500.000.600.500.000 2.600.1: Capital structure of HBL Capital Amount (in Rs.000.000.) 2.000.000.00.000 HBL Annual Report 2009/10 Amount (in Rs.) So urc Authorized Capital 2.000 1.000 Paid up Capital 1.000.

2: Share ownership of HBL 25 . Table 3.4 Share composition of HBL The table below shows the share ownership of HBL. Local Promoters 51% Foreign Partners (Habib) 20% Employee Provident Fund 14% (EPF) General Public 15% 3.

5 Organization Structure of HBL Himalayan Bank Limited has a very typical organization structure where the top level management includes the CEO. The major decisions are taken by chief Executive Committee. Under them are the various departments of the bank with one person heading each department. The organizational structure of Himalayan bank is shown below: 26 .Fig Object 5 3.2: Pie chart view of ownership capital of HBL 3. Senior GM and GM.

3.3 Organizational Structure of HBL 3.ondent Banking / NRB Reporting/MIS Records & Reconciliation Legal IT SWIFT Fig: 3. The Board of Directors consists of the brilliant personalities assigned with various designations. Secretary to chairman Secretary to BOD Audit Committee Chairman & Board of directors Public Relation Officer Secretary to CEO 2 Shares Chief executive officer Press Secretary to GM 1 General Manager HRD Deputy General Manager Secretary to DGM 1Deputy General Manager General administration a MFD CMAD Consortium Cell Credit Card Center All Branches PPDD Branches Treasury Front Office Internal Audit & Inspection Dep Treasury/Back Office/ Corresp. The name list of BODs along with their designations is placed in annex 2.7 Products and Services of HBL 27 .6 Board of Directors in HBL Himalayan bank is managed by a team of professional Board of Directors.

0 M  Credit Card Loan  Loan against Fixed Deposit Receipt  Loan against Government Bonds & 28 . They are: i. Loans Loan facilities provided by HBL are: 1. Small and medium enterprises loan  Hire Purchase Loan (SME Loan)  Housing Loan Funded/Non-Funded Facility  Subidha Loan in range of Rs. Non. Deposit product  Fixed deposits  Call Account  Current account  Premium saving account (PSA)  Normal saving account  Super premium saving account  Himal saving account  Shareholder’s saving account  Bishesh Saving Account  Jumbo Term deposits  Recurring saving account  Himal remit saving account B. Corporate Loan Corporate loan of HBL is classified in two categories. 0.funded facil  Project / Consortium Loan  Non Revolving Cash Credit  Bank Guarantee  Working Capital Financing  Letters of Credit  Overdraft Facility  Demand Loan  Revolving Cash Credit  Import Credit for Telex Transfer and Demand Draft Payment  Trust Receipt Loan  Export Credit Facilities  Pledge Loan  Clean Bills purchased and discounted  Documentary Bills Purchased and Discounted 2. 40.A. Funded Facilities ii. Retail/ Consumer Loan 3.5 M to Rs.

Safe Deposit Lockers Looking at the varying needs and wants of the customers. Bonds of Bank  Loan against First Class Bank Guarantees  Loan against Shares C. D. HimalRemit is a state-of-the-art web-based online money transfer system. Customers availing of this facility enjoy not only peace of mind in terms of security of their valuable belongings but also one of the most attractive rates and ease of location. HBL offers locker facilities of various sizes as per customer’s preference and convenience of location. Customers can place their LC application in any of HBL branches. The customers enjoy wide correspondent network of HBL in addition to attractive rates. The fees/ charges are one of the lowest amongst the commercial banks of Nepal. It is easily accessible through website of HBL. is a pioneer in the field of retail money transfer business with over a decade long customized service delivery experience in the field. HIMAL Remit Himalayan Bank Ltd. The product is monitored and serviced 24/7 by Remittance Promotion Department of HBL dedicated to deliver fast and reliable services to the customers. HBL offers Letter of Credit (LC) facilities. towns and villages of the country and is capable of paying at more than thousand locations across Nepal which is in ever growing trend as per the demand of local customers and service providers. 29 . It can be directly accessed by all branches and network thus ensuring prompt execution of the remittance. International Banking (LC) To assist its trading customers. Himal Remit has the largest payment network covering all cities. E.

which is open 24 hours. 7 days a week. HBL provides ATM services to their customer. advisor to BODs. Through the customer service department customers fill up the application form to apply for these services. After fulfillment of the application form. staffs and their spouse. Cards Services HBL provides various card facilities to the customers can withdraw cash as well as purchase goods from several merchants. Customers use these cards at any ATM terminal of HBL networks as well as SCT network also. status of cheque (encashed or not). After that pin number issued by the information department is provided to the customer through the customer service department. 30 . F. a bay.Banking and SMS Banking customer can make inquiry for balance and can get the mini statement by using the electronics means and mobile by suing SMS. chairman. Salient Features:  Temporary Locker Facility for client Going Abroad Period: 3 months to less than 6 months 50 percent of annual charge  Temporary Locker Facility for client Going Abroad Period: 6 months to less than 1 year 75 percent of annual charge  25 percent Discount on Annual Rent to PSA Holders  100 percent rebate on key deposit and 50 percent on annual rent to HBL board of members. By using E. SMS Banking and E-Banking SMS Banking allows customers to check their balance. HBL’s foreign exchange rate and contact numbers of branches. the information regarding customer are sent to the information department for further process. The cards facilities by HBL are:  ATMs Card  Credit Card (VISA/Master card)  Prepaid Card  VISA Debit Card G. and 365 days a year.

8 HBL Branches and Networks HBL have totaled 36 Branch networks including branches inside and outside the valley which does operational activities of the banks. It is written undertaking by a bank given to the seller (exporter/beneficiary) at the request and on the instructions of the buyer (importer/ applicant) to pay at sight or at a determinable future date up to a stated of money.3. Letters of credit are often used in international transactions to ensure that payment will be received.1. differing laws in each country and difficulty in knowing each party personally. within a prescribed time limit and against stipulated documents or other conditions. It is also called Documentary Credits. the use of letters of credit has become a very important aspect of international trade. CHAPTER FOUR ANALYSIS OF ACTIVITIES DONE AND PROBLEM SOLVED 4. so letter of credit and documentary credit are used interchangeably in this report. etc. There are 33 ATM locations inside Kathmandu valley and 23 outside Kathmandu Valley. The list of HBL branch and ATM networks are shown in annex 3 and 4. It is concerned in import and export LC issuance (domestic as well as worldwide). Due to the nature of international dealings including factors such as distance. guarantees issuance. The bank also acts on behalf of the buyer (holder of letter of credit) by ensuring that the supplier will not be paid until the bank receives a confirmation that the goods have been shipped. Letter of credit is a bank undertaking of payment. Trade operation centre carried out transaction related to trading business. Kathmandu does all the management activities only. Corporate office located at Kamaladi.1 Need of Letter of Credit 31 . 4.1 Introduction to Letter of credit Letter of credit (LC) department is named as Trade Operation Center in Himalayan Bank Ltd.

1. The seller's objectives are:  Assurances that he will be paid in full within the agreed time limit. It convergence includes: 32 . 4.  Hazards during the shipments. International trade is defined as exchange of goods and services between two or more parties from different countries (an exporter and an importer). trades between two parties (buyer and seller) are made secured by going through the authorized intermediaries i.  To deliver the contracted goods or services as quickly as possible. customs. Because no country is self-sufficient and international trade helps in getting comparative cost advantage.  To receive goods purchased or services required in a timely manner and at the correct place. Thus. documentary credits were emerged for meeting the objectives of the buyers and sellers and mitigate the complexities in international trade. etc. The main purpose of LC is convergence of objectives of both buyer and seller.  Different language.2 Complexities in International Trade  Sellers and buyers are unknown and separated geographically.  Creditworthiness of buyer and seller. banking institutions.e.  Governed by different trade regulations. It builds assurance among the buyer and seller by the involvement of certified financial intermediary. Considering the fact. The rapidly changing world of today is becoming progressively more dependable on technology and networking.  Assurance that he does not have to disburse the seller until he is certain that the seller has fulfilled his obligations properly. business practice. The buyer's objectives are:  To receive the correct quantity and quality of the goods purchased or services required.

In addition. letter of credit spells out the details so that buyers and sellers objectives are fulfilled. he will be paid. if the documents are in order. 33 . For example. importers and exporters might use letters of credit to protect themselves. Banks issue letters of credit as a way to ensure sellers that they will get paid as long as they do what they've agreed to do.3 Advantages of LC  LC provides a specific transaction with an independent credit backing and a clear cut promise of payment  Reduces or eliminates the commercial credit risk since payment is assured by the bank which issues an irrevocable LC . the seller no longer needs to rely on the willingness and capability of the buyer to make payment  Reduces certain exchange and political risks while not necessarily eliminating them  LCs is usually governed by International Chamber of Commerce's Uniform Customs and Practices for LC.  L/Cs call for the exporter to present to a bank documents evidencing shipment or dispatch of the required merchandise for which. Hence. A letter of credit is a promise to pay.  The buyer is confident that the payment will only be made to the seller after the terms and conditions of the LC and UCP rules are complied with. 4.  The buyer will need to know that he has paid for the goods and getting the right goods.  The seller's interest is to get promptly paid for the goods. communication can be difficult across thousands of miles and different time zones.1.  The buyer is assured that the documents presented will be examined by banking personnel knowledgeable in LC operations. So. letters of credit are common in international trade because the bank acts as an uninterested party between buyer and seller. These rules which are periodically have been in effect since 1933 and are the set of universally recognized rules governing LC operations.

authorizes another bank to negotiate against stipulated documents. and other costs and risks. however named or described.4. or to effect such payment. the Nepal Rastra Bank (NRB) has also issued some directives relating import and export that are to be compulsorily observed by the commercial banks while preparation of documentary credits. UCPDC 500 is a set of internationally accepted rules and definitions which cover the liabilities and duties of all parties to documentary credits. The new edition "UCPDC 600" came out in 2007 and was effective from July 01. provided that the terms and conditions of the credit are complied with.2 Basis for the handling of LC Uniform Customs and Practice for Documentary Credit (UCPDC) UCPDC is issued by the International Chamber of Commerce in Paris with a view to facilitate international import and export trade. 2007. 34 . It is in effect since 1933. France and they have been updated six times to reflect the developments in international trade. or is to accept and pay bills of exchange (drafts) drawn by the beneficiary. INCOTERMS are used to make international trade easier. cargo insurance. ii. "DC mean any arrangement. whereby a bank (the Issuing Bank) acting at the request and on the instructions of a customer (the applicant) or on its own behalf. Or. or to accept and pay bills of exchange (drafts).It is periodically revised and amended. The latest revisions are sometimes referred to as INCOTERMS 2000. authorizes another bank to effect such payment. As per UCPDC 600 Article 2. INCOTERMS were introduced in 1936 by the International Chamber of Commerce (ICC) in Paris. Or. Is to make payment or to the order of a third party (the Beneficiary). i. iii. they can sell and buy at FOB without discussing who will be responsible for the freight." International Commercial Terms (INCOTERMS) INCOTERMS are a series of sales terms that are used by businesses throughout the world. Once they have agreed on a commercial term like FOB. They are used to divide transaction costs and responsibilities between buyer and seller. Apart from this.

g. F. F. designated by the first letter of the term (acronym). They may be written with periods (e.O. C and D.g. and fas). and c. 35 . FOB. the predecessor of INCOTERMS 1990 and INCOTERMS 2000. cif.) Many importers and exporters worldwide are accustomed to and may still use the INCOTERMS 1980. fob.g. trade terms are written with either all upper case letters (e. CIF. CFR.B.i.There are thirteen INCOTERMS that are used by businesses and are used in four different areas as E. and FAS) or all lower case letters (e. Insurance and Freight CPT Carriage Paid to CIP Carriage and Insurance Paid To DAF Delivered at Frontier D DES Delivered Ex Ship DEQ Delivered Ex Quay DDU Delivered Duty Unpaid DDP Delivered Duty Paid In practice. cfr. They are: Group Term Stands for E EXW Ex Work FCA Free Carrier F FAS Free Alongside Ship FOB Free on Board CFR Cost and Freight C CIF Cost.f.

Advising Bank (Correspondent bank) . iv.A bank named in or otherwise permitted by the terms and conditions of the letter of credit to receive a presentation of documents. customarily a bank nominated to pay is also authorized to repay itself in advance sending documents. The advising bank can also be a confirming bank. Beneficiary (Seller) – The beneficiary is the seller or exporter in a commercial transaction in whose favor the letter of credit is issued. Confirming Bank . In almost all cases. It proves the beneficiary that the credit is genuine. Issuing Bank . the applicant maintains an account relationship with the issuing bank. vi.A nominated bank authorized to give value by negotiating the beneficiary’s draft drawn on the issuing bank. Applicant (Buyer/Opener) . v.The banks which at the request or with the consent of the issuing bank add its own undertaking to honor the letter of credit are said to be confirming bank.A nominated bank authorized to give the value by paying the beneficiary’s presentations of documents. which informs the beneficiary. viii. that another bank has issued a letter of credit in its favor. the Issuing Bank. Nominated Bank . to the issuing bank without giving value to the draft or if it wishes can give value to the drafts.The applicant’s bank that issues its written undertaking to the beneficiary in the form of the letter of credit.4. vii.The bank usually in the beneficiary’s country. iii. Paying Bank or Reimbursing Bank . Negotiating Bank . The nominated bank can either send the documents received from the beneficiary. It has no liability on the part of advising bank to honor the credit. since the advising bank has to satisfy itself that the credit is properly authenticated by the issuing bank.3 Parties to Letter of Credit The various parties involved with a letter of credit are described below using letter of credit terminologies: i. ii.The applicant is the buyer or importer in commercial transactions who asks his bank. 36 . to issue a LC.

A revocable letter of credit cannot be confirmed. Some banks even refuse to issue such LCs because of the fear of getting involved in the possible legal action between the buyer and the seller. This is often used in international transactions. Revocable and Irrevocable Letter of Credit Revocable Letter of Credit: LC that may be amended or canceled any time by the buyer (the account party) without the approval of the seller (the beneficiary) up to the moment of payment by the bank. ii. it is rarely used. Unconfirmed Letters of Credit: In contrast to a confirmed letter of credit. The applicant should mention the required type at the time of opening the Letters of Credit. Confirmed and Unconfirmed Letters of Credit Confirmed Letter of Credit: LC in international trade guaranteed by a second bank. But various types of LC issued they are discussed below: i.4 Types of Letter of Credit All Letters of Credit are issued in either a “revocable” or an “irrevocable” form and an either “confirmed” or “unconfirmed”. the document would be called unconfirmed LC. then it is said to be revocable LC. Since it does not provide any protection to the seller. confirming Bank (if the Letter of Credit is confirmed) and the beneficiary. Irrevocable Letter of Credit: LC that is legally-bind and cannot be canceled or amended without the agreement of the parties (issuing Bank. then they are called irrevocable LC. 37 . involved in transaction of documentary credits. This guarantees that a buyer's payment to a seller will be received on time and for the correct amount. in addition to the bank originally issuing the credit. The confirming bank agrees to pay or accept drafts against the credit even if the issuer refuses. A confirmed letter of credit also protects against unfavorable exchange regulations and shortages of foreign currency in the importing country. 4. It is used when the issuing bank of LC may have questionable creditworthiness and the seller seeks to get a second guarantee to assure payment. if the seller does not seek the second guarantee.

It is also called a performance bond. Sight and Deferred Letters of Credit Sight Letter of Credit: Letter of credit that represents an obligation by the issuing bank on a designated third party (the beneficiary).g. It may be more efficient and cost effective. iv. It is also called Usance LC. it is revolving letter of credit.iii. after 90 days) after shipment or presentation of prescribed documents. In case of Sight LC. Revolving Letter of Credit If an applicant and a beneficiary agree to ship goods on a continuing basis. payment should be made to supplier or beneficiary within seven workings days after the receivables of documents after arrival of goods. that is contingent on the failure of the bank's customer to perform under the terms of a contract with the beneficiary. Deferred payment LCs may be opened up to 1 year. Usance LC allows 7 business days to review the documents for discrepancies before accepting or rejecting the documents. then it is said to be deferred LC. v. the payment is made in installments for purchase of heavy machine and other capital goods. These funds are known as advances deducted from the face amount of the draft when the beneficiary presents the letter for payment. Under this credit. A deferred payment letter of credit differs from a sight LC in that no grace period is provided. the payment is guaranteed on the stated date. These letters are commonly used by beneficiaries who 38 . Red Clause Letter of Credit A specific type of LC allowing the beneficiary of a documentary credit to receive funds for the purchase of goods described in the credit. a special documentary credit is issued for handling multiple shipments renewable over an extended period of time. It is used where a buyer and a seller have a close working relationship because the seller is financing the purchase by allowing the buyer a grace period for payment. Deferred Letters of Credit: A letter of credit that is paid after a fixed number of days (for e. and may revolve in relation to time or value. The revolving LC may be revocable or irrevocable.

In this arrangement. act as purchasing agents for buyers in another country. in advance of the shipment or before presenting the prescribed documents. Transferable Letter of Credit: An irrevocable letter of credit with two (and only two) successive beneficiaries that permits the beneficiary of the letter to make some or all of the credit available to another party. Back-to-Back letters of Credit: It is a seller financing tool where seller goes to his bank for amendment of the master LC and gets issued another LC in favor of the main supplier. Any other bank willing to negotiate the document under the letter of credit should seek consent of the issuing bank. the reimbursing bank will release payment only to the negotiating bank. 39 . and then they are called restricted documentary credits. Transferable and Back-to-Back Letters of Credit Transferable and back-to-back LC is issued if the beneficiary of a LC may not be the actual manufacturer of the goods but may be playing the role of middleman. It carries a provision that is written or typed in red ink which allows a seller to draw up to a fixed sum from the advising or paying-bank. vi. Under this. thereby creating a secondary beneficiary. vii. The transfer of credit must be clearly outlined in the documentation of the letter and the bank issuing the letter of credit must approve the transfer. Restricted Letters of Credit Letter of credit where negotiations are restricted to the bank chosen by the bank issuing credit. It is a LC where main buyer does not get to know that that main supplier and the advising bank of the first LC becomes the issuing bank of the second letter of credit. the first beneficiary (an intermediary or importer's foreign representative) can assign part or whole of the L/C amount to a second beneficiary (the supplier or manufacturer). It is an arrangement in which one irrevocable letter of credit serves as the collateral for another. The party that initially accepts the transferable letter of credit from the bank is referred to as the first beneficiary.

UCP 600 devotes article 34 . Pro forma invoices are commonly used as preliminary invoices with a quotation. or for customs purposes in importation. Insurance Policy: The exporter should be able to produce Insurance Policy document in case the goods are shipped under CIF and C&I arrangement. and other important information such as weight and transportation charges. Export / Import Licences: This is the proof that the appropriate governmet has given authority to company for import and export of the goods. It notes the kind and quantity of goods. Under UCPDC. vi. requiring the drawee to pay a sum of money on demand or at a specified future time to the payee (who might be the drawer or another party) or to the bearer. ii. addressed by the drawer to the drawee. Bills of Exchange: A bill is an unconditional order in writing. In case of international trade documents required for trade operation are described briefly below: i.5 Important Documents Required in LC Operation These refers to documents that exporter has to prepare in order to send the goods to other country for the other person. Airway Bill: Airway bill is issued by the transporting airlines as a receipt of the merchandise for delivery up to the specified point. Bill of Lading (B/L): This is a ddocument signed by a transportation company ("carrier") to show receipt of goods for transportation from and to the points indicated. The cover notes issued by the broker are not acceptable. They differ from a commercial invoice in not being a demand or request for payment. Bill of exchange under a LC is issued as per the terms of the LC. iv.36 to this document as it is of very complex nature. iii. 40 . their value. Pro-forma invoice: An abbreviated or estimated invoice sent by a seller to a buyer in advance of a shipment or delivery of goods. v.4. insurance cover of the shipped goods should be at least 110% of the CIF value covering all risks stipulated in the LC. It is also called draft.

It gives following details of the products required for LC issuance:  Certificate of Origin: It is document issued by the respective Chamber of Commerce certifying the manufacturing country of the merchandise. It states that the buyer is liable to pay the amount of goods he/she has imported within the specified period of time.  Weight list / Weight certificate: The weight or quantity or packets should also agree with the commercial invoice and transport document. The pro-forma invoice details and the commercial invoice details should match each other. description of goods. The number of packages.  Inspection Certificate: This is the merchandise inspection certificate issued by a nominated/authorized agency as to the correctness of the goods shipped as per the LC. viii. and should agree with the commercial invoice and transport document. rate and amount is specified along with the 8 digit harmonic code. vii. quantity. The UCP has not required certification by a Chamber of Commerce. Amendment and Cancellation 41 .6 Letter of Credit Opening Procedures. Promissory Note: This note is drawn up by the buyer and given to the seller. Commercial Invoice: The commercial invoice is a document that is send to the bank by the beneficiary’s bank after the goods has been shipped. 4.  Packing List: It is a document showing the way the merchandises are packed.

6.1: Steps in LC Issuance The detailed about issuing procedure of letter of credit are briefly explained below indicating addressing HBL as issuing bank and beneficiary's bank as advising bank.1 Letter of Credit Opening Procedures The processes involved in letter of credit issuance are diagrammatically shown and discussed below: Fig 4.4. Agreement between Buyer and Seller 42 . i.

Inspection includes checking about date of application. The buyer (known in the Letter of Credit as the "Applicant") informs the seller (known in the Letter of Credit as the "Beneficiary") that the purchase order is acceptable. The request for opening of Letter of Credit should is made by the customer in writing in the prescribed Letter of Credit Application Form. Buyer and seller agree to terms including means of transport. For that reason. it comprises certain 43 . beneficiary's name. Preparation of Approval Sheet After the completion of inspections of the application documents. and ask further to open it. The seller will communicate the letter of credit terms to the customer. and latest date of shipment acceptable. it is scrutinize properly by the employees of the LC issuing bank. They should follow the instruction of filling up the application which is either given by employees or follow written rules in the application form and a copy of application form should be handed over to the customers requesting opening of Letters of Credit. The application form should be filled up clearly and precisely and preferably typed or legible handwritten (all capital letters) along with signature and stamp. Application by Buyer in Writing The buyer arranges for the issuance of the letter of credit visiting his bank. issuing bank may request to the customer for collateral and margin deposits depending upon the creditworthiness of the customer. type of LC requested. means specified for shipments. harmonic code of the goods. pro- forma invoice and its amount. iii. ii. period of credit offered (if any). description of merchandise model. The seller sent the pro Forma Invoice to the buyer. Because letter of credit is an undertaking issued by the bank in favor of a beneficiary by which the bank substitutes of the applicant by promising to honor (pay) if the documents specified in the letter of credit are timely presented. iv. and documents for consignment of goods. Scrutiny of Application Form After getting the application for opening of LC. expiry date of LC.

degree of risk element for the bank in case of the failure on the part of the applicant to pay the amount to the bank. since such banks may be different for currency-to-currency and country-to- country of exporting beneficiaries. Informing by Advising Bank to the Beneficiary 44 . LC is issued and sent by the Issuing Bank to an Advising Bank in the country of the Beneficiary. authorized signatures will be handed over to the applicant together with debit advice of the client accounts for the margin.e. vi. which will be approved by the competent authority. Letter of Credit department prepare the text of message in system software of the bank (i. For carrying out this process. Special care should be taken for nominating the Advising Bank to advise issuance of L/C. Preparation of Letter of Credit Message After completion of above steps. v. commission and other charges. In case of Letter of credit to be opened or advised through Swift. customer relation department of HBL) for approval of the credit limit of the customer for opening the LC. safeguard against such possibility that the bank should seek collateral security and some amount in cash margin. GLOBUS (T24 software) is used by HBL). Special care should be taken for stipulating additional terms and conditions besides the other terms and conditions imposed by applicants the other necessary terms and conditions should be added by the bank as per the requirements. Therefore. the specific LC opening procedures starts.e. A copy of swift LC with necessary stamps. viii. Calculation of Charges and Informing the Customer The required margin. approval sheet is forwarded to credit department (i. commission and swift or telex charges for opening LC has to be agreed with the customer before opening LC. Issuance of LC and Sending to Advising Bank The Letter of Credit message is prepared. vii.

It includes letter of credit application form. The seller can now begin preparation of documentation required under the Letter of Credit terms. the beneficiary should request an amendment to the Letter of Credit. The main role of an advising bank is to check the authenticity of the Letter of Credit before it is advised to the beneficiary. message should be send through other mechanisms. xi. A separate file should be maintained for each documentary credit opened. approval sheet and charge sheet for L/C opening/amendments and SWIFT message will be filed serially on such file. is checked for accuracy. pro-forma invoice copy. Merchandise Ready for Shipment and Documentation by Seller Once the Letter of Credit is in order and the shipment is ready for export. who then instructs the Issuing Bank to amend the Letter of Credit. and presented to the Negotiating Bank (the Negotiating Bank may or may not be the 45 . ix. it is the duty of the letter of credit department to monitor receipt of original message of opening of LC transmitted to correspondent bank or advising bank. Filing of Office Copy by Issuing Bank The necessary filling of the LC opened is made for the future reference of bank. If not. x. After goods have shipped. by fax. or by mail. it will be informed to the supervisor for initiating immediate action for making necessary rectification and improved LC message is forwarded again to the advising bank. either electronically. The advising bank then sends a copy of the Letter of Credit to the beneficiary. If any difference in message is noted by the advising bank. This request is made either directly to the advising bank by beneficiary. the beneficiary ships the goods to the freight forwarder. the transport document is acquired by the beneficiary. Confirmation of LC Message by Issuing Bank After transmission of the message. and import license copy if any required and other related documents and check list. matched up with other created documentation. If the Letter of Credit has terms that are not per the agreement.

then forward the appropriate documents to the Issuing Bank for payment. In case the discrepancies are waived or accepted by the applicant or the discrepancies are corrected by the beneficiary and documents presented again after necessary correction made or in case of clean documents presented. so that the buyer can claim the goods from the carrier. 3 and 4. Insurance Documents xii. Receipt of documents by Issuing Bank The bank shall accept LC documents received through the correspondent bank only. xiii. same as the Advising Bank. the documents should be handed over to the applicant. Release of documents by Issuing Bank Against the receipt of requisite cash or approved credit limit from the customer. The L/C Department shall examined the document so received thoroughly and verify with the terms and conditions stipulated at the time of opening the L/C. Pro forma Invoice b. BBN form No. The documents sent by the seller are: a. the documents will be fit for payment. Advising bank.) The Negotiating Bank checks over the documentation and advises any problems they may find with the paperwork. depending on the terms of the Letter of Credit. cheques for goods release required for customs purpose including copies of amendments also 46 . Certificate of Origin c. Commercial Invoice and Packaging List d. They issue payment to the beneficiary. Bank releases the all the documents (including transport document). Transport Document e. depending on the requirements of the Letter of Credit and the wishes of the Beneficiary. Payment to the beneficiary and forwarding documents to issuing bank by advising bank The Advising Bank (if advising bank and negotiating bank is same) checks over the documentation and advises any problems they may find with the paperwork. xiv. The copy of Letter of Credit.

B. B.3 Cancellation of letter of credit Since the LCs opened in HBL basically are Irrevocable in nature the LC cannot be cancelled through just one party. the increment or the decrement in the LC by certain amount remaining other terms and conditions unchanged.2 Amendment of Letter of Credit If the client finds a need of change in the LC then the amendment is required.6. negotiation date. Payment Release to the Advising Bank The Issuing bank debits the buyer or applicant account and credited the advising bank account. The buyer can cancel the LC before the goods have been shipped by the seller.6. The amendment form containing the Reference No. 4. 4. The revised/additional Pro-forma Invoice has to be submitted. xv. of LC. In an LC there may be a discrepancy in the Pro-forma invoice and the commercial invoice and it cannot be considered then the amendment is required.7 Introduction to the Bank Guarantee 47 . 4. HBL clearly check whether the amendment do not violate any NRB directives and hold a valid reason with it. For this the client has to request for amendment and the letter should be signed by the authorized person. the detail information about the beneficiary is also required. for the cancellation of LC the consent of both parties is required. After the release of payment to the advising bank import LC procedures finish. No 3 should be filled and signed properly. N. are provided with duly stamped as “certified copy of original L/C” to the applicant. There can be various personal as well as business problem which lead him to cancel and LC. but if the seller has shipped the goods then he would not agree to cancel the LC. This form is basically filled if there is a need of change in the extension in latest shipment date.

the bank will cover it. committing that the bank will pay up to guarantee amount upon claim of the party as per terms and condition mentioned of the guarantee. some guarantee allows the beneficiary to claim for certain period after maturity of guarantee. at the request and on behalf of its customer.Bank Guarantee is the non fund based fee generating service of the bank. buy equipment. 4.  Bank / Issuing Bank .7.1 Parties and terms Involved in Bank Guarantee  Applicant . Such period is called a claim period. 4.The party who requests to its bank to issue guarantee. or draw down loans.2 Processing of Bank Guarantee 48 .7.Validity of guarantee is the expiry or maturity date of guarantee. The beneficiary to claim within the validity date. and thereby expand business activity.The bank who issues guarantee to the beneficiary. A bank guarantee enables the customer (debtor) to acquire goods. Generally. In other words. the parties involved in business transactions may seek security for their transaction / contract / commitment.  Beneficiary . to the party. Bank Guarantee is used as an instrument by business partners to strengthen and/or secure an obligation in their contract. To fulfill this requirement. a guarantee from a lending institution ensuring that the liabilities of a debtor will be met. if the debtor fails to settle a debt. bank issues the guarantee.  Validity . However.The beneficiary is the party to whom guarantee is issued.

ii. bank guarantee is an undertaking issued by the bank in favor of a beneficiary in behalf of applicant by promising to honor (pay) the claim against 49 . The details of the credit limit of customer are obtained from the Credit Department (i. Application in writing The request for issuing of guarantee should be made by the HBL account holding customer in writing in the prescribed bank guarantee application form. approval Sheet for issuing of bank guarantee should be completed. Scrutiny of Application Form When the properly completed guarantee application form is presented at the LC department of HBL by the customer. if any  Date of Application  Overwriting and cutting has been authenticated  Signature and office seal of the applicants iii. Request for collateral and margin deposits As.e. Customer relation department in HBL) and the outstanding liabilities on Guarantee are worked out in the department itself. Basically details of the applicant’s or the customer’s outstanding liabilities towards the bank are mentioned in the approval sheet. Scrutinizing involves checking information filled in the application such as:  Name and Address of the Applicant and Beneficiary  Nature of the guarantee required  Amount of Guarantee  Validity of Guarantee  Contract number and Date and Details of contract number. The competent authority will check the approval Sheet and get it approved by the authorized officer of the department. A guarantee application is completed by the applicant and is submitted to their bank. the application will be scrutinized. iv. i. Preparation of Approval Sheet After thorough scrutiny of the application and documents presented and signatures verified. The applicant requesting for bank guarantee shall clearly indicate the type of the bank guarantee and the relevant document (of the beneficiary) supporting demand for such guarantee.

even if that results in overdrawing of the account balance. The specimen format might be changed in case the applicant request for special type of guarantee as demanded by the beneficiary. Commission and other charges Margin. Therefore. vi. ix. HBL request for collateral or margin deposits for issuing the bank guarantee depending upon bank policies and creditworthiness of the customer. viii. vii. failure on the part of the applicant to fulfill the specified obligation. Preparation of Bank Guarantee Letters of Guarantee type wise shall be prepared as per the requirements of the applicant. The guarantee application form including contract paper and other related documents and. approval sheet and charge sheet for guarantee issue /amendments will be filed serially in the file. Calculation of Margin. Filing on the office copy The particulars of Bank Guarantee as given in the column of the register shall be entered in the register maintained type wise of the Bank Guarantee. with a note that the guarantee claim will be settled by debiting his/their current account maintained with the bank. A separate file should be maintained for each guarantee letter issued. Suggestion to the Customer (Applicant) The Customer shall immediately be informed as to the receipt of claim on the guarantee. if any applicable to Bank Guarantee transaction as decided by the management from time to time will be calculated and noted and initialed in the application form. v. Commission and other Charges. the department has to present the draft copy of the guarantee to the Legal Department of the bank for “No Objection” initials. Approval and Settlement of Guarantee 50 . Before issuing of such special type guarantee. The original copy shall be delivered to the beneficiary and 2 nd copy shall be the applicant copy and handed over to them and 3rd copy will be retained by the bank as office copy.

 Typing the different documents if staffs are in rush. The guarantee amount shall be paid made by using the cash margin money placed by the customer relating to the guarantee. the Margin Amount has to be refunded with adjustment for charges as well as recovery of outstanding receivables or payables. During the internship period. with the applicant. Refund of Margin Money When the guarantee is released or cancelled. a message shall be raised requesting approval for settlement of the claim. manager’s cheque shall be drawn in favor of the beneficiary and shall be delivered to them against receipt of such cheque.8 Problem Solved LC is a complex and one of the vital department in banking institutions which requires deliberation and appropriateness as it is concerned with international trade. CHAPTER FIVE CONCLUSION AND LESSONS LEARNT 5. x.  If necessary forwarding documents to SWIFT department of HBL.1 Conclusion 51 .  Getting photocopies done from other departments if problem arise in photocopy machine in LC department. After approved of the message. 4. if the claim is found reasonable.. Inspection. Problems are non-detachable terms in LC where different complexities arise. if any complication arises forwarding it to responsible person. if any.  Helping the HBL customers to fill up forms.  Finding the missing documents and filling them in appropriate files. the following problems were solved.  Providing information to the customers of HBL who have to open letter of credit and guarantees and do not have ideas about it.

my focal point of study was the Letter of Credit department. The main mission of the bank is to become the preferred provider of 52 . As the Nepal is the member WTO. It has promoters with 51% shares. for two months. It is one of the strength of HBL as it provides very critical service to public and generates good revenue for the bank. Habib Bank 20%. To do this HBL has been positioning itself in the hearts and minds of the customers. it is not narrowed to that much. I got to learn various activities in banking business. The bank has been providing very proficient and complete service to the customers. It is therefore focused on the activities learned in Letter of Credit department among the different departments of HBL. The internship done at HBL was great experience to learn theoretical aspect of banking and finance. Currently. payment and guarantee and among them I have shown my keen interest on LC and guarantee. Himalayan Bank Ltd. This report is prepared on the basis of internship done in the Thamel Branch of HBL. a number of challenges have emerged. Although primary function of banks accepting deposits and advancing loan. it needs to have strong economic growth to compete in the global market. export. Along with the expansion of the financial institution. It is involved in various activities such as trade operation. Employee Provident Fund with 14% and remaining 15% by the general public's. Letter of Credit Department is the trade operation centre of the HBL. the financial system consist more than 270 financial institutions licensed by Nepal Rastra Bank. remittance facilities. LC department of Thamel branch is corporate section for trade related activities that is facilitated by bank. However. The major units at HBL are LC issuance. It has been in operation in Nepal since 1993 when it was registered as a joint-venture operation with Habib Bank Limited of Pakistan. This department is concerned with issuing letter of credit for domestic and international trade and issuing bank guarantee. (HBL) is one of the leading commercial bank in Nepal at present. Banks are the financial intermediaries which bridges gap between the savers and users of fund. etc.Financial development has accelerated economic liberalization initiated in the country in the mid-eighties. providing utility servicers.

2 Lesson Learnt This internship report is based on internship done at HBL. I have gained lot of experiences from the internship in HBL. I was able to learn different services and products that are delivered by bank. in recent years.  Learned about time management skills in organization. The LC and guarantee operation of the bank has served the general people and business houses in import and export of goods and services. trade operations have been playing a vital role in the country's economic development by relaxing the foreign exchange constraints and strengthening the balance of payments. Among the different services. But. 53 . among others which is acknowledged after doing internship. Thamel Branch from June 5. This internship program helps me to learn professional attitude for future prospects and to learn practically apart from academic courses. organizational culture. 2011 to August 4. 5. During this period. etc. as the trade operation of HBL were centralized and found the problem of lack of space. 2011 to know the various processes and working environment of banking in real life. I also found that there were a lineup of applications for international banking. During my stay in the letter of credit department of HBL. nature of organizational problems.quality financial services in the country and to become a leading bank of the country by providing premium products and services and then ensuring attractive and substantial return for the stakeholders. which was my first experience in banking sector. In Nepal's case. I found that trade operation centre render proper services to the customers along with generating suitable proceeds for the bank. HBL’s trade service has played a vital role in the development of international trade of the country. The following are the major lessons learnt basically in letter of credit department and other departments during internship period:  Acquired good communication skills required for handling customers at the bank. Overall I had a great experience while doing internship in HBL with cooperative staffs and other intern friends and learnt the functioning of banking business.

account movement advices.  Learned to be communicative with experts and various natured people as well as built self confidence.  Learned the preparation of Approval Sheet. it was great experience doing internship in HBL for accumulation of practical exposure in the banking sector. which are required in trade operation center in HBL. Forms. 54 . Ni. Many other minor things which we ignore count most in an organization. LC messages. B.  Learned the chronological filing of documents. customer relation and credit management and administration along with products and services of HBL.  Learned the information filling and scrutiny process of the application forms and other documents of LC and guarantee required in HBL.  Understanding the organizational culture of banking institutions. bills and remittance. etc.  Learned about functions of different departments such as customer service. scanner. photocopies. Overall.  Learned how to prepare different documents such as to operate office equipments like fax. HBL is growing in the Nepalese market by providing very efficient services to its clients. etc required in operation of various activities in banks.B. cheque writer.